UNEP: Major investors to reduce portfolio emissions 25-30% by 2025, inaugural Net-Zero Asset Owner Alliance Progress Report finds

Less than two weeks away from COP26, the UN-Convened Net Zero Asset Owner Alliance launches its inaugural, biennial Progress Report, highlighting that 29 of its member investors have committed to reduce portfolio emissions by 25-30% by 2025 across three asset classes. This range is higher than the targets set by the inaugural Target Setting Protocol, published in January (-16 to -29% by 2025).

The Alliance also welcomes six new members for a total of 56: Japan’s Nippon Life, Sumitomo Life and Meiji Yasuda Life Insurance announced membership 15th October 2021, while the Netherlands’ Pensioenfonds Detailhandel, Germany’s SparkassenVersicherung, and Austria’s UNIQA announced today.

The Alliance has grown in just two years from 12 members managing US$2.4 trillion to a membership of 56 investors, collectively managing US$9.3 trillion in assets. With further new members in the pipeline, it is on track to reach US$10 billion assets under management (AUM) by COP26.

The three new Japanese insurance companies joining the Alliance come after Dai-ichi Life Insurance Company joined in March, marking a significant expansion into Japan. The Alliance welcomed its first Africa-based member last month, when African Risk Capacity Ltd, a specialized agency of the African Union, joined.

Only asset owners that commit to achieving net-zero portfolios by 2050, and that establish intermediate targets every five years in line with the Paris Agreement’s goal of limiting warming to 1.5°C, can participate in the Alliance. This represents a rapid growth in asset owners leading by example, and not asking of real economy companies what they aren’t already asking of themselves.

“Today, 61% of the world’s countries and one-fifth of major corporations have some kind of net-zero commitment. This signals a real appetite for change from both private and public sectors. But now, the ask is for us to move to 100% net-zero and translate commitments into immediate actions thereby delivering actual, measurable decarbonization and economy-side transformations. Asset owners are in a strategic position to make that happen by scaling up finance solutions, engaging with corporates and policymakers and shifting capital towards the sustainable solutions of tomorrow. This report provides a clear framework for how asset owners can play their part in the urgent challenges in front of us. I look forward to the actions that arise from it” said Inger Andersen, Executive Director of UNEP.

Members’ first ever short-term decarbonization targets

The Progress Report, launched at the Net Zero Future: Credible Ambition and Solutions roundtable with Selwin Hart and UN Climate Envoy Michael Bloomberg, outlines the intermediate emissions reductions targets set by investors as part of the 2025 Alliance Target Setting Protocol. The Protocol guides how individual members will set science-based emission reduction targets, achievable in the next five years, informed by IPCC 1.5°C no and low overshoot pathways.

These interim targets have been submitted by 29 Alliance members, as newly joined members in the last 12 months are yet to record their targets. Members have 12 months from joining the Alliance to set their interim targets, with the cut-off point for inclusion in the Progress Report being 30 June 2021.

Günther Thallinger – Allianz SE Board Member & Chair UN-Convened Net-Zero Asset Owner Alliance said: “The Alliance was formed because we believe asset owners have a unique role in the global economy and financial systems. We want to signal that we are ready to work on the development of assets. We are willing to bring sustainability targets at the level of financial targets and are ready to work on the long-term transformation of the economy. We also want to show that we are prepared to lead the way by first changing ourselves and then to reach out to others to join us.

We encourage all asset owners to join us in our commitment to align our portfolios with a 1.5°C no/low overshoot trajectory, to set interim targets and to work together towards a sustainable future.”

Fiona Reynolds, CEO at the Principles for Responsible Investment, said: “As COP26 rapidly approaches, increased investor commitment and action in the race to net zero is critical. The release of the Asset Owner Alliances’ progress report highlights the initiative’s continued growth. Members are not just calling on others to act but are starting to pave the way, by aligning their own portfolios and practices with net zero – including by publishing 2025 interim targets. This focus on near-term goals is vital in driving timely action on net zero and ensuring targets are hit by 2050. This work can serve as a clear example of emerging good practice and is well placed to provide a blueprint for firms across the investment landscape on how to effectively report their progress. However, we need to go further faster, and hope the momentum of the Asset Owner Alliance will help to inspire greater action from investors as well as businesses and governments at COP26.”

Michael R. Bloomberg, UN Secretary General’s Special Envoy for Climate Ambition and Solutions and Founder of Bloomberg LP and Bloomberg Philanthropies, said: “Just days away from the G20 Summit and COP26, more major investors are stepping up to set bold short-term targets and accelerate the urgently needed transition to clean energy. The Asset Owner Alliance is growing because firms recognize that building strong economies and fighting climate change really do go hand in hand. And the more that nations collaborate with the private sector in raising their climate ambitions, the faster the world can achieve both the economic and health benefits of net-zero emissions.”

The 29 out of 56 Alliance members have committed to:

reduce emissions by 25-30% by 2025 across all listed equities, corporate bonds and real estate, all three asset classes currently covered in the Alliance’s sub-portfolio target methodologies.
reduce emissions by an average of 24% for real estate when set as a stand-alone target on the asset class or in line with what is required by the national grid using CRREM pathways, which is sometimes less than required by global average reductions depending on the efficiency of the grid, etc.
Financing change, engagement and policy tracks

In addition, as part of the Alliance’s Financing Transition’ track, the Alliance requires members to report progress in the amount of financing they have provided to climate solutions. The Progress Report reveals asset owners are currently invested in climate solutions an average 4% of AUM.

The report also gauges progress against other tracks covered by the Alliance’s work.

Within its Engagement track, asset owners plan to support an average of 34 collaborative engagements by 2025. Members also say they expect on average 123 of their investees to have an SBTi-approved target following their engagement or have committed to a 2050 net zero goal.
In a progress update on the Alliance’s Policy track, the Alliance has provided recommendations for governmental carbon pricing, suggesting current carbon prices need to almost treble by 2030 to achieve net zero, while also considering the imperative of a just transition.
As part of the Monitoring, Reporting and Verification (MRV) track, the Alliance continues to advance its Target Setting Protocol on an annual basis by adding additional asset classes such as infrastructure and sovereign debt, achieving greater granularity in metrics and specification of approach to the asset classes already in scope. The Alliance is conducting until 29 October a public consultation on the Target Setting Protocol, bringing complete transparency to how the members set interim targets