A $9.5 trillion investor group unveils emissions cuts

Institutional investors with a total of $9.5 trillion in assets say they have reduced portfolio emissions at a rate that aligns with the goal of limiting global warming to the critical 1.5°C threshold.

The Net-Zero Asset Owner Alliance, whose signatories include Allianz SE and the California Public Employees’ Retirement System, said in a statement on Wednesday that the reduction in greenhouse gas emissions recorded by its 88 members was at least 6%, on average, annually since 2018. At this rate, the group will be able to meet the goal enshrined in the Paris climate agreement to reach net zero emissions by mid-century.

If others followed the alliance’s lead, “it would change the cost of capital for companies that didn’t act fast enough,” said Jesica Andrews, who leads the investment practice at the United Nations Environment Programme’s Financing Initiative, which is the UN unit that convened the alliance of asset owners.

Addressing portfolio emissions has proven a highly complex issue for financiers seeking to meet their climate commitments. Some question the value of aiming for a net-zero portfolio when the rest of the world is headed for catastrophic levels of warming. The distinction between portfolio decarbonisation and real economy decarbonisation has fueled debate in the wider financial industry as a number of large investment managers declare such targets unrealistic.

NZAOA, a coalition of pension funds and insurance companies that was created half a decade ago, has not provided a breakdown of emissions reductions for each member, although a separate progress report is due in October. Last year, the group said asset owners were using several different strategies to decarbonize their investment portfolios, including reallocating capital to green companies and selecting the best carbon performers from high-emitting sectors.

Remco Fischer, climate leader at UNEP FI, ​​says the progress made by NZAOA is “a cause for celebration”. That’s because it “sends a strong signal” that emissions cuts are possible and there is a contingent of investors working to deliver them.

“There is no actor who can solve climate change for humanity,” Fischer said in an interview. “What the whole society and the economy can do is figure out what our role is in it. This group of investors is doing their part to make the Paris Agreement happen, and if everyone did the same, we would make progress.”

That said, the private sector can only go so far without ambitious emission reduction targets from governments, Fischer said. For this reason, NZAOA calls for “urgent action by policymakers to accelerate action to address climate change and facilitate the unlocking of capital for a just transition to net zero,” according to Wednesday’s statement.

“The cost of inaction remains much higher than the investment required for a complete transformation,” said Günther Thallinger, president of the NZAOA, in a statement. “A transformed economy will be cheaper, healthier, more stable and safer than what we have today. We therefore urge governments to act urgently and decisively to enable a policy environment conducive to 1.5C pathways.”

The Net-Zero Asset Owner Alliance is one of the member alliances of the Glasgow Financial Alliance for Net Zero. GFANZ is co-chaired by Mark Carney, Chairman of Bloomberg Inc. and former governor of the Bank of England, and by Michael R. Bloomberg, founder of Bloomberg News, parent of Bloomberg LP. Members of the group have committed to individually transition their investment portfolios to net zero greenhouse gas emissions by 2050 and set interim decarbonisation targets every five years.

Photo: Emissions rise from the Santee Cooper Cross Generating Station coal-fired power plant in Pineville, South Carolina at sunset on Wednesday, March 21, 2018. Photo credit: Luke Sharrett/Bloomberg

Copyright 2024 Bloomberg.