As New York Climate Week gathers momentum, the UN-convened Net-Zero Asset Owner Alliance launches its second-ever Progress Report, showing significant membership growth matched by credible intermediate decarbonisation targets. On the Alliance’s third anniversary, the membership stands at six times what it was during its formation in 2019.
Now counting 74 institutional investors, the Alliance represents over US$10.6 trillion in assets under management (AUM).
According to the Alliance’s Commitment, members have 12 months after joining to publish intermediate targets. This year, 44 members are setting short-term targets, meaning two-thirds of the Alliance’s total AUM – $7.1 trillion – is under its concrete target-setting framework, aligned with IPCC’s no- or limited-overshoot scenarios.
The report evidences that across all four target-types (Engagement, Sub-portfolio, Sector and Financing Transition), the Alliance’s membership has raised its ambition. All members are required to set targets on three out of the four types.
On Engagement, Alliance members are demonstrating leadership through direct and coordinated engagement with companies and asset managers. Most engagement key performance indicators saw an increase between 2021 and 2022. Most impressively, the number of investee companies adopting science-based targets has more than tripled in the last year to 122, from 35 in 2021.
There are now 41 members that set Sub-portfolio targets – committing to reduce portfolio emissions across four asset classes for which target-setting methodologies exist (listed equity, publicly traded corporate bonds, real estate and infrastructure) by at least 22% by 2025 or by at least 49% by 2030. The number of AUM under sub-portfolio targets has more than doubled to $3.3 trillion, from $1.5 trillion last year.
Sector targets are set on Transportation, Materials, Utilities, and Oil and Gas in line with sector decarbonisation models and pathways such as the International Energy Agency’s (IEA) Net Zero by 2050 roadmap and the One Earth Climate Model (OECM).
Twenty percent of the members that submitted targets set sector targets and the targeted reduction averages varied between 20 and 33 percent based on the sector. The Alliance aims to increase the number of members setting Sector Targets and believes the key is closing the sectoral data deficit. That is why the Alliance is releasing an Urgent call to action to companies and data providers alongside the progress report.
The absolute value invested in climate solutions, committed under the Financing Transition Target, has increased by nearly three times with the membership growth, to a total of $253 billion this year. The largest portion of climate solutions investments is in certified “green” investments, such as green bonds, renewable energy and real estate sectors.
The members’ target setting is scrutinized through the Accountability Mechanism, based on the ‘follow guidance or explain’ principle. Failure to comply results in a request for clarification and categorisation of the member under the traffic-light system and should the need arise, in delisting.
Günther Thallinger, Chair of the UN-convened Net-Zero Asset Owner Alliance, said: “The members of the Alliance are holding themselves to account through concrete, near-term, science-based climate targets, and putting themselves in a strong position to benefit from the vast opportunities in climate-related investments. We hope this will encourage more asset owners to join us in aligning their portfolios with a pathway that keeps global warming to 1.5°C. We need investors from all corners of the world to act at scale, at pace, and together with national governments to make this the decade of transition despite the many other crises affecting the global economy.”
“That’s why the Alliance calls on policymakers to make systemic changes, such as enabling the scaling of blended finance vehicles to mobilise investment in emerging markets and implementing well-designed carbon-pricing mechanisms for cost-effective decarbonisation. Upcoming COP27 talks represent a significant opportunity to lay the financial infrastructure which can more rapidly transition the economy to net-zero.”
The new report also shares the Alliance’s wider vision for creating a predictable and enabling policy environment to accelerate the net-zero transition. With COP27 fast approaching and the world far off track with the goals of the Paris Agreement, the Alliance outlines its five key asks for policymakers (also found in the Executive Summary).