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Investors managing US$9.5tn to include all asset classes in updated 2030 targets

Private assets are included for the first time, in a bid to limit the sale of ‘brown assets’ into the private market.
Melodie Michel
Investors managing US$9.5tn to include all asset classes in updated 2030 targets
Photo by Austin Distel on Unsplash

Members of the Net Zero Asset Owner Alliance (NZAOA) are set to target a 40-60% emissions reduction across all private asset classes by 2030, based on new guidelines from the alliance.

According to the NZAOA’s fourth Target-Setting Protocol, all 89 institutional investors that form part of the group (such as CalPERS, CDPQ, Nippon Life and Axa) will have to update their 2030 climate targets to include all asset classes, including private debt funds, directly held private debt, directly held real estate debt funds and residential mortgage loans.

This is the first time private assets have been included in the target-setting guidance, in a bid to “ensure that high-emitting companies develop transition plans regardless of their ownership structure”. The expansion of the protocol also aims to limit the sale of polluting or ‘brown assets’ from more scrutinised listed companies into the “less transparent private market”, according to the alliance.

Targets cover asset owners' Scope 3 emissions, but focus on portfolio companies’ Scope 1 and 2 emissions. NZAOA members are also advised to set targets on the Scope 3 emissions of their clients “as soon as possible”, though this is not a mandatory requirement for membership.

Seeking to clarify its position on carbon offsetting amidst controversy over a potential policy change at SBTi, the alliance notes that members are not allowed to use carbon removals for their own 2030 decarbonisation targets, and must focus instead on carbon reductions.

However, they are “encouraged to contribute to a liquid and well-regulated carbon removal certificate market in this period, as well as invest in projects and technologies of durable carbon avoidance and removal, to scale future markets rapidly”.

NZAOA launches sovereign debt scorecard

In addition to the updated protocol, the alliance is piloting a scorecard to assess sovereign portfolios, noting that it is more difficult to address the emissions of sovereign debt holdings – a significant asset class for many funds – since they reflect a country’s emissions.

Within the Assessing Sovereign Climate-related Opportunities and Risks (ASCOR) database, asset owners will now be able to assess governments’ climate-related commitments, policy frameworks and support for a just transition. This will allow the alliance to gain a more holistic understanding of sovereign debt-related emissions, and to create a consistent methodology for this type of assessment.

Günther Thallinger, Board Member Allianz SE and Alliance Chair, said: “The fourth and most comprehensive Target-Setting Protocol has been approved by every Alliance member, managing a total of $9.5trn, as we continue to work towards a 1.5°C scenario. This unanimous endorsement underscores the strong commitment of all members to implement their net-zero targets in line with sound science. 

“But we must close the widening gap between our ambitions and the real economy, which is lagging behind science,” he added, calling for “an enabling policy environment” to support investors and corporates in the transition to a low-carbon economy.

The new Target-Setting Protocol will govern the next five years of target setting for investors included in the alliance, and can be updated up to once a year to reflect the latest science.

NZAOA is the latest-UN-backed climate group to update its rules: last month, the Net Zero Banking Alliance (NZBA) published the second version of its guidelines, mandating members such as Barclays, BNP Paribas, Citi, Deutsche Bank and HSBC to include capital market emissions in their next round of targets.