Investors managing $7.1trn boost long-term net-zero goals with 2025 climate targets

The UN-backed Alliance has posted the update in a new annual progress report today (20 September) marking its third anniversary. It confirms that the Alliance’s membership has grown sixfold since its inception, with the amount of assets under management growing fourfold.

According to the report, 44 of the Alliance’s members have set 2025 targets to decrease their financed emissions. These targets are badged as aligned with a 1.5C temperature pathway.

The report also confirms that investors collectively managing $3.3trn have set sub-portfolio emissions targets for 2030 or sooner, up from $1.5trn a year ago. These targets outline low-carbon pathways for four specific asset classes, namely infrastructure, real estate, listed equity and publicly traded corporate bonds.

For the real estate sector, most asset managers are working towards emissions reductions of 25-30% by 2025 against a 2019 baseline. The most ambitious target is 50%.

The average 2025 reduction target for standalone listed equity is 30% and variation here is far less, between 25% and 35%.

Going forward, Alliance members are looking to set sector-specific decarbonisation targets. Companies in high-emitting sectors are being encouraged to provide forward-looking ambitions to cut emissions. At present, just one-fifth of Alliance members have sector-specific targets for 2025. The initiative has stated that there is currently a “data deficit” in terms of corporate emissions in key sectors, and corporates’ ambitions and plans for reducing their climate impact.

Once investors become members of the Alliance, they are in its membership on a five-year cycle. Just as nations must update their Paris Agreement plans every five years, Alliance members must improve their targets too. If they do not do this or if they fail to meet reporting requirements, the Alliance has the ability to launch an enquiry or to delist the company.

Companies including Allianz, Swiss Re, Munich Re, Aviva, L&G and the Pension Investment Corporation are members of the Alliance.

COP27 call to action

In addition to reporting on the actions taken by members to manage emissions from their financed activities, the report provides an update on the Alliance’s work to create policy landscapes that enable and encourage the net-zero transition in asset management.

It states that “a clear, consistent, and enabling policy environment is critical to the viability of the net-zero transition. Public policy signals incentivise the inclusive flow of capital across the global economy. Without such signals, companies and financial markets lack the framework for the efficient mobilisation of capital towards sectors and technologies that can support an equitable transition.”

The report makes several calls to action for policymakers ahead of COP27 in Egypt in November. The first is for all nations to update and enhance their Nationally Determined Contributions to the Paris Agreement, as they promised to at COP26. Updates should be 1.5C-aligned, the Alliance is urging.

Also advocated by the Alliance are the implementation of well-designed carbon pricing plans with long-term price certainty and measures to scale up blended finance vehicles with a focus on the global south. Funding raised through carbon pricing, it is argued, should be used to foot the bill for policies that enable the net-zero transition, such as decarbonising transport systems.

Net-Zero Banking Alliance

In other net-zero finance news, 16 NGOs have written to the Net-Zero Banking Alliance (NZBA) steering committee, urging a new requirement for members to reduce their financing of fossil fuel projects.

The request letter is being made on the grounds that the NZBA as a whole is signed up to the Race to Zero initiative. Earlier this year, Race to Zero updated its minimum membership requirements to help clamp down on greenwashing and to encourage the development of more credible and ambitious climate goals.

Added to the ‘Starting Line’ criteria – the minimum set of requirements for Race to Zero participation – is a requirement for all members to “phase down and out all unabated fossil fuels as part of a just transition”. Major fossil fuel firms themselves have always been barred from participating, but the new requirement applies to all members.

Yet the NGOs have heard news that the NZBA is not likely to require individual members to update their commitments in line with this and other new requirements.

The NGOs, led by ShareAction, are asking for the NZBA to “urgently” set out the timeline and process for updating its guidelines to maintain its accreditation under Race to Zero. It also urges the Alliance to consider going further than Race to Zero’s minimum criteria.

Supporting the letter alongside ShareAction are Sierra Club, Stand.earth, 350.org, the Talanoa Institute, ReCommon, Reclaim Finance, Make My Money Matter, Global Witness, Fair Finance International, Environmental Defence Canada, the Climate-Safe Lending Network, BankTrack, Bank on our Future, AnsvarligFremtid and the AbibiNsroma Foundation.

BankTrack’s executive director Johan Frijns said: “The new Race to Zero criteria leave no doubt that reaching net-zero means ending our reliance on, and the financing of, fossil fuels as soon as possible, starting with coal. It is embarrassing, and ultimately fatal for the credibility of the NZBA, if it does not now strengthen its membership criteria accordingly, right when the world is facing one climate disaster after another.”