In late 2021, 198 countries – signatories to the UNFCCC — agreed that “efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies” were crucial to keeping 1.5 C degrees within reach. However, with the onset of the conflict in Ukraine in early 2022 came an array of secondary challenges, including a sharp rise of energy prices and a move towards development of new fossil fuel reserves.
In this new context, the Net-Zero Asset Owner Alliance firmly maintained its commitment to achieving net-zero greenhouse gas emissions in investment portfolios by 2050 and called for a massive scaling of low- and zero-carbon technologies and infrastructure .
To further implement its Commitment, the Alliance undertook important steps to ratchet up ambition internally and to influence external stakeholders to create an enabling decarbonisation environment.
In the spirit of the New Year, here is the countdown of ten most significant steps the Alliance took in 2022:
10. Enhanced target-setting methodologies
In January 2022, the Alliance published the second edition of the Target Setting Protocol aligned with the latest IPCC Special Report (SR15) no- or limited-overshoot pathways. The Protocol guides the membership in setting more ambitious climate targets since it expanded asset class coverage to include infrastructure, set a more demanding reduction range for sub-portfolio targets, and doubled the sector coverage.
9. Furthered its reach through membership growth
The Alliance reached and surpassed the 80-member mark in 2022 with the addition of first asset owners from Belgium, Gabon, and Spain. In June, the Alliance welcomed its very first African sovereign wealth fund— the Sovereign Wealth Fund of Gabon (FGIS) . The Alliance now stands at 83 members with over US$ 11 trillion in assets under management.
8. Advanced delivery on decarbonisation targets
In its second-ever reporting period, all 44 members due to submit intermediate climate targets have done so. Consequently, US$ 7.1 trillion is now encompassed by the Alliance’s target-setting framework. The Second Progress Report also showed that members have raised their ambition across all four target-types: Engagement, Sub-portfolio, Sector and Financing Transition.
7. Provided and requested data that is key for decarbonisation
By ensuring that members publish and report on intermediate climate targets, the Alliance practices transparency, which is crucial for a credible transition to net zero.
Similarly, for investor to fully steer their portfolios, the Alliance calls for real economy issuers in 12 priority and high-emitting sectors to provide sector-specific data . In September, the Alliance published a table of metrics, which companies should begin disclosing as soon as possible.
6. Supported mandatory disclosures
The Alliance recognises that appropriate regulation needs to be put into place for companies in the real economy to start sharing sufficient, reliable, and comparable data that is relevant for investors. Therefore, the Alliancesupported and commented on ISSB’s Climate Exposure Draft , EFRAG’s Exposure Draft on Climate Change, and SEC’s Proposed Rules on Climate-Related Disclosures .
5. Called on other crucial actors in the finance industry to support net-zero investors
The fulfillment of asset owners’ net-zero commitments relies, by design, on the decarbonisation in the real economy. However, services provided by other finance institutions—such as asset managers and index providers—are crucial elements of the decarbonisation puzzle. That is why, in November, the Alliance released:
- A call to action for asset owners and index providers on Development and Uptake of Net-Zero Aligned Benchmarks , providing ten key principles for constructing net-zero-aligned benchmarks and index universes.
- A Call to Action to Private Market Asset Managers , encouraging all asset managers to raise their level of climate ambition to align with the Alliance members’ net-zero commitments.
4. Identified key policy instruments for a net-zero transition
In formulating the requirements from companies in the real economy and other key financial institutions, the Alliance recognises that the proverbial and the de facto game changers are policymakers. In June, the Alliance published a Position Paper arguing for implementation of Governmental Carbon Pricing as a “broad incentive for decarbonisation, driving emissions reductions where they are most cost-effective.” In the paper, the Alliance laid out five design principles, such as delivering a just transition and minimising competitive distortions, for an effective carbon price.
3. Focused on solutions and on scaling them: blended finance
The Alliance had already promoted the potential of blended finance in 2021, as an instrument that can address structural deterrence to investments in emerging markets and developing economies and thus mobilise private sector capital. However, noticing that blended finance vehicles are not gaining traction quickly enough, the Alliance issued a Call on Policymakers to Support Scaling Blended Finance . In the Call to Action, the Alliance outlines five solutions that would bring about systemic change and create an investment environment where capital can flow to where it is most needed.
2. Honed in on what systemic change means in investor engagement
In recognising climate change as a systemic challenge, the Alliance identifies that there are limits to corporate engagement when used alone. Therefore, in The Future of Investor Engagement discussion paper, the Alliance argues for inclusion of policy engagement, sector/value chain engagement, and asset manager engagement within the investors’ toolbox.
1. Defined the vision for increasing impact in 2023
Having developed a robust body of knowledge on what is needed for a net-zero transition, the Alliance has defined how it will increase its impact by deepening and extending the reach of its Commitment.
With expert leadership—comprised of recently re-elected Steering Group Chair, Günther Thallinger and a dedicated team of working group track leads—the Alliance will implement crystalised accountability processes and renew its recruitment efforts in 2023.
To ensure members are delivering credibly on their commitments, the Alliance has put into place the Accountability Mechanism for Target Setting , which features a traffic light system categorising members based on the alignment of their intermediate targets with the TSP. For the cases where financial institutions cannot meet the minimum requirements, a delisting process may be triggered as solution of last resort.
Apart from strengthening its processes, the Alliance will seek to further grow its membership, with the target of reaching 200 members, or US$25 trillion in assets by 2025.