22 November 2022, Geneva: The UN-convened Net-Zero Asset Owner Alliance (Alliance) releases a call to action to asset owners and index providers on Development and Uptake of Net-Zero-Aligned Benchmarks .
The Alliance, representing 80 institutional investors with US$11 trillion in assets under management, has followed the encouraging development of climate benchmarks by the EU. While a welcome addition to the index universe, the Alliance still identifies a lack of climate indices that can be applied in a broad range of cases and to globally diversified multi-asset class portfolios.
Recognising that benchmarks are a crucial tool for integrating decarbonisation objectives into the investment process, the Alliance calls on index providers to develop net-zero-aligned benchmarks and on asset owners to apply them.
To provide the basis and context for a discussion on best practices for constructing net-zero-aligned benchmarks and index universes, the Alliance sets out ten key principles.
Sindhu Krishna, Head of Responsible Investments, Phoenix Group, said: “From an asset owner perspective, benchmarks serve as effective tool for portfolio steering and engagement with asset managers. As we hear of the window of opportunity closing for keeping the 1.5 °C ambition within reach, it is crucial for investors—who recognise that climate change presents financially material risks to investment portfolios—to have all the tools at their disposal for portfolio decarbonisation.”
The ten principles cover, among others, avoiding mechanical exclusions of high-emitting sectors; including forward-looking indicators as key input; and incorporating metrics for a just transition.
Leveraging these principles would allow index providers to develop a critical tool that would support net-zero investors in implementing strategic asset allocation and would also translate their objectives to asset managers.
About the UN-convened Net-Zero Asset Owner Alliance
The UN-convened Net-Zero Asset Owner Alliance is a member-led initiative of 80 institutional investors, with over US$11 trillion in assets under management, committed to transitioning their investment portfolios to net-zero GHG emissions by 2050. The Alliance members were the first in the financial industry to set intermediate targets (aligned with the Paris Agreement schedule) and they report on their progress annually. The Alliance is convened by UNEP FI and PRI and is supported by WWF and Global Optimism.