18th April marked a significant milestone as the UN-convened Net-Zero Asset Owner Alliance unveiled the fourth edition of its ground-breaking Target-Setting Protocol. This latest iteration, streamlined into a standing document, covers a wide range of major asset classes across investment portfolios. It sets the stage for the next crucial five years, culminating in the ambitious target of halving emissions by 2030.
Emphasizing a steadfast commitment to achieving net-zero greenhouse gas emissions by 2050 and aligning with 1.5°C pathways, the Alliance’s members aim to target a substantial 40 to 60 percent reduction in GHG emissions by 2030, compared to 2019 levels, aligning with the IPCC Sixth Assessment Report estimates.
One of the key highlights of this protocol is the expansion of coverage to include additional private assets such as private debt funds, directly held real estate debt, and residential mortgage loans. This comprehensive coverage ensures that high-emitting companies, regardless of their ownership structure, develop robust transition plans toward sustainability.
The Alliance recognizes the need for a harmonized approach across listed and non-listed ownership structures to mitigate the risk of brown assets shifting to less transparent private markets.
Furthermore, the Alliance introduces the concept of “2030 targets,” requiring all members to set new five-year targets covering the period from 2025 to 2030. This strategic move reflects the governmental process of enhancing Nationally Determined Contributions (NDCs) every five years, thereby ensuring continuous progress towards climate commitments.
In a statement by Günther Thallinger, Board Member of Allianz SE and Alliance Chair, the Alliance’s resolute dedication to a 1.5°C scenario is reaffirmed. Thallinger emphasized the urgent need to bridge the gap between ambitious goals and real-world progress, calling for an enabling policy environment that supports both investors and corporates in transitioning to a low-carbon economy while considering social impacts.
Additionally, a significant development is the piloting of sovereign debt assessment through the Assessing Sovereign Climate-related Opportunities and Risks (ASCOR) database. This initiative aims to provide a holistic understanding of climate alignment within sovereign debt portfolios, supplementing carbon accounting with a scorecard approach. By assessing governments’ climate commitments and policy frameworks, the Alliance seeks to create consistency and harmonization in evaluating sovereign debt holdings’ climate impact.
The Alliance’s position on carbon removals remains steadfast, prioritizing emissions reductions over carbon removal for decarbonization targets to meet Net-Zero targets. However, members are encouraged to contribute to a well-regulated carbon removal certificate market and invest in durable carbon avoidance and removal projects.
As part of its commitment to meaningful reporting and net-zero transition plans, the Alliance offers tools and frameworks to aid members in developing credible transition plans and assessing the plans of asset managers and investee companies.
The unveiling of the fourth edition of the Target-Setting Protocol highlights the Alliance’s unwavering determination to drive meaningful change toward a sustainable, net-zero future while fostering collaboration and innovation across the investment landscape.
