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Influential asset owners group lifts its climate change game

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An influential investor group with $10tn under its control has boosted its efforts on climate change, with a pledge to slash environmentally damaging emissions from portfolios by half as soon as 2030.

The UN-convened Net-Zero Asset Owner Alliance, made up of 69 large institutions, said its members would aim to reduce emissions linked to their investments by between 49 per cent to 65 per cent by 2030, after including a broader range of carbon-intensive sectors within its target framework.

The latest commitment is an expansion on an inaugural plan, set out in January 2021, that aimed for a reduction in portfolio emissions by 25 per cent across listed equities, corporate bonds and real estate by 2025.

The framework now also includes sectors where cuts in carbon emissions are difficult to achieve because of production methods — including agriculture, concrete and aluminium — along with infrastructure debt equity and infrastructure debt.

The asset owners alliance is supported by some of the world’s largest pension funds including Calpers of California, France’s Caisse des Dépôts Group, Caisse de dépôt et placement du Québec (CDPQ) from Canada and Denmark’s PKA.

It is one of several big investor groups that have formed around attempts to limit the risks to the global economy from climate change. The largest of the umbrella groups is the Climate Action 100+ that represents $60tn in assets, including many of those in the UN-convened alliance.

But the alliance plan retains features that have drawn criticism from environmental groups, which have repeatedly called for more decisive action from asset managers.

Campaigners such as Reclaim Finance argue asset managers must stop the financing of new oil and gas projects to prevent global warming from causing catastrophic damage.

Günther Thallinger, chair of the alliance and board member of German insurer Allianz, said it would work with oil and gas companies to develop “clear pathways” to decarbonise. Its members were expected to avoid financing new coal plants, he said: “We have to get out of coal.”

Thallinger rejected criticism of the policy that allows its members to choose whether to target reductions of the “emissions intensity” of their portfolios — allowing for a rise in emissions, as long as the proportion per unit falls — or absolute cuts in carbon emissions.

“Carbon intensity can be a useful tool to inform capital allocation decisions and in measuring progress on carbon emission targets by portfolio companies,” Thallinger said.

Members of the alliance have also signed up to “engage” with at least 20 high emissions companies and are expected to make more use of their voting power if progress in addressing climate change is unsatisfactory.

Thallinger said the threat was “particularly important” as a critical mass of companies globally had yet to publish adequate plans to ensure their business activities would be consistent with limiting global warming to 1.5C.

Alliance member Aviva this week said it would vote against re-election of directors at companies that did not make adequate climate plans, and in two years it would divest from those that do not comply. It had already divested from coal-reliant NTPC, which is India’s largest power utility, and Indonesian conglomerate Astra International as a producer of palm oil, which is behind deforestation, in the past year.

Patrick McCully, an analyst at Reclaim Finance, said the asset owners’ alliance had gone further than some other industry groups by including a ban on new coal financing and 2025 goals. But its continued reluctance to require absolute emissions cuts was a “missed opportunity”.

With their huge influence over the rest of the financial sector, McCully added, pension funds and other asset owners had a uniquely powerful role in the struggle to tackle climate change. “They’re the pinnacle of the world financial system,” he said. “They have no excuses in the way some others do.”

Additional reporting by Adrienne Klassa

Climate Capital

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