A coalition of pension funds and insurance companies, including Allianz SE, the California Public Employees’ Retirement System and Zurich Insurance Group AG, have pledged to manage $7.1 trillion in assets in line with the Paris Agreement’s goal of limiting global warming up to 1.5 degrees Celsius.
The United Nations-convened Net Zero Asset Owner Alliance said in a statement Tuesday that 44 of its 74 members set 2025 targets that support the Paris climate target, compared to 29 companies last year. Alliance members, which also include Aviva Plc, AXA SA and Swiss Re AG, together oversee $10.6 trillion in assets. They must set five-year targets within 12 months of joining and are expected to achieve net-zero emissions for their entire portfolio by 2050.
As providers of capital and loss protection, investors and insurers can use their financial firepower to drive the transition to a greener global economy. They can do this by divesting from low-carbon companies, increasing their holdings in clean energy companies, and pushing existing portfolio companies to meaningfully reduce their carbon footprint. The speed and scope of those decisions will be critical. Scientists say global greenhouse gas emissions must be halved by 2030 to avoid catastrophic effects of climate change.
This year’s progress has been remarkable because of the war in Ukraine and a global energy crisis, said Gunther Thallinger, chairman of the alliance, in an interview.
“In today’s world, where there’s a lot of tension in terms of energy markets and the opportunity to do something, here’s a group of investors who have set goals and have performed against those goals,” Thallinger said. “They’re just reducing emissions by changing their portfolio companies.”
Another sign of progress is that member investments in so-called climate solutions such as clean technologies or green infrastructure have nearly tripled to $253 billion this year, from $87 billion in 2021, the alliance said.
The group is trying to make its approach to goal setting more robust. In January, it said it would require members to reduce between 49% and 65% of their carbon footprint, including Scope 3, or funded, emissions by the end of the decade. Scope 3 emissions arise from a company’s broader value chain. They typically make up 95% to 97% of an investor’s emissions and can be particularly difficult to curb.
Getting behind the 1.5°C ambition is both a climate imperative and a smart business, the asset owners said in a report. “The future of the financial system depends precisely on whether it takes responsibility for the emissions facilitated by investment, underwriting and lending,” the group said.
Photo: Traffic on Highway 20 over the East Fork Russian River near Lake Mendocino during a drought in Mendocino County, California, on Wednesday, August 10, 2022. Photo credit: David Paul Morris/Bloomberg
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