Top asset owners favour engagement for net-zero carbon goals

Some of the world’s biggest asset owners have rejected divestment to achieve climate goals and are instead favouring direct action and engagement.

Members of the UN-backed Net-Zero Asset Owner Alliance, including Aviva, Allianz and AXA, have said they will cut carbon in portfolio companies by up to 29% in order to meet Paris climate goals.

The asset owners, which have $5 trillion assets under management, say they will only work with companies “willing to adjust their business models, and does not wish to engage in a divestment exercise”.

Alliance members want to transition their investment portfolios to net zero greenhouse gas (GHG) emissions by 2050.

They have collectively agreed to reduce GHG emissions from between 16% to 29% by 2025 in order to help limit global temperature rises to 1.5 °C above pre-industrial levels.

Members will set their targets for carbon emissions currently contained within their portfolios at the beginning of 2021. These targets will largely depend on the progress asset owners have already made to meet the Paris goals.

The United Nations Environment Programme Finance Initiative, which works with institutions on their climate change goals, says that to achieve these net zero targets, Alliance members will have to ramp up the pressure on portfolio companies to reduce their emissions.

Alliance members will have to identify the top 20 companies in their portfolios responsible for emissions as well as setting targets for the oil and gas, utilities, transport and steel sectors.

Portfolio companies will also have to provide mandatory climate reporting and business transition plans.

While the decarbonisation of portfolios could easily be achieved by selling carbon intensive investments, it is highly questionable whether this would have a positive impact on the real economy, the Alliance group said. It could also undermine the ability of members to engage with companies to effect reductions.

Günther Thallinger, Alliance chair and board member at Allianz SE, said: “Alliance members start out by changing themselves and then reach out to various companies to work on the change of their businesses.

“Reaching net zero is not simply reducing emissions and carrying on with the business models of today. There are profound changes and opportunities that will come from the net-zero economy, we see new business opportunities and strong wins for those who are ready to lead.”

The news comes after Nest, the UK’s largest defined contribution pension scheme, said it was aiming to become net zero on its carbon emissions by 2050.

It has also said it will pressure companies to align with the Paris goals and divest from companies that fail to show progress following sustained engagement.

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