Net-Zero Asset Owner Alliance says no to carbon credits

The group is also requiring members to set targets for private equity


The $11trn Net-Zero Asset Owner Alliance will soon require its members to stop relying on carbon credits to offset their greenhouse gas emissions, the group announced on Tuesday.

As part of its new target protocols, now on their third revision, NZAOA will also ask its 84 participating firms to set targets for private equity investments.

The changes would bring more transparency on how unlisted assets are progressing toward net zero, and they would also ratchet up standards for emissions reductions that could have real-world impact, according to the UN-convened group.

“The alliance continues to enhance depth and coverage with each edition of the target setting protocol, aiming to build a coherent, consistent trajectory aligned to the demands of latest climate science. We show that working towards net zero is possible. It is a matter to decide to do so,” Günther Thallinger, a board member of Allianz SE and NZAOA, said in the group’s announcement. “We are observing a divergence of real-economy emission pathways and scientific pathways for limiting temperature rise to 1.5C. With this protocol the alliance increases expectations for its members and calls on policymakers and corporates to move in line with science.”

Using emissions pathways outlined by the Intergovernmental Panel on Climate Change, the group cited targets for reductions ranging from 22% to 32% by 2025 and from 40% to 60% by 2030 for the portfolios of participating asset owners.

The new target protocols eliminate carbon credits in part because carbon removal technologies have not reached a scale that would have significant impact, the group said.

For private equity, NZAOA will require participants to set targets for existing holdings by 2023 and apply targets to all new unlisted equity by 2025.

The updated protocol also provides guidance on carbon accounting for sovereign debt, which represents a significant asset class for many of the participants, the group said.

NZAOA also requested that targets be set for new commercial real estate loans.

Further, the group is requiring its members “to give due consideration to societal impacts when steering their portfolios towards net-zero economy alignment”. That includes using the Just Transition framework, which encourages participants to focus on emerging markets, “which typically are most vulnerable to climate change and have fewer resources to transition from fossil fuel dependence”, the group stated.

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