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Group of influential asset owners raises its climate change game

Group of influential asset owners raises its climate change game

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An influential investor group that controls $10tn has stepped up its efforts to combat climate change. They have pledged to reduce the environmental damaging emissions in portfolios by half by 2030.

The UN-convened Net-Zero Asset Owner AllianceThe group, which includes 69 large institutions, stated that its members would aim for a reduction in emissions related to their investments of between 49% and 66% by 2030 after including a wider range of carbon-intensive industries within its target framework.

The latest commitment expands on an initial plan that was established in January 2021 and aimed to reduce portfolio emissions by 25% across listed equities and corporate bonds. It also aimed at reducing portfolio emissions by 20% 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 among many investor groups that have been formed around the mitigation of climate change risks to the global economy. The largest umbrella group is the Climate Action 100+That amounts to $60tn in assets, not including many assets belonging to the UN-convened alliance.

However, the alliance plan still contains elements that have been criticized by environmental groups. They have repeatedly demanded more decisive action from asset mangers.

Reclaim Finance, a campaign group, argues that asset managers must stop financing new oil-and-gas projects to prevent global warming causing devastating 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 announced this week that it will vote against the reelection of directors at companies with inadequate climate plans. In two years, it will divest all 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.

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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”.

McCully said that pension funds and other asset owners have a unique role to play in the fight against climate change because of their influence on the rest of financial sector. “They’re the pinnacle of the world financial system,” he said. “They have no excuses in the way some others do.”

Adrienne Klassa also contributed reporting

Climate Capital

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