NZAOA’s latest Target-Setting Protocol broadens to private assets

Written by Adam Cadle

31/01/2023

The UN-convened Net-Zero Asset Owner Alliance (NZAOA) has updated its Target-Setting Protocol to now cover private assets target-setting including commercial real estate lending and reporting on sovereign bonds.

The latest Protocol formulates the methodology for direct private equity investments and requires members to commence setting targets in 2023 and cover all new private equity assets by 2025.

Guidance on carbon accounting for sovereign debt is also included. The Alliance has joined forces with PCAF (Partnership for Carbon Accounting Financials) and ASCOR (Assessing Sovereign Climate-related Opportunities and Risks) to develop the accounting and assessment standards respectively. Once finalised, the methodologies developed will offer investors a tool for a common understanding of sovereign exposure and climate alignment.

Alliance members are also asked to phase in target-setting on new commercial real estate loans using the Carbon Risk Real Estate Monitor (CRREM) 1.5°C national pathways or the IPCC’s no or limited overshoot 1.5°C global range. In 2024, the members will also report the share of the portfolio that is covered by the disclosure target on new investments.

The Alliance’s latest Protocol demonstrates that its members remain steadfastly committed to achieving net zero and aligning with 1.5°C pathways with no or limited overshoot.

Based on the Intergovernmental Panel on Climate Change’s (IPCC) most recent pathways, the Alliance identified emissions reduction requirements for sub-portfolio targets in the range of -22% to -32% by 2025 and -40% to -60% by 2030.

Günther Thallinger, Board Member Allianz SE and Alliance said: “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.

“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.”

The NZAOA is a member-led initiative of 84 institutional investors, with over US$11trn in assets under management, committed to transitioning their investment portfolios to net-zero GHG emissions by 2050.

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