What has NZAOA achieved since 2019? A look at five key milestones

Launched in 2019 at the UN Secretary-General’s Climate Action Summit in New York, the UN-convened Net-Zero Asset Owner Alliance is celebrating its fifth anniversary of setting ambition and achieving targets on net-zero investment.

With the bold commitment of reaching net-zero greenhouse gas (GHG) emission in investment portfolios by 2050, members took on the challenge with enthusiasm. In early 2021, the Alliance released its first Target-Setting Protocol, which offered members a framework for setting science-based targets, aligned with the Intergovernmental Panel on Climate Change (IPCC)’s 1.5°C pathways.

As Alliance members acted on portfolio decarbonisation - with an eye on making an impact in the real economy - knotty topics arose. Beyond development of target-setting methodologies, the Alliance introduced a new standard for sustainable finance by issuing clear positions and calls to action on complex policy, such as carbon pricing, the oil and gas sector, and thermal coal. This approach solidified the Alliance and its members as industry role models and sources of thought leadership.

What were the key milestones in that leadership journey? This article covers Alliance’s five course-changing achievements, shares videos that illustrate these achievement visually, and reveals new data on reductions in members’ absolute financed GHG emissions and growth in members’ investments in climate solutions.

The Alliance has seen consistent annual growth. Starting as a group of 12 investors, the Alliance now boasts 88 members, spanning 19 countries across four continents. Over the past five years the Alliance’s collective assets under management (AuM) have nearly quadrupled, from US$ 2.4 trillion to an impressive US$ 9.5 trillion.

Crucially, as the Alliance’s membership has grown, so too has the number of members setting ambitious intermediate targets.

Learn more about Alliance’s growth in this video.

Building on existing frameworks, the Alliance has persistently advanced methodologies for setting climate targets. This dedication to developing cutting-edge tools culminated with the release of the Alliance’s most comprehensive Target-Setting Protocol v.4 in April 2024. The protocol now covers all private assets and spans nearly the entirety of a member’s investment portfolio, making it one of the most robust frameworks available.

The framework has now been applied by 81 members that represent 98 per cent of Alliance members’ combined AuM. Learn more about Alliance’s target-setting methodologies in this video.

However, targets are not just there to be set, but also to be met.

Even with a growing membership, which would normally push up the combined financed emissions, the Alliance has achieved a notable reduction in absolute financed GHG emissions. The combined emissions of Alliance’s 64 members (with reported targets) reached 277.7 million tons of carbon dioxide equivalent (tCO2e) in 2021.

Since then, absolute financed GHG emissions dropped to 260 million tCO2e in 2022 and then to 254 million tCO2e in 2023. In parallel, the number of members with targets grew to 66 and then 81.

To dive deeper, differentiating between member cohorts (based on their initial reporting year) proves useful. The Alliance’s latest data shows that that all cohorts recorded reductions of at least 6 per cent annually, which is in line with the IPCC’s 1.5ºC pathways. In other words, the Alliance’s 81 members that have already set their intermediate climate targets have on average achieved incremental portfolio decarbonisation that, if replicated in the real economy, would likely lead to limiting global warming to 1.5ºC.

However, it is important to note that the real economy is not moving at this pace. In fact, the current Nationally Determined Contributions under the Paris Agreement would still put the world at 2.1ºC-2.4ºC. This means that members’ emissions reductions are largely a result of portfolio reallocations (shifting capital to more sustainable investments). Thus, the Alliance sees the reductions as a testament to the bold actions of its members and as an important demonstration to the rest of the investment ecosystem that decarbonisation is possible, but must be pursued with urgency in the real economy.

See this data visually in this video.

Over the last five years, Alliance members have built momentum in redirecting larger portions of capital towards climate solutions. Starting with climate solution investments of US$ 87 billion in 2020, Alliance members more than quadrupled their combined investments to US$ 380 billion in 2022 and most recently to US$ 555 billion in 2023.

The latest 2023 data shows that the bulk of climate solution investments were directed toward corporate bonds and real estate, with listed equity and infrastructure following closely behind. One of the most impressive spikes occurred in listed equity investments, while private markets, though challenging to track, also saw a substantial doubling of investments (reaching USD 33 billion by the end of 2023). Private markets represent just one of the areas in which the Alliance delivered industry’s first guidance, from target-setting to asset manager engagement.

Learn more about how these climate solution investments are divided by sector in this video.

To break with business as usual and transition towards a net-zero economy, it is essential to develop innovative approaches. These rely on knowledge exchange. Since its formation, the Alliance has formed six working tracks, which have in turn have developed over 20 working groups - providing platforms for asset owners to discuss topics ranging from climate solutions to asset manager engagement. Collectively, these groups have dedicated more than 3,000 hours of peer exchange. To learn more about these figures, see this video.

As a result of member efforts, the Alliance has produced twelve discussion papers, six calls to action, and four position papers, providing actionable insights for asset owners and enabling them to engage with key stakeholders like policymakers and public finance providers. Notably, two position papers on fossil fuels have required members to establish their own Alliance-aligned policies. Members first reported on the adoption and implementation of the Alliance’s Thermal Coal Position in the 2023 reporting cycle. This year marks the first time members were asked to report on their implementation of the Alliance’s Position on the Oil and Gas Sector—this data will be published in the upcoming 2024 progress report.

Navigating such an unprecedented crisis as the climate crisis demands collaborative efforts from the finance sector, and the Alliance, has demonstrated that it serves as a crucial platform to facilitate that much-needed collaboration. In the space of only five years, the Alliance has pushed boundaries, bringing a diverse group of 88 members together to pave the way to a net-zero future.

The Alliance has not only driven capital toward climate solutions but also established the knowledge, methodologies, and frameworks essential for steering the investment ecosystem toward a sustainable future. With the combined efforts of its members, the Alliance is well-positioned to drive effective portfolio decarbonisation. The next stage is replicating portfolio decarbonisation that is now undoubtedly within reach to real-economy decarbonisation, and for that collaborative efforts will need to expand beyond the alliance towards other stakeholders, most notably policymakers.