Also releases initial target disclosures for a further 13 signatories
- This inaugural Progress Report showcases innovation and best practice amongst asset owners for turning net zero commitments into action.
- New targets mean 40 asset owners have disclosed initial targets since March 2021.
- The global Paris Aligned Asset Owners initiative has attracted 57 signatories representing over $3.3 trillion AUM.
- Asset owners are typically pension and superannuation funds, often systemically important.
The Paris Aligned Asset Owners initiative (PAAO), an international group of asset owners committed to supporting the goal of net zero greenhouse gas emission by 2050 or sooner, has published its first Progress Report showcasing the steps asset owners are taking to reach their net zero goals.
Alongside the Progress Report, initial target disclosures have also been published for a further 13 asset owners, taking the total to 40 since the initiative launched in March 2021. The latest disclosures include targets from asset owners including AP7, Lloyds Banking Group Pensions Trustees Limited and Ilmarinen.
Asset owners are typically pension and superannuation funds, and increasingly occupy a systemically crucial position in the process of aligning financial flows to net zero by 2050.
PAAO is an outcome of the Paris Aligned Investment Initiative, which was established as a collaborative investor-led forum to support investors to align their portfolios and investment activities to the goals of the Paris Agreement. Since 2021, PAAO has been a partner to the UN Climate Champion’s Race to Zero campaign and a member of the Glasgow Finance Alliance for Net Zero (GFANZ).
PAAO signatories draw on the Net Zero Investment Framework, the most widely utilised net zero methodology by financial institutions, to set targets and devise a net zero investment strategy.
The PAAO 10-point commitment and signatory progress
The Progress Report, which includes 29 case studies, shows how asset owners are developing a range of strategies and approaches to fulfil the criteria set by the PAAO 10-point commitment. Highlights include:
- Investment in climate solutions (commitment 3): 98% of PAAO signatories that have disclosed targets have established either a quantitative target or qualitative goal for increasing investments in climate solutions. Despite the absence of an industry standard that can be applied across an investment portfolio, signatories have measured their current allocation and set ambitious quantitative targets ranging from 6% of AUM to 25% of AUM by 2030.
- Stewardship and engagement (commitment 6): Many asset owners have started to clearly communicate expectations for transitioning to the companies they invest in, including setting timebound milestones. Where specific objectives are not met, escalation is starting to become the norm, as recently shown by the decision to file a case against Volkswagen AG by several PAAO signatories after it refused repeated attempts to reveal crucial information on its corporate climate lobbying activities (see case study p50).
- Fossil fuels investment policies: 23 signatories that have made disclosures have fossil fuel investment policies in place or under development. The policies vary but often include exclusions of companies that derive a certain proportion of sales or revenues from carbon-intensive activities such as those relating to coal mining, or fossil fuel extraction from tar sands or oil and gas. For example, Dutch pension fund, Pensioenfonds Zorg En Welzijn (PFZW), has set clear time-bound expectations of fossil fuel companies, including a deadline of 2024 for divesting where key criteria is not met (see case study p27).
Investor signatories
Debby Blakey, Chief Executive Officer, HESTA, said: “As the super fund representing those working in Australia’s health and community services sector, the risks and opportunities related to climate change have been a key focus area for HESTA for many years.
“This initiative provides a rigorous methodology to underpin our targets which provides better transparency and aligns us with international standards. This will improve our own climate-aligned investment practice, and will contribute to collective, accelerated climate action within the broader financial sector.”
Charlotta Dawidowski Sydstrand, Head of ESG, AP7, said: “Achieving real economy emissions reductions, which is at the core of the Paris Aligned Asset Owner commitment, is more urgent than ever given the deepening climate crisis. Among the variety of net zero strategies showcased in the progress report, AP7 provides its perspective on targets and escalation tactics as a universal active owner.”
Adam Matthews, PAII Steering Group Co-Chair and Chief Responsible Investment Officer, Church of England Pensions Board: “The Paris Aligned Asset Owners initiative has been an enormously important, practical and collaborative forum for developing best practice for investors committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner.
“As an asset owner, we will always act in the best interests of our beneficiaries and take decisions independently – however, it has been extremely valuable to see the different approaches taken by other investors, to be able to share what works and to learn as we individually work to achieve our net zero goals.”
Quotes from Network Partners
Stephanie Pfeifer, CEO, IIGCC, said: “Drawing on the positive momentum of the initiative to date, the Progress Report is a valuable resource for asset owners considering developing a net zero strategy or those looking for inspiration.
“Looking ahead, we hope to see more asset owners taking meaningful steps towards supporting the net zero transition, including working collaboratively with asset managers to drive innovation across the industry.”
Rebecca Mikula-Wright, CEO, the Asia Investor Group on Climate Change (AIGCC) and the Investor Group on Climate Change (IGCC), said: “The leading pension and superannuation funds are making important progress on getting capital flows to align to the goals of the Paris Agreement.
“These are systemically important investors, with growing pools of assets invested for the long-term interests of millions of beneficiaries, so they’re particularly exposed to the risks and opportunities of climate change.
“The data and real world examples in this report show the opportunity that this class of investors have to progress net zero, and their responsibility to do so.”
Mindy Lubber, CEO and President, Ceres, said: “This must be the decade of action if we are to meet our global goal of limiting temperature rise to 1.5 C and avoid more catastrophic climate change.
“This Paris Aligned Asset Owners Progress Report shows some early implementation of goals by a very important segment of the investment markets – asset owners. It also provides hope as we know their hard work on target setting and methodology are critical action steps.”
About The Paris Aligned Asset Owners
Paris Aligned Asset Owners is an international group of asset owners committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit temperature warming to 1.5⁰C above pre-industrial levels, with low- or no-overshoot.
The group is an outcome of the Paris Aligned Investment Initiative, which was established in May 2019 as a collaborative investor-led forum to support investors to align their portfolios and investment activities to the goals of the Paris Agreement.
As of November 2022, there are 57 Paris Aligned Asset Owners from Europe, North America, and Oceania.
Paris Aligned Asset Owners is governed by a steering group of nine asset owners, supported by four regional investor networks:
- The Institutional Investor Group on Climate Change (based in the UK and Europe)
- The Investor Group on Climate Change (based in Australia and New Zealand)
- The Asia Investor Group on Climate Change (based in eleven markets across Asia)
- Ceres (based in the USA)
Since 2021, the initiative has been a partner to the UN Climate Champion’s Race to Zero campaign and a member of the Glasgow Finance Alliance for Net Zero (GFANZ).
www.parisalignedinvestment.org