Asset owners can be game changers in climate fight

Why institutions should become members of the Net-Zero Asset Owner Alliance

The United Nations Joint Staff Pension Fund joined the Net-Zero Asset Owner Alliance in July 2020 when it decided to step up its efforts to fight climate change. The Alliance, founded in 2019, is built on the idea that asset owners can be game changers in the fight against climate change with their portfolio holdings, through structural dialogue, capital allocation strategies and collaboration efforts.

The Alliance’s role is crucial: climate change as a systemic risk needs to be addressed by sharing actions and solutions. By joining resources and targets, the Alliance amplifies investors’ voices and efforts. With over 40 institutional investors representing over $6.6tn of assets under management, the Alliance has already demonstrated that major financial actors can align their investments with the 1.5°C target set out by the Paris agreement.

The Alliance’s ambition is to make investment portfolios carbon neutral by 2050 and it is committed to setting intermediate targets every five years. Alliance members believe setting targets at regular intervals is the best way to make sure that objectives will be reached on time.

By 2025, Alliance members have pledged to decrease the carbon footprint of their listed equities, corporate bonds and real estate portfolios by 16% to 29% from the December 2019 level of emissions. Targets are also set for high-emitting sectors such as oil and gas, utilities, steel, cement and transport, which include aviation, shipping and heavy and light duty road.

Engagement activities such as direct and collective structural dialogue play a key role in reaching the 2025 targets. The purpose of this dialogue is to support the transition to a low-carbon economy and the adoption of net-zero strategies by all entities in every sector and industry around the world. The Alliance also seeks to create a favourable policy environment by advocating ambitious public policies on climate.

A decarbonisation strategy that is not backed by investments into climate change mitigation and adaptation tools is not sufficient to reach the goals set by the Alliance. Therefore, the Alliance asks asset owners to grow their allocation towards the financing of transition solutions. By increasing the exposure to those investments, institutional investors contribute to the rise of supply-side environmental solutions.

Being a member of the Alliance has given the UNJSPF the tools and targets to integrate climate action at every level of our portfolio management. And after our first year of membership we committed to very ambitious targets. We pledged to reduce the absolute greenhouse gas footprint of our equities and corporate bonds’ portfolios by 29% in 2021 against the 2019 level. The Alliance recommended achieving this reduction by 2025 but we will achieve it four years earlier. By 2025, the UNJSPF has set a target to reduce greenhouse gas emissions by 40% compared to the 2019 level.

Being part of the Alliance has enabled us to have a better understanding and more knowledge of the net-zero initiative, adopt higher commitments and start to implement them faster. Any asset owner can do the same with the right processes and frameworks, and this is what the Alliance brings to its members.

The UN Secretary-General has called 2021 ‘a crucial year for climate change’. We call all asset owners to collaborate with others, whether in the Alliance or in any other sectorial group, to take their fair part in the fight against climate change in line with the Paris agreement and the UN Sustainable Development Goals.

Pedro Guazo is Representative of the Secretary-General for Investments, United Nations Joint Staff Pension Fund.

This article was originally published in the August edition of OMFIF’s Sustainable Policy Institute journal.

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