“Let’s remind ourselves to listen to our children, who are demanding that we end the ongoing environmental destruction.”
—Oliver Bäte, CEO, Allianz
STRENGTH IN NUMBERS
Following the August 2021 release of a harrowing report from the Intergovernmental Panel on Climate Change, UN Secretary-General António Guterres did not mince words. Calling the report a “code red for humanity,” Guterres affirmed that “greenhouse gas emissions from fossil fuel burning and deforestation are choking our planet and putting billions of people at immediate risk.”
The science is irrefutable, and the task at hand is clear: our climate crisis requires urgent, coordinated and comprehensive global action. As the time-worn saying goes, “If you want to go fast, go alone. If you want to go far, go together.” We must go far, yes. But we must also go fast. And we must act now—together.
A growing number of insurers and asset owners are heeding this message. Under a UN convenorship in September 2019, 12 large institutional investors founded the Net-Zero Asset Owner Alliance (AOA), creating a central, non-partisan platform to align and accelerate climate ambition for asset owners. These founding members, which include Munich-headquartered financial services provider Allianz and Copenhagen-based labor market pension fund PensionDanmark, made a bold pledge: to make their investment portfolios carbon-neutral by 2050.
It isn’t as if the leaders behind the AOA are taking bold action strictly on the grounds of do-goodery. The truth is our changing climate is a near and present danger to capital markets and the future value of investments. As global financial institutions and long-term oriented businesses, AOA members are exposed to climate risk and recognize the need to meaningfully, and immediately, contribute to the decarbonization of the world economy. Individually, the members of the AOA would not be a financial force. But collectively, their influence is enormous.
PensionDanmark is a relatively large investor in the Danish pension industry, but we are a small shareholder in almost all the companies where we are represented. This is the same for most other asset funds, even the larger ones. Individually, we are talking about relatively small ownership shares. But by joining forces through the Asset Owner Alliance, we are a coalition with a substantial influence as shareholders.
—Torben Möger Pedersen, CEO, PensionDanmark
A “shared and far-reaching commitment to decarbonize portfolios in line with science” binds together all members of the AOA, which has developed a common target-setting framework to ensure real economy impacts. Central to this commitment is an understanding that achieving net-zero greenhouse gas emissions by 2050 requires decisive action today.
Torben Möger Pedersen, CEO, PensionDanmark
If you want to make sure your company has a meaningful and measurable impact on real life, you have to find relevant partners. It’s a very important lesson that you can’t do this alone. You have to reach out to other stakeholders in your environment—in our case, other asset owners. That’s the path toward maximizing the positive impact of your business activities.
Torben Möger Pedersen
Have you integrated the UN Sustainable Development Goals into your business plan? For me, this is question #1. If you can’t answer it in a convincing way, you have a problem. The integration of sustainability into your business model has become a must for any modern company, in all kinds of industries.
INTERIM TARGETS ON THE PATH TO NET ZERO
In 2020 the AOA set five-year interim targets that require change well before this decade has ended. These targets are based on the AOA 2025 Target Setting Protocol, which implies a maximum 1.5°C global temperature rise above pre-industrial levels—the most ambitious target set forth in the 2015 Paris Climate Agreement.
The Target Setting Protocol was developed in collaboration with scientists and experts from asset owners, the UN and the Principles for Responsible Investment (PRI), as well as such civil society organizations as the World Wide Fund for Nature (WWF) and Global Optimism, an initiative led by Christiana Figueres, the former Executive Secretary of the UN Framework Convention on Climate Change (UNFCCC).
“For 2025, we have interim targets to reduce emissions,” says Allianz CEO Oliver Bäte. “Particularly equities and corporate debt, but we are also moving on infrastructure and real estate and other asset classes with very, very concrete measures.”
“This is not only from a moral or ethical perspective,” adds PensionDanmark’s Pedersen. “It’s also from a purely investment perspective. As long-term investors, we have a business interest in making sure that living is sustainable when our members retire. This is essential to the long-term nature of our investments.” And the AOA is no gentleperson’s agreement: If a member does not live up to its five-year target, they are no longer allowed to be a member of the Alliance. The public consequences of removal would be considerable.
Sustainability is, and remains, the overarching priority. If we achieve short-term productivity targets and make our dividend payments but have no planet for our children, we are failing the next generation. Shareholders are finally recognizing that it’s not just about the next quarter’s earnings and productivity gains. It’s about having a business that is truly sustainable.
—Oliver Bäte, CEO, Allianz
The Alliance’s main working principle is to leverage ownership power to assist companies in their transition toward sustainability. And the AOA sees as mission critical its capacity to influence and quickly change the behavior of key players in the energy industry and other energy-intensive industries. Core to this effort is the need for dialogue with high emitters—and leaders within the AOA share a concern that divestment would likely lead to new owners who lack the same commitment to tackling climate change. “We are not in favor of divestment or only investing in so-called ‘green darlings,’” emphasizes PensionDanmark’s Pedersen. “We are going almost the opposite way and meaningfully engaging with hard-to-abate industries like energy, agriculture, transport and shipping—industries with the largest CO2 emissions but where production will be needed in the future. It’s important we use our ownership influence to move these companies in a green direction.”
An international group of 46 institutional investors
members commit to transitioning investment portfolios to net-zero greenhouse gas emissions by 2050
$7 trillion in assets under management
A COMMUNITY ALL-IN ON SUSTAINABILITY
As of September 2021, the Asset Owner Alliance’s membership has 46 institutional investors with more than $7 trillion in assets under management. This rapid growth mirrors a shift in the investment community, where interest today extends beyond mere questions about climate risk accounting to how to fully embrace—and drive tangible progress toward—the goal of net zero by 2050.
Some CEOs in the Alliance have been on this journey for years. Others are just beginning. The pathways and five-year targets are different for each, but all members are leading and moving in the same direction. Market forces are helping as combined pressure from customers and young employees is already a fundamental driver in this economy-wide transformation.
As the effort gains momentum, AOA members are committed to regular reporting—not only toward the UN, but also publicly. The public nature of the pledge compels members to focus on impact, despite some technical challenges that still exist. Progress is now focused on establishing carbon standards for monitoring and reporting so that Alliance members can compare different investments using the same taxonomy.
Part of the benefit of The Fashion Pact is facing big challenges head on with transparency. We know that unnecessary and problematic plastics pollute the oceans, damage our ecosystems and affect our food and water supply. Big systems change is required to protect our oceans. None of us, no matter our size, can solve this alone.
—Torben Möger Pedersen
Net-Zero Asset Owner Alliance. Watch Now