The Net-zero Asset Owner Alliance (NZAOA) gathers 30 institutional investors that pledge to transition their investment portfolios to net-zero GHG emissions by 2050. The Alliance is currently setting the rules that its members will apply to set targets and report on them from 2020 to 2025. This “target setting protocol” is opened for public comment until November 13th. Reclaim Finance analyzed the document and propose a consultation response to fill out the gaps it identifies, including four major shortcomings.
While NZAOA members commitment, ambition and overall approach should be recognized, the Alliance’s target setting protocol includes four major loopholes that could significantly limit the efficiency of its 2025 targets.
1. The NZAOA favors engagement without linking it to a clear escalation strategy that could result in divestment:
Meaningful engagement goes hand in hand with the definition of time-bound specific demands and – if they are not met – a public escalation process that leads to divestment by a precise date. NZAOA members cannot engage with companies without clearly stating how and when the failure to implement their demands will have consequences for the companies. If we understand that NZAOA wants to favor engagement, it cannot adopt an “engagement only” strategy but should always use an “engagement before divestment” strategy.
Furthermore, divestment is a powerful tool that should not be sidelined:
- Alliance members – like all financial and economic players – have a responsibility in front of the climate emergency and need to act on it. They cannot avoid action by hiding behind a “it won’t change anything” argument. NZAOA members are influential and their decision matter.
- Divestment already contributed to increasing the cost of capital for oil and gas companies, thus participating in the shift to a low carbon economy. Divestment is one of the key drives of the move away from coal.
- Amounts divested from high-carbon activities could allow for increased funding for climate solutions.
2. The NZAOA allows the use of unrealistic scenarios that give up on the 1.5°C target and gamble on negative emissions:
To derive reduction targets, the NZAOA looked at IPCC 1.5°C scenarios from pathway 1 to 4. Pathway 4 contains high overshoot scenarios, allowing members to set a far less ambitious CO2 reduction target (-16% 2020-2025). High overshoot scenarios are effectively aiming above 1.5°C, while IPCC reports have shown that the human and economic damages of global warming exceeding 1.5°C would be catastrophic.
Moreover, the NZAOA allows its members to complement no/low overshoot trajectories with “bottom-up technology development pathways from industry insight that may rely on substantial negative emissions technologies”. This is particularly worrying as the mass deployment of carbon removal solutions – CDR and BECCS – is highly unlikely and that the IPCC itself stressed that robust 1.5°C scenarios should not rely on this unproven assumption.
To be coherent and to really respect Paris Agreement pledges, NZAOA targets should only be based on low/no overshoot scenarios (pathway 1 to 3) with low negative emissions (CDR/BECCS). This entails that the CO2 reduction target could not be lower than 24% from 2020 to 2025 and that NZAOA members cannot rely on “technology development pathways from industry insight that may rely on substantial negative emissions technologies”. Going further, we suggest NZAOA members use scenarios with very low negative emissions (like pathway 1 IPPC scenarios).
3. The NZAOA does not require its members to set absolute reduction targets:
If the NZAOA clearly states its preference for absolute targets, its members are not required to set them. Setting absolute targets should be mandatory and intensity target encouraged, and not the opposite. Intensity targets can enable carbon intensive companies – like fossil fuel majors – to maintain or even increase absolute emissions. Total has previously reduced its emission intensity but increased its overall emissions, through an increased production of fossil fuels.
4. The NZAOA says nothing about fighting anti-climate lobbying from its investee companies or interest groups:
The NAOA protocol set rules about engagement with investee companies and in the public policy sphere. However, it does not push its members to act against companies that would engage in anti-climate lobbying.
NZAOA members should ensure that their investee companies or the lobby groups they are sitting in do not engage in anti-climate lobbying. They should pledge to divest from these companies and exit these groups if they do not cease their climate destructive lobbying, after a one-year engagement period. The NZAOA should define key KPIs to monitor this aspect of their engagement and policy engagement strategies. To be coherent, anti-climate lobbying can be defined as any lobbying that pushes legislation to not align on pathways 1 to 3 scenarios.