The NZAOA recently published an update to its Target Setting Protocol, open for public comments until 29 October 2021. This update fails to address the shortcomings of the initial NZAOA target setting protocol. It notably disregards the need to swiftly phase out coal and to immediately end investments in new fossil fuel supply projects.

The UN-convened NZAOA is a group of 56 institutional investors across regions with a combined US$9.4 trillion assets under management (AUM). By joining the Alliance, the members commit to transitioning their investment portfolios to net-zero emissions by 2050 consistent with the 1.5C pathway. The Target Setting Protocol (“Protocol”) is a guideline on how members should establish science-based emission reduction targets in the next five years, in accordance with the commitment taken when joining the alliance.

Reclaim Finance identified three major flaws in the updates proposed to the target setting protocol:

  1. The NZAOA’s recommendation on fossil fuel phase out dates fails to align with climate science. The Alliance does not update its “coal position” that allows it to continue to support coal power plants that have currently began the construction stage and coal mines or other coal-related infrastructures. If the Alliance encourages its members to use two scenarios – the IEA’s Net Zero by 2050 (NZE) and the One Earth Climate Model (OECM) – that require an end to new fossil fuel supply investment and a swift reduction of production, it does not require its members to follow these two essential features.
  2. The NZAOA does not promote effective engagement strategies. The Alliance favours engagement but fails to define how its members can be effective when engaging with companies. The Alliance should stress that any engagement should be time-bound, with clear demands and the threat of divestment. Furthermore, asset owners should hold asset managers accountable and ensure that their own fossil fuel policies apply to them as well.
  3. The NZAOA remains dangerously vague regarding the scope of targets. Scope 3 emissions are not always included and – unlike for scope 1 and 2 – no timeline is given for their full inclusion, even in sectors where they matter the most. The Alliance allows its members to set target in intensity and does not require specific metrics for the fossil fuel sector. Absolute emission targets should be mandatory, as well as production targets for the financial services to companies involved in coal, oil and gas production.

Read Reclaim Finance’s analysis of the draft update.