The AOA’s “Inaugural Target Setting Protocol” was published in January 2021 and explained how the Alliance’s members should establish 2025 targets for their investees’ emissions, for financing the energy transition, for their engagement with investees, and on policy advocacy. The updated version, published on January 25th 2022, takes a similar approach, and like the previous version sets methodologies for two different types of emission targets: “sub-portfolio” targets across asset classes such as listed equity and corporate bonds; and sectoral targets for specific carbon-intensive sectors.
Increased ambition, but inadequate steps to meet the ambition
The updated version of the Protocol increases the ambition of the sub-portfolio targets for 2025 and adds 2030 targets (1). The original Protocol recommended cuts in financed emissions of 16-29% between 2020 and 2025; the updated version increases this to 22-32%. The new 2030 targets are set at cuts of “49-65% or beyond.” These targets are broadly in line with the IPCC’s findings that staying under 1.5°C requires halving global emissions by 2030 (2).
Unfortunately, the criteria which the AOA sets in the new Protocol are still too weak to ensure that these targets will be met in the real world.
- The AOA encourages its members to report on the absolute emissions from their investees, and their Scope 3 emissions — but continues to fail to require targets to be based on these metrics. Instead, it allows targets to be set only on investees’ Scope 1 and 2 emissions, and on emissions intensity metrics.
- The language in the new Protocol on its members’ engagement with investees and asset managers is improved from the earlier version, but is still based on what members “should” do, rather than the stronger “shall.”
In September 2021 the AOA published a paper stating that offsets should not be used to meet sub-portfolio interim targets. However, this “Net in Net Zero” paper sends a mixed message on the acceptability of offsets, in particular through advocating for the scaling up of global offset markets. The updated Protocol continues this confusion by referring to the earlier position but weakening it with a loophole by stating that “purchase of carbon credits by asset owners or investee companies shall not count towards the target achievementexcept for qualified removals” (3).
A missed opportunity to grasp the “no expansion” nettle
The new Protocol refers in several places to the key conclusion in the IEA’s net zero by 2050 roadmap that there is no room in a 1.5°C-aligned world for new investments in fossil fuel supply. For the first time within GFANZ, this updated Protocol recommends that its members act on the conclusion and stop financing fossil expansion. But regrettably the recommendations apply to methodologies that will likely have only a tangential impact on the AOA members’ financing activities.
AOA members can choose to set targets for high-emitting sectors in addition to or instead of sub-portfolio targets (4). The new Protocol says that targets for the oil and gas, and utility sectors should “withdraw financing from new coal-related assets and new oil and gas fields and . . . refrain from investing in, or providing finance to, assets that support the expansion of coal, oil, or gas production and to scale down production” (5). While it is positive to see this language in the Protocol, the AOA does not require its members to set sectoral targets, and few have chosen to do so. Out of the first 29 AOA members to have published their 2025 targets, only four have set sectoral targets (6).
The updated Protocol establishes a new methodology for setting targets for direct investments in infrastructure as one of the “sub-portfolio” asset classes (7). Infrastructure targets should “support the phase-out of fossil fuels required by 1.5°C scenarios.” The methodology calls on members to exclude financing new coal projects and new “upstream greenfield” oil projects “beyond those already committed by the end of 2021” (8). Unfortunately, these recommendations are unlikely to impact the great majority of new fossil fuel projects as these are financed by the companies that develop them, not directly by outside investors.
recommendations. It is the only alliance to have yet produced a detailed guide to target setting. It is therefore disappointing that the AOA has missed the opportunity of using this updated Protocol to set requirements for its members that are robust enough to likely achieve its ambitious targets. With now less than eight years left to halve global emissions there is no more time for putting off tough choices on meaningful actions that will finally reverse the expansion of the fossil fuel industry.