The Net Zero Asset Owner Alliance (AOA), one of the sectoral alliances in the Glasgow Financial Alliance on Net Zero (GFANZ), released its second annual progress report in September. While the AOA has a higher level of ambition than the other GFANZ alliances, still only eight of their members’ portfolio targets are based on what actually matters — absolute emissions to the atmosphere. The AOA has been working on a paper on oil and gas and is to publish an updated version of its target setting protocol in January 2023. These are opportunities for the AOA to require its members to set absolute emission targets and to strengthen the currently weak requirements for its members to stop financing the companies driving fossil fuel expansion.

The second progress report of the Net Zero Asset Owner Alliance says that 41 of its 74 members have submitted portfolio financed emission reduction targets for 2025. These targets range between 20-40% with an average of 26%. (1) This compares to the range of 22-32% that members are supposed to meet by 2025 (and 49%-65% by 2030) according to the alliance’s target setting protocol. Targets at the high end of this range would be consistent with the obligation of all GFANZ members to do their “fair share” toward the need to halve CO2 emissions globally by 2030. (2)

Unfortunately when it comes to decarbonization targets, the devil is in the detail, and the devil seems to like target setting methodologies which are, in the words of Shakespeare’s Macbeth, full of sound and fury, signifying nothing. Out of the 41 asset owners to have submitted portfolio targets, only eight (20%) are based on absolute emissions. The rest are based on emissions intensity, which on its own gives no guarantee about absolute emissions reductions. For example, an investor could grow its portfolio by adding lower carbon assets than the average holdings in its existing portfolio; its emissions intensity will drop, even if its absolute emissions stay the same.

AOA members can choose to set targets for high-emitting sectors in addition to or instead of portfolio targets. Five AOA members have submitted 2025 targets for emission cuts from the oil and gas sector, ranging between 15%-26% with an average of 20%. Five have also submitted targets for their holdings in power utilities, with a range of 17-45% and an average of 33%.

All of the oil and gas sector targets, however, are intensity based (measured in CO2-equivalent per unit of produced energy), and all of them are based only on the Scope 1 and 2 emissions from oil companies’ own operations. This means that the roughly 90% of oil and gas emissions which result from end customers burning the fuels, are not counted in these sectoral targets. According to the AOA’s target setting protocol, 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”. The progress report does not mention any progress toward meeting these requirements.

The only type of targets which the AOA makes mandatory are its engagement targets. The AOA claims that its members are stepping up their engagement with their investees and asset managers, and that this is having an impact. Unfortunately, however, the AOA reports only on the number of actions taken by its members related to engagement (e.g. AOs engaged with 30 asset managers “on climate change policies and practices on a stand alone basis”). But the AOA does not explain what was the result of any of its members’ engagement activities, and there is no way to evaluate what impact this engagement is having upon real-world emissions. (3)

The AOA’s new report also says that its members are expected to integrate the alliance’s positions into their internal policies. Yet almost two years after the alliance issued a “no new coal” position paper, only three of its 60 largest members have adopted comprehensive policies (scoring at least nine out of ten points in Reclaim Finance’s Coal Policy Tool) requiring them to cease investments in developers of coal mines and power plants.

Some of Reclaim Finance’s positions on the AOA’s second progress report were quoted in an article on the Environmental Finance website. The AOA’s chair, Günter Thallinger from German insurer Allianz, published a thoughtful response to this article on LinkedIn. Thallinger, a member of the UN’s High-Level Expert Group on net zero, noted that some of the criticisms of the AOA are justified and that “all members should work towards targets to reduce absolute emissions.”

The AOA has been working for the past year on an oil and gas position paper. They are also working on an updated target-setting protocol to be released in January. Both of these papers are opportunities for the AOA to insist that their members’ tackle absolute emissions, finally incorporate the alliance’s coal position into their policies, and strengthen the alliance’s currently weak requirements on ceasing investments in new oil and gas.

Notes :

1. The progress report only lists the range of targets and average target for each target-type. The reader wanting to see individual asset owner targets needs to visit the website of each asset owner. One easy way for AOA to make good on its supposed commitment to transparency would be to publish a summary of each its members’ targets in its annual progress report.
2. As developing countries cannot be expected to cut emissions as quickly as developed countries, which bear most responsibility for the CO2  in the atmosphere, financial institutions with most of their business in the Global North should cut emissions more than 50% by 2030.
3. For more information see Climate Votes, “Net Zero Asset Owner Alliance (NZAOA) Climate Voting Transparency and Benchmarking Report,” 2021.