Net-Zero Asset Owner Alliance (NZAOA)

The UN-convened Net-Zero Asset Owner Alliance (NZAOA) is an international group of 74 institutional investors with US$ 10.6 trillion in assets under management. The NZAOA commits to transition investment portfolios to net-zero greenhouse gas emissions by 2050, addressing Article 2.1c of the Paris Agreement.

Who is in scope?

Only asset owners that commit to achieving net-zero portfolios by 2050, and that establish intermediate targets every five years in line with the Paris Agreement’s goal of limiting warming to 1.5°C, can participate in the Alliance.

The commitment covers all asset classes and all proprietary portfolios, both internally and externally managed.

How do investors have to consider sustainability in general?

According to the Target Setting Protocol (2^nd edition, January 2022) the Alliance expects its members to set interim 2025 targets (and subsequently on a five-year cycle) across 4 pillars: Sub-portfolio, Sector, Engagement, and Financing Transition.

Engagement targets: Engagement targets track activities and progress with individual corporates and asset managers, and the influence of the broader investment sector through position papers. Alliance members shall engage, at a minimum, 20 companies in their portfolio with a focus on those responsible for the most ‘owned emissions’ or those responsible for a combined 65% of owned emissions in their portfolio. The desired outcome of any engagement type is alignment with 1.5°C no/low overshoot trajectories.
Sector targets: Sector targets help link portfolio-level reductions to the carbon efficiency requirements of a given sector. Intensity-based, sector-specific targets for high-emitting sectors reflect the specifics of each sector, their respective energy transition trade-offs with other sectors in the global economy, and the role they are expected to play in the transition to a net-zero economy (e.g., sector-specific intensities across utilities or transport, as well as coal and fossil fuel phase-out pathways).
Sub-portfolio targets: Sub-portfolio targets cover the asset classes where credible methodologies and sufficient data coverage exist as of the date of the target’s publication. Alliance members shall target an emissions reduction of 22 to 32% in their own portfolios by 2025.
Financing transition targets: Alliance members support the increase of climate solution investments, for example renewable energy in emerging economies, sustainable forestry, and infrastructure supporting green transformation. Members shall report individually to the public on their progress against these targets. Alliance members may invest in assets which increase portfolio carbon emissions initially but enable them to encourage or finance low-carbon transition actions in that company/asset over time.

On which sustainability topics do investors have to report?

Alliance members have committed to publish targets and report on progress. Concretely:

Members submit and publish targets within 12 months of joining.
They also report on progress on an annual basis, both internally and publicly.
- Members shall submit their reporting on progress towards intermediate targets including on investment portfolio emission profiles and emissions reductions.
- Alliance members shall report publicly on quantitative progress every five years in line with Article 4.9 of the Paris Agreement.

Does the initiative define specific sustainability indicators?

The Target Setting Protocol (2^nd edition) defines a number of KPIs for the various targets:

Sector targets: based on (1) carbon intensity of product or production (e.g., CO2e per ton of steel), (2) carbon intensity based on enterprise value (EV) or revenue; or (3) absolute emissions;
Sub-portfolio targets: based on KPIs per asset class (e.g., carbon intensity or absolute corporate emissions for debt or equity in listed corporations, absolute emissions/carbon intensity per gross floor area and CRREM pathway alignment for real estate, absolute emissions for brownfield and lifetime emissions for greenfield infrastructure investments);
Engagement targets: based on specific KPIs which investors should use for their reporting:
- Number of corporate engagements, aligned with the Alliance’s net-zero corporate expectations, led, or supported by the Alliance member (conducted directly by the member or by explicit request given to at least one of their asset managers).
- Number of collaborative engagements (e.g., via CA100+ or other engagement initiatives) supported by the member.
- Number of asset managers engaged based on their climate change policies and practices. This could include focused engagements by members on net-zero alignment with asset managers.
- Number of asset managers engaged collectively on climate change policies and practices.
- Number of climate position papers published by the member in line with Alliance corporate expectations.
- Number of contributions to Alliance position papers.
- Portfolio science-based target coverage in key Alliance sectors. This KPI aims to capture the progress of engagement activities via an outcome-based metric, i.e., increasing the number of net-zero or science-based commitments by portfolio companies.
Financing transition targets: based on specific KPIs:
- Assets under management of climate solution investments (defined in the Target Setting Protocol).
- Portfolio revenue share of ‘green/brown’ activities and Taxonomy compliance (optional).
- Report on impact KPIs is recommended (e.g., avoided emissions for owned renewables).