Allianz spearheads Sustainable Investments with Net-Zero Asset Owner Alliance's comprehensive new protocol

Günther Thallinger, Board Member of Allianz SE and Chair of the Alliance, explains the gravity of this collective action: "The fourth and most comprehensive Target-Setting Protocol has been approved by every Alliance member, managing a total of $9.5trn, as we continue to work towards a 1.5°C scenario. This unanimous endorsement underscores the strong commitment of all members to implement their net-zero targets in line with sound science. But we must close the widening gap between our ambitions and the real economy, which is lagging behind science.

Therefore, it goes beyond a statement of intent but is a call for transformation within the financial sector, echoing the urgency of the climate crisis. For Günther Thallinger, the newest protocol is in line with his own vision for the NZAOA: “The Alliance calls for an enabling policy environment—one that supports both investors and corporates in the transition to a low-carbon economy, in line with science and with due consideration of social impacts.”

Sovereign debt holdings are a significant asset class for many asset owners, and due to regulatory requirements sovereign debt must often be held for liquidity purposes. However, the asset class is a bit more challenging in regard to emissions, as sovereign debt emissions reflect a country’s emissions. The Alliance seeks to gain a holistic understanding of climate alignment of countries whose sovereign debt asset owners hold, as emissions data alone can provide an unclear picture on who caused or financed them.

In a pilot, the NZAOA is venturing into the assessment of sovereign debt with the Assessing Sovereign Climate-related Opportunities and Risks (ASCOR) database. This approach promises to provide investors with a better understanding of the climate alignment of countries whose debt they hold, an area traditionally fraught with complexity.

The expanded scope adds further transparency overall and is crucial given the huge growth of private credit as an asset class in recent years. It also reflects concerns about odd incentives resulting from greater investor pressure around climate disclosure in public markets, relative to private assets.

“We’ve seen many listed companies selling high-emitting assets to the private side where in general the scrutiny is lower,” said Udo Riese, Head of Sustainable Investment at Allianz Investment Management and co-author of the new protocol. This just moves emissions and climate risk into the private sector. But given the long-term investment horizons of pension funds and insurers, he adds, it really is in everyone’s interest to use their collective economic power to mitigate climate risk for themselves and their beneficiaries.

The NZAOA’s commitment transcends target setting. It encompasses a holistic strategy to support members in developing credible transition plans and to foster meaningful reporting. This ensures that the financial sector is not only on the path towards ambitious goals but is also taking tangible steps to materialize them.

Allianz's involvement is a testament to our unwavering dedication to sustainability and responsible investment. 

“We do not know what the outcome is, but we just push because for our portfolios, the lowest achievable temperature is the best outcome,” Udo says, reflecting our commitment in not only shaping these pivotal guidelines but also our true dedication to transparency and accountability in climate-related financial disclosures. By leveraging our expertise and scale, we are contributing to a collective effort that aims to mitigate climate risk and champion a greener economy, securing a more sustainable world for current and future generations.