The ground was prepared last year. It’s now time to plant the seeds.

In September 2019, Allianz had joined forces with 11 other large institutional investors of the world to take a bold pledge: facilitate the decarbonization of the world economy, starting with making own portfolios carbon-neutral by 2050.

Since then, both the number of members of the Asset Owner Alliance (AOA) and their collective assets under management have doubled. The United Nations-convened alliance is now 30-strong, comprising insurers, pension funds, a state wealth fund and a foundation, controlling investments of about $5 trillion.

This month, the AOA set its first defined target for members – a reduction of 16-29 percent in greenhouse gas (GHG) emissions contained in own portfolios until 2025.

To facilitate transparency in the alliance’s efforts, its 2025 Target Setting Protocol  will be available until November 13, 2020 for comments from members of the general public, academia, government and business.

When the alliance was announced, many people might have had the question: why would an investor accept the target of net-zero emissions for an investment portfolio?

As an investor, it pays to listen to science and understand that there is enormous risk from climate change and its societal implications not only for the economy and businesses but also for assets in a portfolio.

This commitment reflects that understanding. Since the inception of the AOA, Allianz has been working on approaches that enable the group to steer the investments in its portfolios towards net zero. 

In terms of how AOA plan to reach its targets, the alliance is clear that it wants to achieve a change in the economy and to have positive climate impact.

There are several aspects to this.

The members require inputs from scientists, climate models and scenarios to define the pathways for individual assets. For some assets that are directly owned, for instance real estate, the pathway is straightforward. The members can decide internally to retrofit or refurbish these assets to steer them to the path to net-zero emissions. However, with other assets such as publicly-listed companies, the way forward is reaching out to their leadership and discussing their approach to sustainability.

Wherever possible, the AOA recommends that its members use science-based targets and methodologies. The members are responsible for employing the recommended science-based criteria outlined in the protocol. If they chose an alternative target or methodology from the range of options discussed in the protocol, they should explain why.

The protocol has undergone testing by asset owners in their portfolios. Several alliance members will set large reduction targets, while others have already made substantial progress in their journey to net-zero in recent years. Therefore, the reductions required for their portfolios will be at the lower end of the range.

While the investment industry has a big role to play in the decarbonization of the economy, the support of other stakeholders cannot be emphasized enough.

The alliance continues dialogs with governments on GHG-reduction programs. Among the major discussion topics are the establishment of mandatory reporting on emissions for all companies and transparency on the true price of carbon.

A concerted action by governments, businesses and society will not only reduce the risks and costs of climate change but create tremendous economic opportunities.

The alliance gets stronger with each new member. Allianz invites all asset owners to join the AOA to bring about real change in the economy.

We all have a stake in sustainability.