Fund giants pledge massive cut to portfolio carbon emissions

A decision by this powerful group is a further demonstration of the shift towards greener investing.

Thirty of the world’s largest investors – with a combined $5 trillion in assets – have agreed to cut the carbon emissions of their investment portfolios by almost a third.

Over the next five years, the UN-convened Net-Zero Asset Owner Alliance members will put in place deep greenhouse gas (GHG) emissions reductions of 16% to 29%.

The move is part of the group’s plans, known as the protocol, to reduce emissions, increase investment in the net-zero emissions transition and enhance influence on markets and government policies.

Under the plan, the group of 30 investors will signal to the thousands of companies they own that they will have to make deep cuts to their greenhouse emissions if they wish to continue to enjoy financial backing. 

The Net-Zero Asset Alliance will work with those companies willing to adjust their businesses to significantly lower carbon models as the only alternative to divestment – selling out of them altogether.

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Günther Thallinger, Alliance chair and board member at insurance and fund management giant Allianz, said:

“Alliance members start out by changing themselves and then reach out to various companies to work on the change of their businesses.”

Engaging with the companies they invest in – rather than by automatically selling out of carbon intensive investments – was chosen by the Alliance on the grounds, it said in a statement, that “it is highly questionable if [divestment] alone would have a positive impact on the real economy”. 

Thallinger added:

“Reaching net-zero is not simply reducing emissions and carrying on with the business models of today. Profound changes and opportunities will come from the net-zero economy, we see new business opportunities and strong wins for those who are ready to lead.”

Adoption of greener investment strategies is accelerating among the world’s rich in a strong indication of where they see the source of future returns.

High net wealth individuals, foundations and other groups – with an average net worth of $876 million – already invest on average 20% of their portfolios in so-called impact funds, which provide capital to address social and environmental issues, but by 2025 plan to almost double this 35%, according to new research by Barclays Private Bank.

More than a quarter (27%) of wealthy investors expect to go even further. They plan to move in excess of half their portfolios into impact investing over the next five year, the Barclays research shows.

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The Alliance will move towards its carbon cutting commitments by transitioning investment portfolios to net-zero GHG emissions by 2050.

It will achieve this through advocating for corporate action, as well as public policies, for the low-carbon transition of economic sectors, in line with science and under consideration of social impacts. 

In order for their efforts to be met with success, substantial government action will also be required, the Alliance stressed.