Towards “net-zero” finance

“Net-zero” is the new objective of sustainable and responsible finance, imposed by the need to tackle the climate crisis. Major institutional investors and the world’s largest asset management companies have joined forces to achieve this objective. Further acceleration is expected in view of COP26.

The challenge posed by the climate crisis requires the financial sector to dedicate resources and investments towards achieving a “net-zero” development model, a term which refers to “carbon neutrality”, i.e. zero CO2 emissions. With a view to achieving this objective, initiatives have been launched internationally in which major financial stakeholders are playing a leading role.

Asset owners’ initiative

One of the most significant initiatives was launched at the Climate Summit that took place in September 2019 in New York, hosted by the UN Secretary-General. This was the Net-Zero Asset Owner Alliance: an initiative promoted by a number of the world’s major asset owners (institutional investors), especially pension funds and insurance companies. The members of the Alliance are committed to making a shift in their own investment portfolios to achieve carbon neutrality, in relation to invested assets, by 2050, in alignment with the objectives of the Paris Agreement and the findings of the IPCC’s report on climate change (Intergovernmental Panel on Climate Change). Further commitments include regular progress reporting and establishing intermediate targets every five years.

With this in mind, the Alliance recently published its first Target Setting Protocol, which must be updated on an annual basis. The report sets out the targets that the members are expected to achieve in the 2021-2025 five-year period, also in relation to their engagement activities and investments in sectors and businesses that have a positive environmental impact.

Source: The Net-Zero Asset Owner Alliance. Commitment Document for Participating Asset OwnersThe Net Zero Asset Managers Commitment.

Asset managers’ initiative

Inspired by the asset owners’ initiative, in December 2020 the Net-Zero Asset Managers Initiative was launched, incorporating some of the world’s biggest asset management companies. The objectives are similar: decarbonisation of investments with reference to all asset classes and in partnership with asset owners; establishment of engagement strategies and voting policies aligned with the net-zero target; creation of investment products that are also in line with this target; supporting the growth of investments in climate solutions; reporting in line with the recommendations of the TCFD-Task Force on Climate-related Financial Disclosures.

The Net-Zero Asset Managers Initiative will be managed globally by the existing major networks in the field of sustainable finance: Asia Investor Group on Climate Change (AIGCC), CDP, Ceres, Investor Group on Climate Change (IGCC), Institutional Investors Group on Climate Change (IIGCC), Principles for Responsible Investment (PRI). It is also envisaged that it will join the Race to Zero campaign, promoted globally by the United Nations, which aims to aggregate networks and initiatives of various sectors to accelerate action on climate change.

Acceleration in view of COP26

In all likelihood, these initiatives are likely to be accelerated in view of COP26, which is due to take place in November 2021 and is jointly organised by the United Kingdom and Italy. This will be a major event for stakeholders who now identify “net-zero finance” as their approach to sustainable and responsible investment. In view of COP26 particularly, the UN Secretary-General, Antonio Guterres, has challenged the members of the Net-Zero Asset Owners Alliance, which has established a “gold standard” for climate commitments, to set increasingly ambitious targets for themselves.

AXA Group is committed to reducing the CO2 emissions of its investments by 20% by 2025. AXA Group was one of the first to sign up to the Net-Zero Asset Owner Alliance, while AXA Investment Managers is one of the promoters of the Net-Zero Asset Managers Initiative. “The commitment to tackle climate change is a priority”, explains Lorenzo Randazzo, Senior Institutional Sales Manager at AXA Investment Managers. “The AXA Group has set a target to reduce the CO2 emissions of its investments by 20% by 2025 and is also committed to investing €24 billion into the green economy by 2023. We have also developed investment solutions that facilitate energy transition, with the same ultimate goal of climate neutrality”