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ESG Investing / Asset Management
Institutions aligning capital flows to net zero
Pension, superannuation funds acting on climate solutions, stewardship, fossil fuels
The Asset 10 Nov 2022

The Paris Aligned Asset Owners (PAAO) initiative, an international group of asset owners committed to supporting the goal of net-zero greenhouse gas emission by 2050 or sooner, has published its first progress report showcasing the steps asset owners are taking to reach their net-zero goals.

The PAAO initiative is managed globally by four founding partner investor networks: the Asia Investor Group on Climate Change (AIGCC), Ceres, the Investor Group on Climate Change and the Institutional Investor Group on Climate Change.

The report, which includes 29 case studies, shows how asset owners are developing a range of strategies and approaches to fulfil the criteria set by the PAAO 10-point commitment. Highlights include:

  • Investment in climate solutions: 98% of PAAO signatories that have disclosed targets have established either a quantitative target or qualitative goal for increasing investments in climate solutions. Despite the absence of an industry standard that can be applied across an investment portfolio, signatories have measured their current allocation and set ambitious quantitative targets ranging from 6% of assets under management to 25% by 2030.
  • Stewardship and engagement: Many asset owners have started to clearly communicate expectations for transitioning to the companies they invest in, including setting timebound milestones. Where specific objectives are not met, escalation is starting to become the norm, as recently shown by the decision to file a case against Volkswagen by several PAAO signatories after it refused repeated attempts to reveal crucial information on its corporate climate lobbying activities.
  • Fossil fuels investment policies: 23 signatories that have made disclosures have fossil fuel investment policies in place or under development. The policies vary but often include exclusions of companies that derive a certain proportion of sales or revenues from carbon-intensive activities, such as those relating to coal mining, or fossil fuel extraction from tar sands or oil and gas. For example, Dutch pension fund PFZW has set clear time-bound expectations of fossil fuel companies, including a deadline of 2024 for divesting where key criteria is not met.  

"The leading pension and superannuation funds are making important progress on getting capital flows to align to the goals of the Paris agreement,” says Rebecca Mikula-Wright, CEO of the AIGCC. “These are systemically important investors, with growing pools of assets invested for the long-term interests of millions of beneficiaries, so they’re particularly exposed to the risks and opportunities of climate change. The data and real-world examples in this report show the opportunity that this class of investors have to progress to net zero, and their responsibility to do so.”

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