An Overview of Global Net-zero Carbon Initiatives for Investors

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  • An Overview of Global Net-zero Carbon Initiatives for Investors

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    The 26th UN Climate Change Conference (COP26) will be held in Glasgow from November 1 to 12, 2021, which draws attention to achieve the targets set in the Paris Agreement in 2015. The Paris Agreement targets include limiting global warming within this century to below 2°C and pursue 1.5°C and require all the committed parties to report their progress of mitigating emissions every five years. Recently, the Glasgow Financial Alliance for Net Zero (GFANZ) was launched by merging several UN-sponsored net-zero carbon alliances to accelerate the sustainable transition before the COP26. This report will present an overview of those net-zero groups for investors.

    Glasgow Financial Alliance for Net Zero

    The COP26 Presidency established the GFANZ in collaboration with the UN Framework Convention on Climate Change (UNFCCC) Climate Action Champions and Race to Zero Campaign on April 21, 2021. GFANZ is the coalition of the newly introduced Net-Zero Banking Alliance, Net-Zero Asset Owner Alliance, Net Zero Asset Managers Initiative, and the Paris Aligned Investment Initiative. It brings existing and new net-zero initiatives together to enhance the net-zero carbon commitments and to coordinate firms’ strategies and technologies to achieve a net-zero carbon economy across the entire financial sector. The organization will continue operating after the COP26.

    GFANZ has attracted over 160 signatories with more than USD70tr worth of assets under management (AUM). For all the firms interested in a GFANZ membership must enter the Race to Zero Campaign. Moreover, they must apply science-based guidelines to cover all greenhouse gas (GHG) emissions scopes, set the 2030 interim targets, and finally reach net zero emissions before 2050. They also need to provide transparent reporting and accounting in accordance with the UN Race to Zero criteria.

    UNFCCC Race to Zero Campaign

    The UNFCCC Race to Zero Campaign is an international initiative that collaborates commitments of being net zero, absolute zero or climate positive from cities, regions, business, investors, and academic institutions.

    The minimum threshold embarrasses four aspects: pledge, plan, proceed, and publish. In terms of pledging, members are required to reach the net-zero target before 2050 at the board level. Planning requires signatories to state their short-term and medium-term action plans toward net zero, especially interim targets on their contributions to global emission reduction by 2030. Proceeding refers to the immediate actions members should take to reach the targets, while the publishing asks members to submit qualitative reports annually to the UNFCCC Global Climate Action Portal. The minimum entry criteria and other further criteria are also suitable for the sub-sector alliances under GFANZ.

    Sub-sector Alliance: Net-Zero Asset Owner Alliance

    UN Environment Programme’s Finance Initiative (UNEP FI) and the Principles for Responsible Investment (PRI) jointly set up the Net-Zero Asset Owner Alliance in September 2019. The main objective of the alliance is to transit investment portfolio into net-zero emission by 2050.

    The alliance brings 37 members, like Zurich Insurance Group and Univest, together with over USD5.7tr worth of AUM. According to its Inaugural 2025 Alliance Target Setting Protocol, members should submit a report on progress towards their targets each year, following the minimum entry criteria of the Race to Zero Campaign. In addition, members are required to report their interim targets for their underlying holdings. It is noticeable that the Protocol require the asset owners to identify and set specific carbon reduction targets on either 20 highest emitting companies or companies contributing to 65% of total portfolio emission.

    Sub-sector Alliance: Net-Zero Asset Managers Initiative

    The Net-Zero Asset Managers Initiative, founded in December 2020, is managed by six founding partner investors networks, namely: Asia Investor Group on Climate Change (AIGCC), CDP, Ceres, Investor Group on Climate Change (IGCC), Institutional Investors Group on Climate Change (IIGCC), and Principles for Responsible Investment (PRI). The initiative aims at urging asset managers to help deliver the goals of the Paris Agreement and ensure the net-zero transition of investing.

    The initiative has 87 signatories with more than the combined AUM of USD37tr. Apart from the commitments to setting 2030 interim targets and achieving net zero by 2050, members are required to use and create investment products to reduce carbon in long term. They should also inform their clients of net-zero investing and climate-related risks and opportunities. Moreover, members have the accountability to publish TCFD recommendation disclosures every year, as well as a climate action plan.

    Sub-sector Alliance: Net-Zero Banking Alliance

    The Net-Zero Banking Alliance is a group of 43 global banks managing over USD28.5tr assets, convened by UNEP FI to deliver the banking sector’s climate commitments to the Paris Agreement goals. Since it is a new alliance, signatories must set their 2030 and 2050 targets within 18 months after joining and their five-year intermedia targets starting from 2030. Within three years of the entry, banks in the alliance shall also commit to set targets for all or major carbon-intensive sectors and integrate their clients into decarbonization. Finally, the annual report of signatories should contain their absolute emission, emission intensity, progress against transition strategies, and climate-related policies on different sectors.

    Incoming Sub-sector Alliance: Net-Zero Insurance Alliance

    The Net-Zero Insurance Alliance will be launched on the COP26 by seven global leading insurers and reinsurers, including AXA, Allianz, Aviva, Munich Re, SCOR, Swiss Re, and Zurich. AXA will be the chair of the alliance. The mission is to accelerate the development of net-zero economy and reach the 1.5°C target of the Paris Agreement.

    Apart from those UN-led initiatives, several regional groups of investors share similar goals on the climate-related issues and work collaboratively and separately. For instance, Asia Investor Group on Climate Change (AIGCC) involves 46 members with the AUM worth over USD13tr. It is launched to raise the awareness among Asian investors on impact of climate change and low carbon investing. AIGCC also offer investors resource to facilitate engagement with other stakeholder like government.

    How investors get involved in the transition?

    These global initiatives gather worldwide investors together and provide them with practical guidance towards net-zero future. Investors can reduce emissions of their portfolios, as well as the related industries, once they become signatories of certain alliances. The big image for members to transform into sustainable economy is to fulfil the commitments to global emission reduction targets. To achieve these targets, the first step is to take deep insights into different industry of their investment and set specific mitigation targets in line with the global targets. However, it is still challenging for investors to track and calculate all scopes of GHG emission concisely due to lack of data support and complexity of calculation. At the next stage, investors have to prepare reports in accordance with science-based guidance. They need to report on strategies and actions taken to emit emissions annually and their interim target report for every five years. Finally, as is mentioned, TCFD’s disclosure recommendations especially require asset managers to report the climate influence on the investments.

    As a high level of knowledge and experience is required, here we provide our SaaS platform for firms to conduct the TCFD report. Our experienced team will also provide professional service to help companies on decarbonization. Contact us with info@senecaesg.com to get customized solutions especially for you.

    Reference:

    https://www.unep.org/news-and-stories/press-release/mark-carney-un-race-zero-campaign-and-cop26-presidency-launch-net

    https://unfccc.int/climate-action/race-to-zero-campaign#eq-4

    https://racetozero.unfccc.int/wp-content/uploads/2021/04/Race-to-Zero-Criteria-2.0.pdf

    https://unfccc.int/sites/default/files/resource/Minimum-criteria-for-participation-in-RTZ.pdf

    https://www.netzeroassetmanagers.org/#our_commitment

    https://www.unepfi.org/net-zero-banking/commitment/

    https://www.unepfi.org/climate-change/un-convened-net-zero-insurance-alliance/

    https://www.unepfi.org/net-zero-alliance/

    https://www.unepfi.org/wordpress/wp-content/uploads/2021/01/Alliance-Target-Setting-Protocol-2021.pdfhttps://ec.europa.eu/clima/policies/eu-climate-action/2030_ctp_en

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