Is the Net-Zero Asset Owner Alliance living up to its promises?

When a new report was released by criticalclimatevoters.com about the Net-Zero Asset Owner Alliance (NZAOA) last week, once again the ambitions and sense of sustainable finance alliances have to be questioned.

But let’s start at the beginning: what is the NZAOA?

The NZAOA is an initiative by the UN, uniting 62 institutional investors, that set the goal of transitioning their investment portfolio to net-zero greenhouse gas emissions by 2050. In detail by transitions the alliance means the following: “In the portfolio context, transition means that asset owners commit to gradually reducing the overall emissions contained in their portfolio to be aligned with the Paris Agreement (Art. 2.1c).” The initiative was founded in 2019 by their founding members Allianz, Caisse des Dépôts, La Caisse de dépôt et placement du Québec (CDPQ), Folksam Group, PensionDanmark and Swiss Re. Now members also consist of big insurers such as Allianz, Axa , Generali and banks like Societe Generale and BNP Parisbas. Today the alliance is part of the larger Glasgow Finance Alliance for Net Zero. Also it is supported by WWF as well as big names in the industry like the Science Based Targets initiative and the United Nations Environment Program just like by the Potsdam Institute for Climate Impact Research.  

Engagement as tool for reaching net-zero by 2050

One of the major tools that the members of the alliance wanted to use for reaching its goals is engagement, which means that the investors will actively use their right on general meetings as well as dialogue to influence their investees. In one of their publications the alliance stresses: “the Alliance has a strong focus on ‘advocating and engaging on a low carbon transition’ and will seek to align with existing efforts for joint climate engagement such as Climate Action 100+.”

The Report & Its Results

However, a new report by criticalclimatevoters.com analysed the Principles for Responsible Investment (UN PRI) transparency reports of each of the members.

One of the main findings was a lack of transparency – from the 46 tackled NZAOA-members only 13 have exercised their share-voting rights on climate-related shareholder proposals without an intermediary, with the remaining relying on proxy advisors, asset managers and other service providers. 18 members do not disclose how climate voting decisions are made on their behalf by intermediaries, while over 75% do not say whether they review their third parties’ voting recommendations. Additionally, 72% of the NZAOA members do not disclose whether they have a securities lending program, while further 13% do have one. When investors lend their securities to other investors, they lose their possibility of exercising the votes corresponding to those securities. The above-mentioned numbers suggest that some of the voting rights of those investors might not be used in favour of climate-friendly resolutions on the yearly AGMs.

Another shocking result was that institutions’ voting records did not become any more climate-friendly relative to their non-NZAOA peers. The report compared the NZAOA-members against a peer group of other UN PRI-members. This has to be set relative to an already strong climate-stewardship when joining the NZAOA, but still the alliance wanted to act as catalysator for further improvement.

Also, the voting results when it came to fossil fuel companies was disappointing. Even though NZAOA as well as non-AZAO members are more likely to vote in favour of climate resolutions at fossil fuel companies, this behaviour does not apply to ambitious climate resolutions calling for Paris-aligned strategies at major oil and gas firms. An example for this is the 2021 general meeting of Royal Dutch Shell. Shareholders wanted the company to set quantitative targets to reduce its emissions in line with the 1.5-degree goal. Only three out of the nine observed NZAOA members voted in favour of this resolution.

The NZAOA has been criticised before during this year in a report published by Reclaim Finance. There they were accused of not requiring their members to include their investees’ scope 3 emissions (which include up- and down-stream emissions by the supply chain and the clients using the products and services provided) in their emission goals, resulting in only one member setting a goal for scope 3 emissions of its target. Even requirements by the alliance are not enforced – in the NZAOA’s coal position paper the alliance bans investments in any new coal projects but the members do not have any restrictions on the investment in coal developers.

The results of these reports suggest once again, how a promising sustainable finance alliance is currently not making use of its potential. While these kinds of alliances call for collaborative engagement, where investors can use their bundled voting rights to put additional pressure on their investees, these opportunities are currently not being used. Moreover, the report shows how once-advanced first movers in the climate movement slowly lose their pioneer-position, while not advancing as fast as before anymore.

 

https://www.unepfi.org/wordpress/wp-content/uploads/2019/09/AOA_FAQ.pdf

https://static1.squarespace.com/static/60301b2e06d5ed68d7b687a2/t/61af7577a744975c0df8f1ad/1638888845360/NZAOA+Voting+and+Benchmarks+Report.pdf

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

Author: Nelly Eggert

Is the Net-Zero Asset Owner Alliance living up to its promises?

When a new report was released by criticalclimatevoters.com about the Net-Zero Asset Owner Alliance (NZAOA) last week, once again the ambitions and sense of sustainable finance alliances have to be questioned.

But let’s start at the beginning: what is the NZAOA?

The NZAOA is an initiative by the UN, uniting 62 institutional investors, that set the goal of transitioning their investment portfolio to net-zero greenhouse gas emissions by 2050. In detail by transitions the alliance means the following: “In the portfolio context, transition means that asset owners commit to gradually reducing the overall emissions contained in their portfolio to be aligned with the Paris Agreement (Art. 2.1c).” The initiative was founded in 2019 by their founding members Allianz, Caisse des Dépôts, La Caisse de dépôt et placement du Québec (CDPQ), Folksam Group, PensionDanmark and Swiss Re. Now members also consist of big insurers such as Allianz, Axa , Generali and banks like Societe Generale and BNP Parisbas. Today the alliance is part of the larger Glasgow Finance Alliance for Net Zero. Also it is supported by WWF as well as big names in the industry like the Science Based Targets initiative and the United Nations Environment Program just like by the Potsdam Institute for Climate Impact Research.  

Engagement as tool for reaching net-zero by 2050

One of the major tools that the members of the alliance wanted to use for reaching its goals is engagement, which means that the investors will actively use their right on general meetings as well as dialogue to influence their investees. In one of their publications the alliance stresses: “the Alliance has a strong focus on ‘advocating and engaging on a low carbon transition’ and will seek to align with existing efforts for joint climate engagement such as Climate Action 100+.”

The Report & Its Results

However, a new report by criticalclimatevoters.com analysed the Principles for Responsible Investment (UN PRI) transparency reports of each of the members.

One of the main findings was a lack of transparency – from the 46 tackled NZAOA-members only 13 have exercised their share-voting rights on climate-related shareholder proposals without an intermediary, with the remaining relying on proxy advisors, asset managers and other service providers. 18 members do not disclose how climate voting decisions are made on their behalf by intermediaries, while over 75% do not say whether they review their third parties’ voting recommendations. Additionally, 72% of the NZAOA members do not disclose whether they have a securities lending program, while further 13% do have one. When investors lend their securities to other investors, they lose their possibility of exercising the votes corresponding to those securities. The above-mentioned numbers suggest that some of the voting rights of those investors might not be used in favour of climate-friendly resolutions on the yearly AGMs.

Another shocking result was that institutions’ voting records did not become any more climate-friendly relative to their non-NZAOA peers. The report compared the NZAOA-members against a peer group of other UN PRI-members. This has to be set relative to an already strong climate-stewardship when joining the NZAOA, but still the alliance wanted to act as catalysator for further improvement.

Also, the voting results when it came to fossil fuel companies was disappointing. Even though NZAOA as well as non-AZAO members are more likely to vote in favour of climate resolutions at fossil fuel companies, this behaviour does not apply to ambitious climate resolutions calling for Paris-aligned strategies at major oil and gas firms. An example for this is the 2021 general meeting of Royal Dutch Shell. Shareholders wanted the company to set quantitative targets to reduce its emissions in line with the 1.5-degree goal. Only three out of the nine observed NZAOA members voted in favour of this resolution.

Reclaim Finance’s Criticism

The NZAOA has been criticised before during this year in a report published by Reclaim Finance. There they were accused of not requiring their members to include their investees’ scope 3 emissions (which include up- and down-stream emissions by the supply chain and the clients using the products and services provided) in their emission goals, resulting in only one member setting a goal for scope 3 emissions of its target. Even requirements by the alliance are not enforced – in the NZAOA’s coal position paper the alliance bans investments in any new coal projects but the members do not have any restrictions on the investment in coal developers.

 

The results of these reports suggest once again, how a promising sustainable finance alliance is currently not making use of its potential. While these kinds of alliances call for collaborative engagement, where investors can use their bundled voting rights to put additional pressure on their investees, these opportunities are currently not being used. Moreover, the report shows how once-advanced first movers in the climate movement slowly lose their pioneer-position, while not advancing as fast as before anymore.

 

https://www.unepfi.org/wordpress/wp-content/uploads/2019/09/AOA_FAQ.pdf

https://static1.squarespace.com/static/60301b2e06d5ed68d7b687a2/t/61af7577a744975c0df8f1ad/1638888845360/NZAOA+Voting+and+Benchmarks+Report.pdf

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

Author: Nelly Eggert

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