Institutional investors in the Asia-Pacific region are mulling whether to join a new alliance of globally invested pension funds targeting carbon-neutral investment portfolios by 2050.
The ‘Net-Zero Asset Owner Alliance’ (AOA) announced on Monday at the UN Climate Summit in New York saw alliance members pledge to transition their investment portfolios to net-zero greenhouse gas (GHG) emissions within the next 30 years.
Although Asia's largest asset owners were noticeably absent from this environmental call to arms, some said they had been asked to join and were still considering it when contacted by AsianInvestor.
The AOA comprises several of Europe’s biggest insurance investors and pension funds, including Allianz, Swiss Re, Zurich, PensionDanmark and Caisse des Dépôts, together with two North American pension funds, CDPQ and CalPERS. Collectively they manage $2.4 trillion of investments.
The carbon-neutral initiative is the result of a belief among some global investors that they can bring about meaningful change in corporate behaviour while demonstrating their own green credentials. AOA members are making a commitment to transition their portfolios to net-zero GHG emissions, including establishing intermediate targets every five years in line with the Paris Agreement on climate change.
AOA spokesman Oliver Wagg told AsianInvestor that members will seek to reach this commitment, “especially through advocating and engaging on corporate and industry action. As investors, they will set targets at portfolio level and report on progress in a sector-specific way.”
The AOA methodology is centred on pressuring corporations to de-carbonise their businesses.
“The first thing these investors will do is ask all companies in their portfolios to set a corporate science-based decarbonisation target,” Wagg said.
It's a strategy backed by the UN's Principles for Responsible Investment (PRI), which was formed in 2006 to promote more sustainable institutional investment and has more than 2,300 signatories.
“The AOA will achieve net zero – through focusing on their entire portfolio, across all asset classes,” the PRI’s chief executive Fiona Reynolds, also in New York for the Climate Summit, told AsianInvestor. “This will happen though active ownership and integration of climate into their investment process and through the new investments they make.”
She described the AOA as “a leadership programme, high-conviction group” and added that, although euro-centric at launch, other countries would join over time to make it a truly global initiative.
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To that end, Wagg said the AOA is actively recruiting other asset owners, not least in the Asia-Pacific region.
“We are engaging a number of Asian asset owners, especially those that have already committed to setting science-based, climate-related targets,” he said, whilst declining to specify any names.
AsianInvestor contacted several of the region's top asset owners about the AOA.
“We are aware of the initiative and are currently assessing it,” AustralianSuper’s spokesman Stephen McMahon said.
AusSuper's activity in this area includes being a member of the Asia Investor Group on Climate Change (AIGCC) a forum for Asian asset owners to discuss transitioning their portfolios to carbon neutrality.
New Zealand Super’s head of responsible investment, Anne-Maree O’Connor, said the fund is looking at the AOA initiative. “They are inviting other investors to join and we want to find out more about how the founding members define and develop their methodology and implementation. It’s important we assess such commitments and methods carefully."
The NZ Super Fund is pushing ahead with its own climate change investment strategy and is working with other global sovereign funds to encourage them to follow suit.
"We’ve already shifted our portfolio," said O'Connor, "but it will be interesting to see the extent to which other large investors begin to shift their portfolios. Certainly a lot of the larger investors are more focused on engaging."
Japan’s Government Pension Investment Fund is another that is considering joining the alliance. A fund spokeswoman told AsianInvestor that nothing has been decided yet.
Like NZ Super, GPIF considers climate change to be a systemic risk affecting the entire spectrum of markets and asset classes; one that cannot be eliminated through simple portfolio diversification.
On climate, the fund has so far invested ¥387.8 billion ($3.3 billion) in an S&P/JPX Carbon Efficient Index for Japanese equities, and ¥1.2 trillion in an S&P Global LargeMid-Cap Carbon Efficient Index for foreign equities.
These indices overweight companies with high carbon efficiency within an industry while underweighting less efficient ones; and they overweight companies that proactively disclose climate information.
GPIF has also invested more than $1 billion in green bonds and sustainability bonds.
While Korea’s Public Officials Benefit Association (Poba) is not engaging with the AOA at this point, chief investment officer Jang Dong Hun told AsianInvestor the pension fund has laid the foundation for its climate responsibilities through revisions to its investment policy.
Singapore's GIC, which has a broad ESG policy but no specific framework for climate change, declined to comment on the new asset owner alliance.
Ahead of the Climate Action Summit this week, UN Secretary-General António Guterres urged governments and the private sector to present plans to cut greenhouse gas emissions 45% by 2030 and reach carbon neutrality by 2050.
“I am also asking all investors to scale up green ventures, to increase lending for low-carbon solutions and to stop, in effect, financing pollution,” said Guterres.
Whether these steps will be radical enough to fully address the potentially calamitous effects of climate change remains to be seen.