The Net Zero Asset Owner Alliance has banned its members from counting carbon removal schemes - like large scale planting of trees - towards their emission reduction targets.
Created by the United Nations Environment Programme, the alliance is made up of 83 institutional investors including St James’s Place and Legal & General.
In an update earlier this week (January 31) the alliance said because the impact of carbon removal technologies are yet to have a significant impact on reducing emissions, members should instead prioritise encouraging investee companies to reduce emissions across all sectors.
Based on the Intergovernmental Panel on Climate Change’s most recent report, the alliance said emission reductions in the range of 22 to 32 per cent are required for sub-portfolio targets by 2025 and reductions in the range of 40 to 60 per cent are needed by 2030 to keep global warming below 1.5°C.
Allianz SE board member, Günther Thallinger, who also sits on the board of NZAOA said the latest announcement from the alliance increases expectations for its members and calls on policymakers and corporates to move in line with science.
“We are observing a divergence of real-economy emission pathways and scientific pathways for limiting temperature rise to 1.5C,” Thallinger warned.
“The alliance continues to enhance depth and coverage with each edition of the target setting protocol, aiming to build a coherent, consistent trajectory aligned to the demands of latest climate science. We show that working towards net zero is possible. It is a matter to decide to do so.”
The alliance requires members to publish interim targets on a five-year cycle, including targets for engagement, sector, sub-portfolio and financing transition.
It noted that investment portfolio emissions typically represent the vast majority of an asset owner’s emissions.
Issues with carbon capture reliance
Carbon removal schemes have boomed in popularity in recent years as companies from all sectors commit to net zero.
A 2020 study commissioned by the UN-supported Principles for Responsible Investment (PRI), reckons that by 2050 the demand for forest-related carbon removal will be delivering $800bn in annual revenues.
But concerns exist over the effectiveness of such schemes when they are used by firms - and countries - to offset their greenhouse gas emissions instead of making greater efforts to reduce emissions at source.
A study by the UN concluded that climate pledges made by countries worldwide are “dangerously over reliant” on tree planting and land restoration.
Lead author of the report, Kate Dooley said at the time that countries were turning to land-based solutions instead of “the hard work of steeply reducing emissions from fossil fuels, decarbonising food systems and stopping the destruction of forests and other ecosystems”.
Watch our sister publication, the Financial Times film on the challenges, hopes and controversies surrounding carbon capture.
jane.matthews@ft.com
