General Overview
The Net Zero Asset Owner Alliance (NZAOA) is a global coalition of institutional investors committed to transitioning their investment portfolios to Net Zero greenhouse gas emissions by 2050. It was initiated in 2019 by a group of 12 international asset owners (including Allianz, CDPQ, Groupe Caisse des Dépôts and SwissRe) in partnership with the United Nations Environment Programme Finance Initiative and the Principles for Responsible Investment (PRI).
NZAOA is part of the Glasgow Financial Alliance for Net Zero (GFANZ), which is an umbrella initiative launched in 2021 to unify the global financial sector's efforts to achieve Net Zero by 2050. Thus, as part of GFANZ, NZAOA collaborates with other alliances (e.g. Net Zero Asset Managers, Net Zero Banking Alliance, Net Zero Investment Consultants Initiative, etc.) to create consistent standards, share best practices, and collectively influence the transition to a low-carbon economy on a global scale.
Typology of the framework
Date of creation: 2019
Framework type: Net Zero engagement
Targets: Asset Owners
Number of members : 88 across the world, as of Aug.24
AUM: $9.5 trillions
Objectives of the framework
The NZAOA members commit to aligning their investment portfolios with the Paris Agreement, aiming to limit global warming well-below +2°C, and ideally to +1.5°C compared to pre-industrial levels. To do so, the overall objective for the members is to reach Net Zero emissions by 2050. Members are also required to set interim targets at portfolio level for 2025, 2030 and 2040, in absolute or in intensity terms. These targets include:
A 22% to 32% decrease in carbon emissions for 2025.
A 40% to 60% reduction for 2030.
The NZAOA has also published its own target-setting methodology, named the Target-Setting Protocol (TSP), which is specifically designed for asset owners.
Implications for investors and their portfolios
For Asset Owners
Investors joining the NZAOA must set decarbonization targets on their scope 1, 2 and 3, including their financed emissions. They are required to set interim targets for 2025 upon joining, Then, they must establish their intermediate targets every five years, pathing a way towards Net Zero emissions by 2050. No specific framework is mandated by the Alliance to set decarbonization targets, they still recommend using the TSP developed by the NZAOA, or the Science-Based Targets initiative (SBTi), which is the international standard to date. However, the NZAOA acknowledges that other methodologies (existing and future ones) may be more relevant as the market evolves.
As of Aug.24, 83 out of 89 members have published targets, representing $8.4 trillions AUM.
Asset owners must report their progress annually in a transparent way, ideally by following the recommendations made by the Task Force on Climate-Related Financial Disclosures (TCFD), which is now part of the International Sustainability Standards Board, ISSB. The Alliance will conduct “ongoing, informal and qualitative stock-take” aiming at tracking both the progress of NZAOA members and the Alliance’s performance.
For Asset Managers
Although Asset Managers usually do not join the NZAOA, which is dedicated to asset owners, they definitely are impacted by the commitment of their Limited Partners (LPs) to the Alliance.
Indeed, when a LP joins the NZAOA, they have to set decarbonization targets on their portfolio (financed emissions). Therefore, this will imply that a growing number of its General Partners (GPs) must work on (i) reducing their scope 1 and 2 at very least, but also (ii) reducing their own financed emissions and eventually (iii) committing to Net Zero frameworks (e.g. SBTi, Net Zero Asset Managers, etc.).
In that context, committing to a Net Zero framework becomes a competitive advantage and/or a prerequisite for a GP to raise funds.
At Carbometrix, we noted an increasing number of LPs asking their GPs to at least work on decarbonizing their portfolios, if not committing to reach Net Zero. A growing trend in this sense is visible as in 2023, 34 members of NZAOA explicitly asked their asset managers to commit to Net Zero, compared to 20 in 2022.
Carbometrix’s Opinion
The NZAOA is a significant initiative and the most ambitious alliance for Limited Partners and all asset owners willing to commit to Net Zero emissions and to set a serious pathway toward this goal.
Led by major institutional investors and connected to a wide network of international organizations and frameworks, the NZAOA demonstrates the urgency to create global norms and standards to redirect finance towards sustainable investments and facilitate transition to a low-carbon economy.
Yet, the NZAOA faces criticisms regarding its voluntary and non-binding nature:
Critics worry that without binding regulations or external enforcement, some members may fall short of their commitments or engage in "greenwashing”;
The NZAOA has gone from 49% to 40% minimum reduction in CO2 emissions per sub-portfolio by 2030, considering this decrease would stay in line with the Paris Agreement’s objectives. The fact remains that the initial ambition has weakened slightly, hence the need to remain vigilant on ambition level;
Some stakeholders have also raised concerns about the transparency and rigor of NZAOA members’ reports. They question whether the disclosed data is sufficient to assess real progress and whether it adequately captures the impact of investment strategies on emissions reduction.
However, despite these challenges, the NZAOA represents a critical step forward in mobilizing financial power for climate action.