IPE’s November special report: Towards Net Zero

Jay Owen Reforming Global Finance, Beyond GDP, Transforming Finance




Whatever the headlines about COP26 when it closes, the work of pension funds and other institutional investors towards achieving net-zero goals in service of limiting global temperature rises will continue.

To put it starkly, the world is not on track for net-zero emissions by 2050. As Günther Thallinger, CIO of Allianz, points out starkly in the Viewpoints section of IPE November’s Towards Net Zero report, the remaining carbon emissions budget – if the world is to have an 80% chance of limiting the global rise in temperature to 1.5C – is just 300 gigatonnes (see also the data section in our report).

On the positive side of the balance sheet, dollar commitments to the Net Zero Asset Owners Alliance (NZAOA) now amount to $7trn, with some 28 asset owners having set concrete interim targets at five-year staging posts. Some $55trn backs Climate Action 100+, the investor initiative focusing on the largest corporate emitters and $29trn backs the Transition Pathway Initiative.

Achieving complex net zero emissions is a complex task and one that should not be underestimated. It demands much of all stakeholders – trustees and management of pension funds as well as asset managers and portfolio companies. We spoke to five leading pension investors for this report about their climate and Net Zero related policies and initiatives – PensionDanmark and PFA in Denmark, BT Pension Scheme and Border to Coast in the UK, and Italy’s Inarcassa. We also look at the work of Mark Carney’s Portfolio Alignment Team in this article.

More pension capital will need to back initiatives like NZAOA, with concrete actions. This will mean activity much further down the financial food chain, in smaller, harder to reach asset pools where resources – governance, time and money – are more scarce.

Financial coalitions like Mark Carney’s Glasgow Financial Alliance for Net Zero (GFANZ) are an important rallying point – not least in highlighting the gaps in capital flows to developing countries and the need to to dramatically scale up blended finance. Here the challenges are prodigious – but ideas there are aplenty, including the Asian Development Bank’s proposed energy transition mechanism to retire coal-fired power plans.

At intergovernmental level perhaps the most important outcome from COP26 would be progress on carbon pricing. The recent G20 agreement on a minimum global corporate tax rates shows progress can be made at a multilateral level on complex areas like this.

Agreement on TCFD reporting for corporates, beyond what has already been agreed at the G7, would also be a major step. Mandatory TCFD reporting for investors would be another.

All of the content in our Net Zero report is available free to air so please alert colleagues and contacts. You can read it as a Digital Edition too.

Liam Kennedy, Editor, IPE