The Net Zero Asset Owner Alliance announced the release of its updated Target-Setting Protocol, its key framework outlining requirements for signatories to set and report on portfolio alignment with net zero by 2050.
The new publication, the fifth version of the Target-Setting Protocol, places a greater emphasis on transition elements and alignment with net zero pathways, rather than just on reducing portfolio emissions, including the introduction of a new transition target for asset owners.
Founded in 2019, the NZAOA is a UN-convened, signatory-led initiative of institutional investors committed to transitioning their investment portfolios to net-zero GHG emissions by 2050. The alliance now includes 87 signatories across 19 countries, with more than $9 trillion in assets under management.
Among the key changes in the new version of the NZAOA’s target-setting framework is the introduction of a new transition target category, aimed at enabling investors to support high-emitting companies with credible net-zero plans. The new transition targets outline the share of portfolio emissions linked to “transitioning assets,” which typically consist of holdings in companies in high-emitting sectors with credible transition plans.
With the addition of the new transition target category, the new protocol updates the frameworks’ four-part target-setting approach, to now include Engagement Targets, Sector or Transition Targets, Climate Solutions Investment Targets, and Sub-portfolio Emissions Targets. Under the framework, signatories are required to set targets in at least 3 of the categories, with Engagement Targets – which include goals for actively engaging with companies, asset managers, and sectors to encourage actions aligned with net zero emissions – mandatory.
As part of its new transition target category, the updated framework also introduces principles for credible transition plans, to support the determination of defining an asset as a “transitioning asset,” covering a broad set of criteria including commitment to Paris Agreement-aligned goals, credible and time-bound science based targets, the integration of targets into relevant internal policies, action plans, advocacy alignment, and reporting.
In addition to the expanded transition emphasis, the updated protocol also includes a more significant integration of carbon removals into the NZAOA’s target-setting framework. The protocol encourages signatories to contribute to the financing of carbon removal projects and in the development of a well-regulated carbon market, while maintaining its emphasis on prioritizing decarbonization, and its restrictions against using carbon removals to reach portfolio targets prior to 2030.\
Click here to access the updated NZAOA Target-Setting Protocol.
