Does the net zero asset owner allowance promote regulated carbon markets?

Net zero assets are investments aligned with the goal of achieving net zero greenhouse gas emissions by 2050. The purpose is to reduce as much as we can the carbon released in the economy and make sure that any remaining emissions are offset by removal efforts. Net zero assets are related to activities or projects that actively contribute to the fight against climate change. These assets of net zero CO2 can include renewable energy projects, carbon capture and storage facilities, and European Union Allowances (EUAs) from the EU emissions trading scheme. A net zero asset portfolio can include energy-efficient real estate, green bonds, sustainability-focused shares, and diversification products like carbon allowances. The UN-convened Net-Zero Asset Owner Alliance, comprising institutional investors, aims to align their portfolios with the goal of limiting global warming to 1.5°C. Members commit to substantial CO2 reductions, and the alliance supports regulated carbon pricing as part of broader climate action strategies.

• What are net zero assets? 
• What is an example of a net zero asset strategy? 
• What is the net zero asset owner alliance? 
• Does the net zero asset owner alliance support carbon markets? 

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What are net zero assets? 

The definition of net zero, a reminder

The net zero objective means that no additional volumes of CO2 are released into the atmosphere by 2050. It is the goal of achieving a balance between the greenhouse gasses emitted into the atmosphere and those removed from it. This means reducing greenhouse gas emissions as much as possible and offsetting any remaining emissions. The ultimate aim is to limit global warming to well below 2 degrees Celsius above pre-industrial levels, as outlined in the Paris Agreement. 

What is a net zero asset? 

A net zero asset is an investment through a financial instrument that is aligned with the goal of achieving net zero greenhouse gas emissions. This means that over its lifecycle, the activities that are relative to the existence of this asset do not produce additional volumes of CO2 by 2050. Under the denomination of “net zero assets” can fall the following financial instruments: 

• renewable energy projects, 
• carbon capture and storage facilities, 
• European Union allowances (EUAs) from the EU emissions trading scheme (EU ETS). 

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What is an example of a net zero asset strategy? 

What is a net zero asset portfolio? 

An investor may opt to construct a net zero portfolio, reflecting their commitment to addressing the urgency of climate change. This involves identifying asset allocations (like carbon allowances), that provide financial returns while fully aligning with the global net zero objectives.

An example of a net zero asset portfolio by a professional impact investor

In an exclusive interview for Homaio, Arnaud Giraudon, a professional impact investors, gave an example of a green asset portfolio investment, as follows: 

• Real Estate (30%): Investing in energy-efficient buildings or sustainable development projects;
• Liquidity (5%): Allocating funds to green bonds issued by governments or corporations;
• Shares (30%): Investing in companies that prioritize sustainability and have low carbon footprints. This can be done through exchange-traded funds (ETFs) focused on clean energy or socially responsible investing (SRI) indexes;
• Fixed Income Products (30%): Including green bonds or sustainability-linked bonds in the fixed income portion of the portfolio;
• Diversification Products (5%): The importance of those assets is often wrongly neglected by investors - Homaio offers carbon allowances that fit very well into this category. 

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What is the UN-convened net zero asset owner alliance? 

The composition of the net zero asset owner alliance

The Net-Zero Asset Owner Alliance (NZAOA), convened by the United Nations, is composed of institutional investors dedicated to aligning their investment portfolios with net zero greenhouse gas (GHG) emissions by 2050. Their priority is for their financial investments to be in line with limiting global temperature rise to 1.5°C.  

As per Antonio Guterres, the UN Secretary General, “The Net-Zero Asset Owner Alliance, the gold standard for credible commitments and transparent targets, is managing USD 10 trillion in assets and catalyzing change across industries”. 

What are the climate commitments of the net zero asset owner alliance members? 

The alliance members have established common targets, aiming for CO2 reduction ranges of 22% to 32% by 2025 and 40% to 60% by 2030. Each member of the alliance has the autonomy to come up with their individual commitments regarding the additional ambition of their portfolio. Since its inception, 69 alliance members have completed and submitted such additional reporting templates outlining their targets. As of April 2024, 83 members have disclosed targets aligning with the Alliance's common Commitment.

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Does the net zero asset owner alliance support carbon markets? 

The net zero asset owner alliance and climate commitments

The United Nations Environment Programme Finance Initiative (UNEP FI) and the Principles for Responsible Investment Initiative (PRI) are tasked with collaborating with financial institutions to promote science-based climate change action. Also, the alliance collaborates with research institutes, think tanks, and non-governmental organizations (NGOs) to develop data-backed climate and finance statements aligned with cutting-edge impact investing strategies.

The net zero asset owner alliance and the EU ETS 

On May 24th this year, the alliance published a report on regulated carbon pricing, emphasizing that the expanding ETS (Emissions Trading Systems) worldwide is getting strengthened. Similarly to the report on the State and trends of carbon pricing in 2024 by the World Bank, the net zero asset owner alliance members underlined that higher regulated carbon prices truly correspond to the current environmental reality. 

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Key Takeaways

• Definition of Net Zero: The net zero objective is to stop emitting any additional volumes of CO2, reducing emissions as much as possible and offsetting the rest.
• Net Zero Assets: Net zero assets are investments aligned with achieving net zero emissions, including renewable energy projects, carbon capture facilities, and EU carbon allowances.
• Net Zero Asset Portfolios: These portfolios comprise green investments like energy-efficient real estate, green bonds, and sustainability-focused shares.
• Net-Zero Asset Owner Alliance: Convened by the UN, this alliance of institutional investors aims to align investment portfolios with net zero greenhouse gas emissions by 2050.
• Alliance Climate Commitments: Members target CO2 reduction ranges of 22-32% by 2025 and 40-60% by 2030, with 83 members disclosing additional specific more ambitious targets.
• Support for Carbon Markets: The alliance focuses on regulated carbon pricing and collaborates with various institutions to promote science-based climate action and impact investing strategies.

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