The leader of the financial industry’s biggest effort to advance decarbonization addresses its rapid growth and recent controversial oil and gas position.
The Net-Zero Asset Owner Alliance (NZAOA) — the “gold standard” for net zero targets, according to United Nations Secretary-General Antonio Guterres, has just turned four years old.
Under the leadership of Chair Günther Thallinger, who has led the group since its inception, the audacious decarbonization effort by the financial industry has grown from 12 members to 86 across the world with $11 trillion in assets under management, each committing their portfolios to transition to net zero greenhouse gas emissions by 2050.
The NZAOA was the first climate-focused investor initiative to set Paris Agreement-aligned intermediate targets for 2025 and 2030. It continued to expand its ambitions in 2023,including setting expectations about fossil fuel phaseouts in March for investors, carbon-intensive sectors and policymakers.
With 15 months left in his second two-year term, Thallinger, also a board member and former CEO of Allianz Investment Management, leads the NZAOA toward its 2050 goal of 200 members with $25 trillion in assets.
“The biggest success that we could achieve is that we become obsolete.”
The UN-convened alliance did see a few member departures this year and last, including the Construction and Building Unions Superannuation (CBUS) fund in Australia, German insurance investor HanseMerkur and the Church of England Pensions Board. But it has fared better than some of its Global Financial Alliance for Net Zero (GFANZ) member group peers, such as the Net-Zero Insurance Alliance; one-fifth of its members left in May.
I spoke with Thallinger during Climate Week NYC about NZAOA’s successes, the desire across the asset owner community to see “initiative consolidation” and where the oil and gas sector fit in.
Grant Harrison: Sept. 23 marked the fourth birthday of the NZAOA. What are the key markers of success for the alliance and its members?
Günther Thallinger: At the core of the success is that we are United Nations-convened, and that we are an initiative where organizations like the World Wildlife Fund (WWF) and Global Optimism, with Christiana Figueres’ team, are really contributing. We have links to various other U.N. initiatives, and we believe that, more and more, discussions with heads of state and governments are becoming more important.
And then, success has been measured by the increase in membership to what it is now. But much more importantly, the members have proved it is possible to set the targets and work against them, which is issued in progress reports. We have the second out, and the third iteration is to come. I believe this makes it quite clear that it is possible to really watch — in an economic growth sense — climate impact, and do this step by step in an announced form.
“It is possible to really watch — in an economic growth sense — climate impact, and do this step by step.”
This should allow others to gain trust in this work. And that is the most important thing: that this work is trusted, so that more can join and that partners can support us. And so that we can have the industry sectors we need to be cooperating with us.
Responsible Investor found in a survey of asset owners that they see space for “initiative consolidation.” Given the number of sustainability and net-zero initiatives across the institutional investment space, how would you describe NZAOA’s unique role for the broader investment ecosystem?
First, in terms of consolidation: For the NZAOA, the biggest success that we could achieve is that we become obsolete. And why would that be? Because all investors would use a decision-making process that fully integrates climate. It would just be part of the normal decision-making for investments.
Now, in terms of the many initiatives. It has been important to have many initiatives but now the time has come to shift capacities into the transformation work away from the conceptional work.
It is also the case that the assets — the companies we are financing or where we are equity owners, the infrastructure we are financing or owning — the transformation technologies already exist. We need to start to accelerate these so the transformation happens. That does not require another initiative, another working group; it requires that we use our capacity as investors and asset owners to drive this transformation.
The NZAOA shared its position on the oil and gas sector in March. Given the scaling back of net-zero ambitions in the oil and gas sector amidst windfall profits this year, I’m curious if there have been any updates to the NZAOA’s position?
No, no updates. This remains our position. And the position is, let’s say, guidance for all the members. Are these ambitious enough? Christiana [Figueres] would say no, they should be more ambitious. But the ambition in this position is one thing.
The other thing is that several of the members have their own positions on oil and gas and have published them individually. Several of the members have actually been more ambitious than the position of the NZAOA.
“If there is a clear understanding of a target state, then business cases can be developed.”
So, the NZAOA gives the guidance, and on that basis the members must implement a 1.5 degrees Celsius target, per the IPCC. Such a compliant pathway has very, very clear guardrails for working with and engaging with oil and gas majors and industry sectors that are oil- and gas-reliant.
In the Q&A section provided for the position on oil and gas, NZAOA shares that “Policymakers need to … significantly expand their use of public/private investment partnerships.” Are there any promising developments you see happening in blended-finance?
On transition finance and on supporting the Global South, I believe we need to come to a different form of discussion. This discussion should really be powered by the governments of these countries. What is their understanding of industry development in their country? What’s the vision that they have? What’s the target state?
This would allow us to identify how the transformation should look, and what the building blocks are. In the discussions that we currently have, we are very much stuck with a focus on single projects, and whether they are investable. It’s not solving the problem of generating the big momentum that is needed.
And I see another distraction more and more, which is this discussion about retiring certain assets as a standalone discussion. How do we retire a coal-fired power plant in a relatively young fleet? And if you address governments about retiring these assets, they of course get irritated as they would say, “But this is the basis for our energy market, for the near- and even a bit longer-term future.”
There’s another element to this retirement, which is that the retirement of these assets almost never has a business case. Without a business case, how could we actually have any form of blended finance structure?
“This should allow others to gain trust in this work.”
If there is a clear understanding of a target state, then business cases can be developed. And, as a byproduct of this business case, retirement of assets can be implemented.
So, the big discussion on blended finance is: Are there governments coming up with a certain form of developmental vision that can be discussed, with a plan of how we want to transform — and that’s why we are talking to you, investors, development banks, the World Bank and others to come together to actually make some of the building blocks of that transformation happen?
Allianz recently launched a Net-Zero Transition Plan that details your 2030 intermediate decarbonization targets for both insurance and investment portfolios, with an “intent to create a ripple effect through our actions on these targets and via our partnerships.” Can you expand a bit on how that ripple effect would unfold?
A transition plan is a view laid out for us at Allianz to then work on. But the other part is that we communicate this so that our partners and our customers can understand that this is the path we want to take. This way they understand why we approach them to have a discussion about, for example, a climate action plan for their own business, and how it fits with the plan that we have laid out.
Reaching out to customers and partners on the investment side actually then, propels what we have set for ourselves into these discussions with them. This may then lead to various discussions on what is possible, or not possible, in terms of shorter-term actions that can be taken.
But it may also lead to the fact that one or the other simply concludes that they cannot go for such ambition, which is very important for us. Because then we understand that this is simply not the form of a partnership that we can have.
This article originally appeared on GreenBiz.com as part of our partnership with GreenBiz Group, a media and events company that accelerates the just transition to a clean economy.
