Climate leaders are failing to close the backdoor route for fossil fuel investments: Study

A new study reveals deeply problematic behaviour within members of major climate initiative NZAOA

Recent research found that members of the Net Zero Asset Owners Alliance (NZAOA), an investor initiative aimed at accelerating progress on climate, are reluctant to report on concrete decarbonisation activity across their investments. Some of the members are AMF, Alecta, Allianz, Caisse de depot et placement du Quebec (CDPQ), Nordea Life & Pension, Storebrand, the Church of England Commissioners, Danica Pension, Folksam Group, etc.

The analysis conducted by researchers from University of Edinburgh and SDG Labs revealed shortcomings relating to public disclosures, proxy voting and bondholding behaviours for the 74 institution investors that are members of NZAOA, with a collective $10.6 trillion worth of assets under management. 

While disclosure is vital for progress towards net zero, only 26% of members disclosed information relating to emissions they enable external to their corporation (‘Scope 3 emissions’). The majority of members were in the ‘middle’ range relating to disclosure completeness, and underperformed on issues such as setting measurable engagement targets and disclosing their climate voting records.

Proxy voting is a significant pathway of influence for NZAOA members, but the analysis found that for proposals that require alignment with the Paris Agreement, non-member investor groups are statistically more likely to vote in favour of these than NZAOA members.

The study also found that membership within NZAOA does not seem to result in better behaviour with regards to proxy voting on climate issues. The analysis revealed that seven members of the NZAOA own more fossil fuel company bonds than Vanguard. Vanguard is an American-registered investment management company based in Pennsylvania and is an average market benchmark with no climate considerations. This study found  that only 26% of members disclose bond engagement, divestment, or denial strategies across fossil fuels. These actions enable new fossil fuel infrastructure, which is not aligned with a 1.5°C pathway for climate action. 

The research recommendations include significant improvements to disclosures, deep changes to proxy voting practices that align members with net zero commitments and an immediate denial of new bonds for any fossil fuel company expanding high-emissions output and infrastructure. 

“Members of the Net Zero Asset Owners Alliance are falling short of what is expected of them, as guided by the best and latest science of climate change. This collaborative research and report presents the opportunity to critically examine how the NZAOA is honouring its commitments,” said Lauren Chin, researcher at the University of Edinburgh. “With the important changes of voting in favour of Paris-aligned proposals, denying fossil fuel debt and disclosure of Scope 3 emissions, these influential organisations could wield their power to better align their sizable asset class with strong, immediate emissions reductions,” she said.

“Even so-called climate leaders are failing to deny debt and close the backdoor route for fossil fuel investments. All investors, starting with members of the Net Zero Asset Owners Alliance, must immediately stop buying new bonds, as a priority, and divest from any company that is expanding fossil fuels,” said Alice Delemare Tangpuori, coordinator of the Toxic Bonds Campaign.

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