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Investors seek eco-friendly firms to reduce portfolio emissions, reveals Reuters report on asset owners’ preferences.

The World’s Largest Pension Funds and Insurers Reduce Portfolio Emissions

Investors Prioritize Greener Companies to Cut Portfolio Emissions

A group of the world’s biggest pension funds and insurers have taken significant steps to reduce the emissions from their investment portfolios. By favoring greener companies and reducing exposure to more polluting counterparts, these industry leaders are actively addressing the impact of their investments on the environment. The chair of the industry alliance, the U.N.-backed Net-Zero Asset Owner Alliance (NZAOA), shares that this step is crucial in achieving their goal of reaching net-zero emissions by mid-century.

The Role of the Net-Zero Asset Owner Alliance

The NZAOA, counting major players such as AXA Group, Legal & General, and Nippon Life among its members, has expanded to include 86 institutions managing a collective $9.5 trillion in assets. In their latest progress report, the NZAOA revealed that their members collectively reduced their absolute financed greenhouse gas emissions by 3.5% to 213.4 million tons of carbon dioxide equivalent (tCO2e) in 2022, despite membership growth. For institutions that set emissions reduction targets in 2019, the decline was even more significant, with a 12% reduction between 2019 and 2022.

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Divesting and Shifting Towards Greener Investments

While the approach to achieving emissions reductions is still under debate, many investors within the NZAOA argue that divesting from high-emitting companies is an effective strategy. However, rather than simply discarding these companies, these investors have opted to invest in “best in class” companies. For example, they are seeking out oil and gas firms that are actively expanding their renewable energy projects. The goal is to support companies that are committed to transforming their operations and aligning them with sustainable practices.

Challenges Ahead

While the progress made by the NZAOA and its members is commendable, there are challenges ahead. Even the best-in-class companies in high-emitting sectors are not fully aligned with a scenario that will keep global temperature rises below 1.5 degrees Celsius. The next phase of emissions reduction will require further innovation and collaboration among investors, companies, and policymakers to achieve the desired outcomes.

By taking these proactive measures, the world’s largest pension funds and insurers are demonstrating their commitment to addressing the climate crisis. Their efforts to reduce portfolio emissions and invest in greener opportunities are significant steps towards a more sustainable future.

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