Net Zero Asset Owners Alliance plans private equity framework

NZAOA will release a private equity net zero target setting protocol for LPs and provide guidance on pushing GPs to decarbonise, New Private Markets understands.

The Net Zero Asset Owners Alliance – part of Mark Carney’s GFANZ group – will release a protocol later this year for its members to set decarbonisation targets across their private equity portfolios.

Under the protocol, the Alliance’s 74 members will be required to set interim targets and report regularly on their decarbonisation progress, a source at the alliance told New Private Markets. Accompanying the protocol will be guidance on how LPs can push their GPs to decarbonise their assets, the source said. Ahead of these releases, the Alliance has opened a public consultation for the private equity industry to contribute to developing the protocol and guidance.

The Alliance has already released protocols for four asset classes: listed equity, publicly traded corporate bonds, real estate and infrastructure. For these asset classes, Alliance members are required to set Scope 1 and Scope 2 emissions reduction targets of between 22 percent and 32 percent for 2025 and 49 percent and 65 percent for 2030 compared to a 2020 baseline. These targets must be set within a year of joining NZAOA.

Members must also set targets related to engagement with public-facing, policy-focused and investment industry-specific environmental initiatives. For asset classes with protocols, members must also set interim decarbonisation targets for their assets in particular sectors such as energy, transport and industrials. And members are expected to set targets of capital deployed to finance the transition.

How binding are these requirements? Members that do not meet the target-setting requirements must explain why, and the alliance operates a “traffic light system” if it deems the explanation inadequate. The consequences could stretch to “delisting”, according to NZAOA’s second progress report.