A coalition of ESG investors from different parts of the globe say the time has come for more accountability by private markets. This comes after evidence showed that private markets are absorbing many fossil-fuel-linked assets.
The coalition, called the Net Zero Asset Owner Alliance (“NZAOA”), has $9.5 trillion under management. NZAOA has 89members, including Munich Re, Zurich Insurance as well as CalPERS. It is currently focused on broadening its scope to encompass all classes of private assets.
Prior to this change, residential mortgage loans as well as debt funds of directly held real estate and other debt funds were excluded from NZAOA’s protocol. This change places a lot of pressure on private markets, nudging them to reduce emissions from their portfolios. NZAOA chair, Gunther Thallinger, stated that the absence of transparency regarding private holdings endangered cross-border efforts to curtail global warming and keep it within the 1.5o C threshold and increased competition issues.
Thallinger is also a director at Allianz, parent company to Pacific Investment Management Company. He explained that the amassing of high-carbon assets inside private markets was alarming because overall investment performance would still need to be presented. He added that he was very concerned, noting that this was why NZAOA was advocating for the implementation of reporting as well as regulatory requirements.
Data from Preqin shows that the total value of private deals in the oil and gas industry had grown significantly in the last two years, hitting $9 billion by the end of 2023. This is quite an increase, especially when compared to the $450 million recorded in the two years before that. Thallinger also explained that increasing fossil-fuel asset holdings in the private markets made it harder to pressure this particular sector to decrease its emissions.
To level the playing field, the uptake of new reporting standards drawn up by the International Sustainability Standards Board with support from the International Financial Reporting Standards Foundation will need to be done by public and private markets around the globe.
In other news, all members of NZAOA are now required to set their five-year targets for the 2025–2030 period. Members are targeting a 40% to 60% decrease in greenhouse-gas emissions by 2030, compared to 2019 reduction estimates. This is in line with Intergovernmental Panel on Climate Change Sixth Assessment Report estimates.
It should be noted that members cannot use the assets to achieve their own decarbonization targets. Earlier this year, NZAOA also announced that it would be taking additional steps to evaluate sovereign debt portfolios via scorecards.
As these groups mount pressure to see fewer assets in the fossil-fuel segment getting additional investments, their efforts will complement those that individual companies such as Coyuchi Inc. in other industries are taking to act as examples that espousing sustainability can be good for business while also helping to curb climate change.
NOTE TO INVESTORS: The latest news and updates relating to Coyuchi Inc. are available in the company’s newsroom at https://ibn.fm/COYU
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