Investors call for policy unleashing $275 trillion for Net Zero

An influential group of institutional investors has called on governments to remove policy barriers to help unleash an estimated $275 trillion in new clean-energy investments over the next three decades.

The Net-Zero Asset Owner Alliance, whose members oversee $11 trillion of assets and include Allianz SE, Axa SA and the California Public Employees’ Retirement System, said governments need to tee up clearer and stronger policies to move the global economy from fossil fuel dependency to a low-carbon future.

In a report published Thursday, the NZAOA said that while its members have committed to support the transition and reach net zero financed emissions, government support will be essential if the required economic transformation to deliver net zero emissions is to occur.

“This is an opportunity of a generation and we want to be part of that, and there’s just some small levers which governments need to pull or assist with,” said Olga Hancock, co-leader of the group’s work on public policy and head of responsible investment for the Church Commissioners for England.

“We want governments to hear the message that we - as capital allocators at the pinnacle of the food chain - want that to happen,” she said in an interview.

In some quarters, that’s becoming harder to achieve. Prime Minister Rishi Sunak’s announcement Wednesday that he would roll back some green-energy policies threatens to jeopardise the UK’s pledge to achieve net zero by 2050. In Germany, the governing coalition has watered down policies on home heating in the face of protests, while Dutch politics has been rocked by opposition to plans to scale back emissions from farming. Even Sweden, an early adopter of green finance, is off track on meeting its long-term net zero target.

Rishi Sunak’s decision to water down a key part of the UK’s green agenda represents a gamble that conceding some ground to the climate-skeptic political right will appeal to Britons buffeted by a cost-of-living crisis. “If we continue down this path, we risk losing the consent of the British people,” he said. There also are concerns some finance firms that rushed to commit to net zero a few years ago are failing to live up those pledges. That’s come amid an energy crisis that’s made fossil fuel investments more attractive, as well as attacks by US Republicans on sustainable finance strategies.

The NZAOA, nonetheless, wants governments to do a lot more - reduce financial support for fossil fuels; increase subsidies and tax breaks for clean energy; pass green-friendly regulation; and introduce new carbon pricing tools.

A successful transition in line with limiting global warming to 1.5 C could result in “climate investment opportunities” totalling as much as $275 trillion by 2050, according to NZAOA. By contrast, a failed transition could reduce global GDP by up to $6 trillion per year by 2050, the report said, citing data from McKinsey Global Institute.

“Advantageous policy environments are a key enabler of uptake,” Gunther Thallinger, chair of the NZAOA, said in a statement. An example he pointed to is the level of global subsidies and incentives for electrical vehicles, which doubled from 2021 to 2022 to about $30 billion. “We’re seeing similar trajectories for renewable energy and heat pumps,” he said.

The NZAOA, which was convened by the United Nations and also counts Aviva Plc and Swiss Re AG among its members, is a sub-group of the broader Glasgow Financial Alliance for Net Zero, which gathers banks, asset managers and insurers committing to phase out financed emissions. The alliance said its members weren’t waiting for stronger government policies to be enacted before they cut emissions.

“I don’t think any of the asset owner alliance membership wants to be seen as sitting on our hands and saying, look, we’ll do something when governments do something,” Matt Holmes, co-leader of the NZAOA’s public policy work with Hancock and group head of political and government affairs at Zurich Insurance Group AG, said in an interview. “Where we have technologies that have come down in cost, and are available at scale, that provides the opportunities for us to do exactly what we’re committed to doing in terms of our ESG targets.”