Net-Zero Asset Owner Alliance Introduces Transition Targets in Updated Climate Protocol

The Net-Zero Asset Owner Alliance updates its Target-Setting Protocol by introducing “transition targets.” The new targets allow investors to support emissions-intensive companies committed to credible decarbonization pathways.

The Net-Zero Asset Owner Alliance (NZAOA) is introducing specific climate transition targets for the first time in its Target-Setting Protocol, the framework that guides institutional investors on the path to aligning their portfolios with the goal of net-zero emissions by 2050.

This update represents the fifth iteration of the protocol and marks an evolution in the way asset owners approach the decarbonization of their investments.

What are the new transition targets?

Among the most significant innovations in the new version of the Net-Zero Asset Owner Alliance’s Target-Setting Protocol ( available here ) is the introduction of a category dedicated to transitions targets. The goal is to offer investors a tool to support the transformation of the most emitting companies in the real economy, provided they have credible decarbonization strategies.

The new indicators allow investors to measure the share of portfolio emissions associated with transition assets, i.e., holdings in companies belonging to highly carbon-intensive sectors but committed to concrete paths towards net zero.

The new protocol also expands the structure of targets that members are required to define. Alongside traditional portfolio emissions targets, the framework now includes four main areas: engagement targets with investee companies, sectoral or transition targets, investment targets in climate solutions, and sub-portfolio emissions targets. Alliance members are required to define targets in at least three of these areas, with particular emphasis on active engagement, considered essential for supporting businesses and economic sectors along the decarbonization path.

The new framework also introduces a series of criteria for assessing the credibility of companies’ transition plans. To be classified as a “transition asset,” an investment must be associated with strategies consistent with the Paris Agreement, with climate objectives based on science and defined within specific timeframes, and must be integrated into corporate policies, operational plans, and advocacy activities. These elements are complemented by transparency and reporting requirements, designed to allow investors to monitor progress towards climate neutrality over time.

With this update, the Alliance aims to provide investors with more concrete tools to assess the credibility of companies’ transition paths and direct capital towards activities compatible with the climate neutrality objective.

Who is the Net-Zero Asset Owner Alliance?

Founded in 2019 under the auspices of the United Nations, the Net-Zero Asset Owner Alliance today brings together 87 institutional investors from 19 countries, with over $9 trillion in assets under management, committed to moving their portfolios towards net-zero emissions by mid-century in line with the goals of the Paris Agreement.

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(Featured image by Thomas Richter via Unsplash)

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First published in ESG NEWS. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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