Where Are the Green Sovereign Funds?
Much of the global financial sector is mobilizing behind mid-century net-zero emissions targets, recognizing the opportunities that will come with the transition to a low-carbon economy. The longer that sovereign funds remain on the sidelines, the more they and their countries stand to lose.
PARIS/MUNICH – Institutional investors are increasingly embracing the effort to achieve net-zero greenhouse-gas (GHG) emissions by 2050. Some are already implementing portfolio measures and incorporating climate factors into their decision-making. The United Nations-convened Net-Zero Asset Owner Alliance (which one of us chairs) has already welcomed 46 members, comprising pension funds and insurance companies representing some $6.7 trillion in assets under management (AUM).
The steps taken this decade will be decisive as regards hitting the mid-century target. Of the Alliance’s members, 23 have publicly issued GHG-reduction targets for 2025, which means they are committed to acting immediately. The remaining five members that are required to set targets this year will declare similar interim goals soon. Net-zero initiatives are also being established in the investment-management and banking industries, representing $43 trillion and $37 trillion in AUM, respectively. And yet, sovereign wealth funds (SWFs) – representing AUM totaling around $10 trillion – are conspicuously absent, even though some are owned by governments that have adopted ambitious climate objectives.
Under existing international agreements, GHG emissions are measured at the country level, which understates the potential climate impact of countries with large foreign-asset holdings. For example, the Norwegian SWF’s total asset holdings are three times the size of Norway’s economy, and its equity-portfolio carbon emissions are around twice the country’s own total emissions.