Target Setting Protocol (NZAOA)
Common rulebook of the Net-Zero Asset Owner Alliance that requires its members to set five-year decarbonization targets, within reduction ranges drawn from the IPCC's 1.5°C pathways.
The Target Setting Protocol is the text through which the Net-Zero Asset Owner Alliance, convened under UNEP FI, turns its 2050 net zero commitment into five-year targets. The first edition, the "Inaugural 2025 Target Setting Protocol," came out in January 2021 after a draft put to consultation in October 2020. It sorts targets into four families: sub-portfolio, sector, engagement and financing transition. For 2025, it asks members for a reduction in their sub-portfolio emissions of between 16 and 29%, drawn from the no or low overshoot 1.5°C pathways of the IPCC Special Report. The second edition narrows the 2025 range to 22-32% and adds a 2030 outlook of 49 to 65% against 2020. The third, in January 2023, aligns with the IPCC Sixth Assessment Report and sets 40 to 60% for 2030. The fourth, published on April 18, 2024, requires the then 89 members to set their 2030 targets, covering 2025-2030, still within that 40 to 60% range, measured against a 2019 base year; it extends coverage to private debt and becomes a standing document, revised no more than once every twelve months. For a member life insurer, the target applies to the financed emissions of its listed equities, corporate bonds and real estate, attributed holding by holding. So the figure can also be moved by selling. Divesting a cement maker cuts portfolio emissions overnight without removing a tonne from the atmosphere, which is why the protocol pairs portfolio targets with engagement targets on issuers.
Textbook case: an insurer holds 50 million euros of an issuer whose enterprise value including cash (EVIC) is 1 billion and which emits 400,000 tonnes of CO2e a year. It is attributed 50 / 1,000 = 5%, so 20,000 tonnes. Across all its holdings, its sub-portfolio emitted 2.0 million tonnes in 2019. The 40 to 60% range puts the 2030 target between 2.0 × 0.6 = 1.2 and 2.0 × 0.4 = 0.8 million tonnes. If it stands at 1.5 million in 2024, it still has to cut by (1.5 minus 1.2) / 1.5 = 20% to reach the top of the range, and by (1.5 minus 0.8) / 1.5 = 46.7% to reach the bottom.
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