Introduction to the Alliance’s Target-Setting Protocol

The fourth edition of the protocol sets updated guidance for financial institutions and companies to align greenhouse gas (GHG) reduction targets with 1.5°C pathways. It strengthens methodologies, expands sector coverage, and clarifies accountability and disclosure requirements. Targets must be science-based, transparent, and updated regularly.

The Alliance’s Commitment

The protocol reflects the Alliance’s commitment to aligning portfolios with net zero by 2050. Members are required to set near-term targets consistent with 1.5°C and to progressively cover more asset classes and sectors. The approach emphasises decarbonisation through real economy impact rather than reliance on offsets.

Scope of the protocol

Targets must include Scope 1 and 2 emissions fully and address Scope 3 where they represent more than 40% of a portfolio’s financed emissions. Coverage extends to listed equity, corporate bonds, and other relevant asset classes. Subsidiaries and joint ventures must be included, with consistent use of boundary definitions.

Reporting

Annual disclosure of targets and progress is required. Reports must include target boundaries, base and target years, and achieved reductions. Transparency is essential for comparability across institutions. Companies are expected to align with recognised reporting frameworks, and data must be updated regularly as methodologies evolve.

Engagement targets

Engagement targets apply where investors influence companies through ownership or lending. Institutions must set time-bound goals for engaging high-emitting firms, particularly where Scope 3 exposure is material. The protocol stresses that engagement should lead to measurable emission reductions and alignment of company strategies with 1.5°C pathways.

Climate solutions investments targets

Institutions are encouraged to increase investment in climate solutions, including renewable energy, energy efficiency, and low-carbon technologies. The protocol sets expectations for defining, tracking, and disclosing such investments. While these investments are complementary, they cannot substitute for absolute emission reductions in portfolios.

Sector targets

Sector-specific pathways are provided for key high-emitting sectors, including power, transport, buildings, and heavy industry. Institutions must align financed emissions within these sectors to sectoral decarbonisation trajectories. Methods such as the Absolute Contraction Approach and Sectoral Decarbonisation Approach are recommended, depending on sector context and data availability.

Sub-portfolio targets

Targets are required at sub-portfolio level, such as listed equities or corporate bonds. These ensure consistency with the overall portfolio decarbonisation trajectory. Sub-portfolio targets must be science-based, cover a minimum of five and a maximum of ten years, and be reviewed periodically to remain aligned with evolving pathways.