The U.N.-backed Net-Zero Asset Owner Alliance (NZAOA), which counts among its members AXA Group, Legal & General and Nippon Life, is one of several financial alliances promising to curb carbon emissions linked to investments this decade, and then reach net-zero emissions by mid-century.

How they should get there is debated, with many investors arguing that divesting out of dirtier companies - rather than pressuring them to shift tack - is simply transferring the problem to someone else.

The NZAOA has expanded to include 86 members collectively managing $9.5 trillion in assets, and it said on Wednesday its members had seen their absolute financed greenhouse gas emissions fall 3.5% to 213.4 million tons of carbon dioxide equivalent (tCO2e) in 2022 from 2021, despite membership growing.

For institutions which set targets in 2019, the drop in emissions was 12% between 2019 and 2022, it said in its latest progress report.

Gunther Thallinger, NZAOA chair, told Reuters members were making progress towards their 2025 emissions reductions targets, and this was partly done through divesting.

But rather than simply dumping high-emitting sectors, many had switched to 'best in class' companies, he said, for example an oil and gas firm expanding renewable energy projects faster.

"Together with our asset managers, we are asking who are the (companies) that are doing the transformation and therefore the assets we want to own," said Thallinger, who is also a board member at Germany's Allianz.

However, further reductions will be harder to achieve, with few of even the best-in-class companies in high-emitting sectors aligned with a scenario in which global temperature rises are kept below 1.5 degrees Celsius.

(Reporting by Tommy Reggiori Wilkes and Simon Jessop)

By Tommy Wilkes and Simon Jessop