The IIGCC has announced a new ‘Net Zero Investment Framework’ for investors to tackle climate change and achieve net zero emissions globally by 2050.
The framework has been developed with over 70 global investors, representing more than $16 trillion in assets, through the Institutional Investors Group on Climate Change (IIGCC). It provides a comprehensive set of recommended actions, metrics and methodologies, which following finalisation, will seek to enable both asset owners and asset managers to effectively become ‘net zero investors’.
Its primary objective is to ensure investors can decarbonise investment portfolios and increase investment in climate solutions, in a way that is consistent with a 1.5°C net zero emissions future. An ‘investment strategy’ led approach, supported by concrete targets set at portfolio and asset level – combined with smart capital allocation, and engagement and advocacy activity – ensure investors can maximise their impact in driving real-world decarbonisation. Four different asset classes – sovereign bonds, listed equities and corporate fixed income and real estate – are covered by the framework, with others to follow.
“Countries, cities and companies around the globe are committing to achieve the goal of net zero emissions and investors need to show similar leadership,” explains Stephanie Pfeifer, CEO, Institutional Investors Group on Climate Change. “The willingness is there, but until now the investment sector has lacked a framework enabling it to deliver on this ambition. As we work towards investors adopting the framework before the end of the year, the race is now on in the run-up to COP26 for asset owners and managers to show they will be net zero investors.”
The initial framework has been published today for consultation. Input from a wide range of stakeholders will be sought in helping validate and strengthen the work to date by investors. Five investors will also be putting the framework to the test, by modelling its impact across performance of their real-word portfolios collectively valued at $1.3 trillion. The results of this analysis will be launched with the final framework, expected before the end of 2020.
The framework is intended to be adopted and implemented by investors following its finalisation. More detail on this process will be shared in coming months and will help build momentum in the run-up to the UN COP 26 climate talks, being held in Glasgow next year. The Net Zero Investment Framework incorporates definitions used in the EU Taxonomy, which was formally adopted by the European Parliament in June. More than 25 methodologies and tools, to support alignment with the Paris Agreement and net zero emissions, have also been analysed and reviewed in its formulation, with those considered best fit approaches included in the framework.
Five core components help define a ‘net zero investment strategy’ as set out in the framework, covering: objectives and targets, strategic asset allocation and asset class alignment, alongside policy advocacy, investor engagement activity and governance. Taken in combination, they enable investors adopting the framework to be aligned with, and more fully contribute to, delivery of the Paris Agreement.