Originally published 8.13.2020
More than 70 leading global investors have developed a framework for net zero investing.
The ‘Net Zero Investment Framework’ provides a blueprint for investors to maximise the contribution they make to achieving net zero emissions globally by 2050.
APG, Brunel, and Church of England Pensions Board are among the investors who helped draw up the framework. Between them, the investors represent more than $16 trillion in assets.
The framework provides a comprehensive set of recommended actions, metrics, and methodologies, which will enable asset owners and asset managers to become net zero investors.
Under the auspices of the Institutional Investors Group on Climate Change (IIGCC), the framework’s primary objective is to enable investors to decarbonise their portfolios in a way that is consistent with net zero emissions.
Five core components help define a ‘net zero investment strategy’ as set out in the framework, covering are: objectives and targets, strategic asset allocation and asset class alignment, alongside policy advocacy, investor engagement activity, and governance. The components enable investors to be aligned with delivery of the Paris Agreement.
The framework covers four different asset classes: sovereign bonds, listed equities, and corporate fixed income and real estate.
The framework has been published for consultation. Five investors will put the framework to the test, analysing its impact across their portfolios, collectively valued at $1.3 trillion. The results of this analysis will be launched with the final framework before the end of 2020.
“Setting a long-term net zero target is the easy part; the challenge is to have a credible and transparent framework that enables your fund to convert intent into practical decisions and action,” said Adam Matthews, Director of Ethics & Engagement, Investment Team, Church of England Pensions Board and Co-Chair, IIGCC, Paris Aligned Investor Initiative (PAII). “The Church of England Pension fund, which serves the interests of 40,000 future beneficiaries, is globally invested across multiple asset classes and this framework provides us with a basis to deliver our commitment to be net zero aligned.”
The framework is intended to be adopted and implemented by investors following its finalisation. More detail on this process will be shared in the run-up to the UN COP 26 climate talks in Glasgow next year.
The focus on real-world decarbonisation throughout the framework overcomes limitations of other approaches – based only on portfolio emissions reduction or portfolio temperature targets – which leave room for investors to technically meet targets while selling the problem to someone else.
Nonetheless, the consultation highlights a range of outstanding sectoral challenges and complexities in managing a portfolio towards net zero and assessing alignment of assets. Given these limitations, the framework makes clear it does not resolve every issue, nor cover all asset classes. Additional work is planned to make further progress on these topics.