The Institutional Investors Group on Climate Change (IIGCC) has launched, for consultation, a draft investor guide that seeks to provide a practical blueprint to enable investors to align with and more fully contribute to the goals of the Paris Agreement on climate change.

The IIGCC developed the ‘Net Zero Investment Framework’ with over 70 leading global investors representing an aggregate of over USD 16 trillion in assets. The guide is intended to enable investors to adopt a strategy to decarbonize their investment portfolios while increasing investment in climate solutions to help achieve net zero emissions by 2050.

The Framework is “based on the expectation that governments and policy makers will deliver on commitments to achieve the 1.5°C temperature goal of the Paris Agreement.” The IIGCC designed the Framework to help deliver “additional meaningful long-term emission reductions,” overcoming limitations in other approaches “based only on portfolio emissions reduction or portfolio temperature targets,” which allow investors to “technically meet targets while selling the problem to someone else.”

The Framework provides a comprehensive set of recommended actions, metrics, and methodologies to enable both asset owners and managers to become “net zero investors.” It covers four asset classes: sovereign bonds; listed equities; corporate fixed income; and real estate, with other asset classes to follow. The Framework identifies five core components of a net zero investment strategy: governance and strategy; objectives and targets; strategic asset allocation; asset class alignment; and policy advocacy and market engagement.

The Framework is open for consultation until 25 September 2020. Five investors – APG, Brunel, the Church of England Pensions Board, PKA, and Phoenix Group – are testing the Framework by modeling its impact across the performance of their portfolios, collectively valued at USD 1.3 trillion. Results of this analysis will be included in the final Framework, expected to be released later in 2020.

The IIGCC is a European membership body for collaboration on climate change. The organization includes over 240 members, mostly pension funds and asset managers, across fifteen countries, representing over EUR 33 trillion in assets under management. The Framework is a key output of the IIGCC’s Paris Aligned Investing Initiative (PAII), which was established at the request of European asset owners to develop key definitions and concepts relating to the alignment of investment strategies to the Paris Agreement. [Publication: Net Zero Investment Framework for Consultation] [IGCC Press Release]

By Gabriel Gordon-Harper, Thematic Expert on Climate Change and Sustainable Energy