IIGCC launches Net Zero Investment Framework 2.0

Written by Adam Cadle

28/06/2024

The Institutional Investors Group on Climate Change (IIGCC) has updated the Net Zero Investment Framework (NZIF) to NZIF 2.0, providing an overview for investors implementing net-zero commitments and addressing climate risks.

Developed following consultation with over 200 investors, the updated guidance is designed to better support the NZIF’s emphasis on ‘financing reduced emissions’ rather than ‘reducing financed emissions’.

In particular, a repositioning of the new Portfolio Decarbonisation Reference Objective clarifies how it was originally envisaged to support portfolio alignment.

The IIGCC noted that investor experience has shown that focusing on financed emissions alone can have perverse outcomes, such as dissuading investment in climate solutions at a time when the mobilisation of capital to finance these areas should be encouraged.

Given this, the latest guidance aims to emphasis the idea that financed emissions don't tell the whole story, suggesting that, while important, financed emissions should not be used as a single metric to create year-on-year emissions reduction targets.

NZIF 2.0 also includes new guidance for sovereign bonds, real estate, and private debt, and updated guidance for infrastructure and private equity.

In addition to this, the updated guidance includes a new emissions performance criterion for listed equities and corporate fixed income, and new certificate deposits guidance to support net zero cash management.

The guidance also summarises the best practices shared by investors converting them into more than 40 potential actions an investor could take.

According to the IIGCC, over 200 investors have used the NZIF, either in full or in part, to support their commitments to the Net-Zero Asset Managers initiative (NZAM) or the Paris Aligned Asset Owners initiative (PAAO).

Commenting on the new guidance, IIGCC CEO, Stephanie Pfeifer, said that based on three years of practical experience, NZIF 2.0 incorporates the latest guidance on net-zero target setting and the levers available to investors to meet their net-zero goals.

“For investors looking to identify and manage climate-related transition risks and opportunities in their portfolios, the NZIF has cemented its position as the number one resource to accompany them along their journey,” she added.

Adding to this, Paris Aligned Investment Initiative co-chair of the steering group and Church of England Pensions Board chief responsible investment officer, Adam Matthews, said: “The NZIF provides an essential framework that is credible and rigorous to practically operationalise investors’ climate commitments.

“As the Church of England Pensions Board, the NZIF is key to delivering on our own net-zero commitment and to do so in a comparable way with peer investors. We welcome the continued evolution of the scope and coverage of the framework.

“It is essential that as our understanding of best practice evolves and we continue to learn lessons from implementation, that the frameworks underpinning investor action and implementation evolve too.”

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