A coalition of institutional investors with more than $16trn (£12trn) in assets under management has today launched the first-ever practical blueprint to help investors deliver net-zero emissions globally by 2050.
The 'Net Zero Investment Framework' provides a comprehensive set of recommended actions, metrics and methodologies to decarbonise investment portfolios and increase funding for climate solutions.
It has been developed by 70 global investors, and covers four different asset classes: sovereign bonds, listed equities, corporate fixed income and real estate, with more to follow.
Five pension funds will test the framework by modelling its impact across the performance of their real-word portfolios, collectively valued at $1.3trn, with the results expected before the end of 2020.
“Countries, cities and companies around the globe are committing to achieve the goal of net-zero emissions and investors need to show similar leadership,” said Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change, which convened the investors.
“The willingness is there, but until now the investment sector has lacked a framework enabling it to deliver on this ambition. The race is now on in the run-up to COP26 for asset owners and managers to show they will be net-zero investors.”
APG, Brunel, the Church of England Pensions Board, PKA and Phoenix Group are the five pension funds that will test the framework over the next few months.
The focus on real-world decarbonisation 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.
More than 25 methodologies and tools, to support alignment with the Paris Agreement and net-zero emissions, have been analysed and reviewed in the blueprint's formulation.
Five core components help define its investment strategy, covering objectives and targets, strategic asset allocation and asset class alignment, alongside policy advocacy, investor engagement activity and governance.
However, the framework highlights a range of outstanding sectoral challenges and complexities, and input from a wide range of stakeholders will be sought to helping validate and strengthen the work to date by investors.
“Investors need to play a central role if the world is to meet the Paris commitment of limiting climate change to below two degrees,” said Laura Chappell, CEO of the Brunel Pension Partnership.
“The Net Zero Investment Framework is of critical importance because it answers the fundamental and urgent question of what a Paris-aligned portfolio actually looks like.”
Author: Chris Seekings
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