Stockholm (NordSIP) – The Institutional Investors Group on Climate Change (IIGCC) launched the ‘Net Zero Investment Framework’. The Paris-Aligned investment initiative includes Swedish and Danish asset owners and seeks to enable investors to maximise their contribution to decarbonisation by ensuring investment portfolios are aligned with net-zero emissions in line with the Paris Agreement goal of keeping global warming below 1.5°C.
“As investors, we have a great opportunity to contribute to the transition through the investments we make and thus we can increase the pace of reaching net-zero,” says Eva Halvarsson, CEO, AP2. “At AP2 we are committed to developing our portfolio in line with the Paris Agreement, with the aim of having a net-zero portfolio by 2045. To reach this we need to manage the risks, but we also have to make investments that accelerate the transition. At AP2, we last year started a mandate, which invests in sustainable infrastructure that facilitates the transition.”
The framework builds on the IIGCC’s existing work to date and has been used by 22 asset owners, with US$1.2 trillion in assets under management (AUM) to commit to net-zero alignment by 2050 or sooner. Now, a group of 37 asset owners and asset managers, managing US$8.5 trillion in AUM are putting the framework to practical use. Some of these investors include AP2, PKA, PensionDanmark, the Church of England Pensions Board, Scottish Widows, Brunel Pension Partnership, Jupiter Asset Management, Aberdeen Standard Investments, PIMCO, Legal & General Investment Management, and Robeco, among others. These early adopters are part of a wider group of more than 110 investors representing US$33 trillion in assets, involved in its development through the Paris Aligned Investment Initiative, which was launched by IIGCC in 2020.
“It is easy to make a long-term commitment to be net-zero, but the key question is the path you take to achieve it,” adds Adam Matthews, Chief Responsible Investment Officer, Church of England Pensions Fund. “We have jointly chaired this process to pool the expertise and wisdom of the asset owner and fund manager community to create a framework that is both practical and credible and gets you to net zero. This is a vital part of the investment architecture that was missing. As a fund, we are committed to using this Net Zero Investment Framework and are delighted to make the Asset Owner commitment today.”
Members of the framework are expected to develop a ‘net-zero investment strategy’ built around five core components of objectives and targets, strategic asset allocation and asset class alignment, alongside policy advocacy and, investor engagement activity and governance. The ‘net zero investment strategy’ is also underpinned by three types of targets, as the main metrics to measure effective action. First, participants in the initiative are expected to set portfolio-level targets for decarbonisation and investment in climate solutions. Second, they should provide timebound portfolio coverage targets for companies and assets to meet net-zero or aligned criteria. Lastly, they should embrace an engagement coverage threshold (>70% emissions in material sectors) aimed at driving the transition.
“We are proud to have contributed to the IIGCC’s Net Zero Investment Framework,” says Rod Paris, CIO, Aberdeen Standard. “As investors, we have a critical role to play in achieving net-zero emissions globally. As we seek to take tangible action, this innovative framework is extremely valuable as it provides a practical means for developing net-zero solutions for our clients and supporting the goals of the Paris Agreement.”
More investor commitments such as those announced today will follow, helping build momentum in the run-up to the United Nations COP26 climate talks, taking place in Glasgow in November. The Framework is also expected to be included in the United Nation’s Race to Zero Campaign, following the completion of an independent assessment process currently underway.