IIGCC finalises update to key net zero guidance for investors

The Institutional Investors Group on Climate Change (IIGCC) has published an updated version of its Net Zero Investment Framework (NZIF), billed as NZIF 2.0, taking through from consultation a reframing related to the body’s stance on financed emissions.

As trailed, the NZIF 2.0 framework repositions the ‘Portfolio Decarbonisation Reference Target’ as an objective, a move that is intended to clarify how it was originally envisaged to support portfolio alignment.

“One of the NZIF’s key positions is that financed emissions don’t tell the whole story and while important shouldn’t be used as a single metric to set and measure progress against targets and objectives,” an IIGCC spokesperson said.

“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.”

Instead, the NZIF recommends a ‘dashboard style’ approach to the use of metric which recognises that all metrics have strengths and weaknesses, and that they serve different purposes.

Sovereign bonds

The NZIF is the core publication of the Paris Aligned Investment Initiative (PAII), which was established in May 2019 as a collaborative investor-led forum to support investors to align their portfolios and investment activities to the goals of the Paris Agreement.

It summarises best practices shared by investors, collected from three years of implementation, converting them into a range of actions an investor could choose to take.

NZIF 2.0 includes guidance for a range of asset classes, including sovereign bonds.

The sovereign bonds guidance was developed to set out preliminary steps investors can take to increase adoption of sovereign bonds into net zero investment strategies as there is currently little evidence of integration of the asset class within net zero investment strategies.

Suggested actions include investors seeking opportunities to engage with issuers and other actors in the investment value chain to advance the global decarbonisation agenda, such as advocating for data providers to increase quality and consistency of consumption emissions disclosures, ‘land use, land-use change, and forestry’ (LULUCF), methane emissions reporting, and develop indicators to better assess criteria set out by the guidance.

Other notable updates to the NZIF include new emissions performance criterion for listed equities and corporate fixed income, and new certificate deposits guidance to support net zero cash management.

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