The Institutional Investors Group on Climate Change (IIGCC) has updated its Net Zero Investment Framework (NZIF) and “repositioned” wording on portfolio decarbonisation to an ‘objective’ with a longer time horizon, rather than a target.
The updated framework, which is open for consultation until 24 April, aims to consider multiple factors and objectives to effectively address climate change while mitigating unintended consequences, according to IIGCC.
NZIF 2.0
Among the most substantial changes and clarifications for investors and service providers using NZIF are around target and objective types. The NZIF ‘Portfolio Decarbonisation Reference Target’ has been repositioned as the ‘Portfolio Decarbonisation Reference Objective’.
The group stressed, however, that this has not altered its original purpose which it added was always orientated towards ‘performance assessment’ and not reducing financed emissions year-on-year as a form of target setting, operationalised through divestment.
“We continue to recommend that investors use all targets and objectives together, on the basis that they serve different purposes. However, it is understood that for various reasons, ranging from capacity to specialty, all cannot be set at once, especially target setting across all asset classes,” the group said.
Background and asset class changes
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.
Other noticeable changes are to asset class guidance, specifically an update to the sovereign bond guidance which has evolved with the advent of improving analysis tools and stewardship practices.
As well as recently released guidance on private equity and infrastructure, investors can find summaries of the latest guidance on sovereign bonds and real estate with new alignment criteria for both.
Real estate investors will also find reference to IICGG guidance on incorporating whole life carbon into assessments. Private equity and infrastructure have recently been reviewed by working groups and public consultation prior to their release, and so they will not be open to further changes as part of the process.
New emissions performance criterion for listed equities and corporate fixed income, and new certificate deposits guidance to support net zero cash management, are also among the core changes seen in the framework.
In addition to this, there is also reporting guidance for Hedge Funds and Derivatives (2023), along with the inclusion of more detailed metrics on Climate Solutions for Listed Corporate Debt and Equity (2023).
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