Transition finance is essential to achieving real-economy decarbonisation, yet developing credible transition-focused investment products remains challenging. Through the UK's Sustainability Disclosure Requirements (SDR), policymakers have sought to mobilise capital towards assets improving over time. IIGCC's latest implementation briefing explores how the Net Zero Investment Framework (NZIF) can help investors build robust evidence chains for SDR's Improvers label and support the development of transition-focused funds.
Transition finance is increasingly recognised as a critical component of the net zero transition. While capital allocation towards low-emitting assets and climate solutions remains important, it is unlikely to be sufficient on its own. Achieving real-economy decarbonisation also requires significant investment in companies and assets that are credibly transitioning.
Recognising this challenge, policymakers have introduced regulatory frameworks designed to improve transparency, strengthen market integrity and support the mobilisation of capital towards sustainability objectives. One example is the UK's Sustainability Disclosure Requirements (SDR), which aims to improve trust in sustainable investment products while reducing greenwashing.
Within SDR, the Improvers label provides a mechanism for supporting transition finance. Rather than focusing on assets that are already sustainable, the label is designed for investments expected to improve their environmental sustainability profile over time. However, demonstrating improvement in a robust and evidence-based way remains one of the key implementation challenges facing investors.
To support investors navigating evolving sustainability regulation, IIGCC recently published a five-part guidance suite, Navigating fund labels with an NZIF lens, which explores how NZIF interacts with the UK SDR and EU Sustainable Finance Disclosure Regulation (SFDR). This implementation briefing forms part of that suite and examines how NZIF can support investors seeking to meet the requirements of SDR's Improvers label.
NZIF is one of the most widely used frameworks for investors setting net zero targets and developing related strategies and transition plans. It supports portfolio alignment with net zero goals through asset-alignment methodologies, stewardship approaches and practical implementation guidance.
Despite broad support for transition finance, relatively few Improvers-labelled funds have emerged compared with initial expectations. Investors face several practical challenges in evidencing improvement, including:
These requirements have created a high evidentiary threshold for funds seeking to demonstrate credible transition outcomes.
NZIF can help investors address these challenges.
The Financial Conduct Authority (FCA) – which designs, proposes, and controls the implementation of the UK SDR – has highlighted NZIF as a framework that can support key Improvers requirements, and many existing Improvers-labelled products have incorporated NZIF methodologies as part of their approach.
Examples include M&G Global, European, and UK "Sustain Paris Aligned Fund range", "Jupiter Responsible Income Fund", AXA Global Sustainable Managed Fund, as well as the AXA "Carbon Transition Global Short Duration Bond" and "Sterling Buy and Maintain Credit Fund" – cited here as illustrative examples and not as endorsement.
NZIF can support the development of a robust Improvers evidence chain by helping investors address key implementation challenges identified by the FCA, reducing ambiguity and supporting more traceable and consistent classification decisions. This includes:
From objectives to outcomes
NZIF links investment approaches to its multi-criteria maturity scale. NZIF does not seek to instruct investors how to invest. However, its multi-criteria maturity scale outlines broad approaches (e.g. screening, tilting, weighting) to each asset class, helping managers explain “how” (selection rules, weighting logic, eligible ‘other’ investments) and set improvement timescales.
Likewise, NZIF links stewardship and escalation to its multi-criteria maturity scale. NZIF does not instruct how to conduct stewardship and engagement. However, its multi-criteria maturity scale links stewardship and escalation to improvements against alignment criteria, setting practical expectations, and time-bound escalation for underperformance.
NZIF has recommended disclosures (e.g. voting policy/records), which can support investors to robustly demonstrate consistency between the stated strategy and day‑to‑day investment decisions, reducing the risk of disclosures becoming generic or untethered from the portfolio. These disclosures may be particularly pertinent for institutional investors who likely have sophisticated due diligence systems.
Investors seeking additional support on developing transition-focused products and strengthening their SDR evidence chain may also wish to explore the following IIGCC resources:
A key challenge for transition-focused products is moving from ambition to evidence. By connecting sustainability objectives, progress markers, targets, stewardship activities and escalation pathways, NZIF provides a structured approach to demonstrating improvement and supporting credible transition outcomes.
Note: This does not constitute legal, investment or financial advice. Binding SDR label requirements remain those set out in the FCA Handbook.
Disclaimer: This Insight is provided for general information only and does not constitute financial, legal, accounting, tax or investment advice or any recommendation. Investors are responsible for their own decisions and must act independently, taking account of their own circumstances, obligations and applicable legal and regulatory requirements.
If you would like to know more about how IIGCC can support your product teams through our resources, get in touch with our membership team.