Leo Donnachie
Senior Policy Specialist, Sustainable Finance
What does a credible net zero investment strategy look like in a world of evolving sustainability regulation? As the UK SDR and EU SFDR continue to shape product-level disclosures and sustainable investment strategies, NZIF can provide a practical lens through which investors can navigate these regimes and support the development of credible transition-focused funds.
Fund labels and sustainability disclosure frameworks are playing an increasingly important role in shaping sustainable investment markets.
Policymakers have introduced these regimes to improve transparency, tackle greenwashing, and incentivise the allocation of capital in line with climate and wider sustainability goals. Among the most significant frameworks are the UK's Sustainability Disclosure Requirements (SDR) and the EU's Sustainable Finance Disclosure Regulation (SFDR), both of which establish expectations around how investors disclose on, and develop, sustainability-related funds.
Against this backdrop, investors are seeking practical approaches to implementing net zero strategies.
The Net Zero Investment Framework (NZIF) – the most widely used guide by investors to set targets and produce related net zero strategies and transition plans – was designed to support portfolio alignment with net zero goals through asset alignment methodologies, stewardship approaches and practical implementation guidance.
Where NZIF meets the UK SDR and EU SFDR
While NZIF was not designed as a disclosure regime, it can help investors understand and navigate evolving regulatory expectations across jurisdictions and inform their reporting and product development processes.
To support investors operating in this landscape, IIGCC has developed a five-part guidance suite exploring the interaction between NZIF, the UK SDR and the EU SFDR. The suite maps how existing NZIF approaches can support investors seeking to demonstrate alignment with sustainability objectives, assess progress against transition goals and build evidence-based investment strategies.
The guidance identifies two broad ways in which NZIF interacts with UK SDR and EU SFDR:
- First, it can provide a credible input to help underpin and substantiate fund-level disclosures for products with climate-related objectives or characteristics, particularly transition-focused products.
- Second, it can act as a structured source of reporting content that supports the disclosure obligations established under both frameworks.
The guidance also sets out recommendations for policymakers and regulators aimed at addressing barriers to implementation across both regimes.
In the UK context, the guidance highlights how NZIF's multi-criteria maturity scale, target-setting methodology and recommended action points can support investors seeking to meet SDR requirements, particularly those associated with the Improvers label. This includes helping investors define long-term transition objectives, measure progress, set targets, and link investment and stewardship activities to transition outcomes.
In the EU context, the guidance explores how NZIF's asset alignment methodology, portfolio decarbonisation reference objective and engagement approach may support investors seeking to meet the criteria for the proposed Transition category under the European Commission's proposed revisions to SFDR. The mapping identifies areas where NZIF can complement regulatory expectations while supporting credible transition-focused investment strategies.
More broadly, the guidance:
- Provides an overview of the intersection between NZIF and the UK’s Sustainability Disclosure Requirements (SDR) and investment labels.
- Sets out how NZIF's multi-criteria maturity scale, target-setting methodology and recommended action points can support investors in meeting the general product-level requirements and the specific criteria for the Improvers label.
- Identifies key implementation challenges and sets out recommendations for the FCA to support greater uptake of labels, particularly for transition-focused and net zero-oriented strategies.
NZIF and fund-labelling regimes serve different purposes, but they can work together to support the development of credible transition-focused investment strategies
Implications for investors
The guidance highlights several ways in which NZIF can support investors developing transition-focused investment products under the UK SDR and EU SFDR:
- Support the development of net zero-aligned products through NZIF's recommended action points, methodologies and implementation guidance.
- Provide a credible basis for fund-level disclosures relating to climate-related objectives and characteristics.
- Support reporting obligations by acting as a structured source of reporting content under both frameworks.
- Help investors assess transition and demonstrate progress through NZIF's multi-criteria maturity scale, alignment methodologies and target-setting approach.
- Strengthen stewardship and engagement practices through recommended approaches to engagement, escalation and stewardship linked to transition outcomes.
- Support implementation across both regulatory regimes by highlighting areas of interaction between NZIF, the UK SDR and EU SFDR.
Lessons for investors and policymakers
The mapping of NZIF against the UK SDR and EU SFDR identified several common implementation challenges across both the UK SDR and EU SFDR. While the regimes differ in structure and scope, a number of recurring themes emerged that could help inform future policy development and implementation.
These include:
- Greater clarity and consistency
- Recognition of stewardship and engagement
- Applicability across asset classes
- Workable treatment of index-based strategies
- Greater interoperability between EU and UK frameworks
- Improved implementation guidance
Together, these themes highlight both the opportunities and challenges presented by evolving sustainability regulation. As policymakers continue to refine sustainable finance frameworks, there is an opportunity to improve clarity, consistency and usability while supporting the mobilisation of capital towards net zero objectives.
IIGCC will use these insights to inform its engagement with policymakers and regulators, helping to address implementation barriers and support the development of credible transition-focused and net zero-aligned investment products.
NZIF: a practical tool to support disclosure
The mapping and our wider qualitative assessments of the frameworks confirm that NZIF can support the development of net zero-aligned products under both the UK SDR and EU SFDR. Its methodologies, alignment criteria and stewardship guidance align with many of the core requirements and expectations emerging across both frameworks.
At the same time, the exercise highlights that NZIF's ambition extends beyond what current regulation requires or measures. Its coverage of multiple asset classes and broader approach to stewardship means that full NZIF implementation is not confined to fund-labelling requirements alone.
As sustainable finance regulation continues to evolve, NZIF can provide investors with a practical foundation for developing credible net zero strategies while supporting ongoing discussions on the future direction of regulation.
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