New guidance for infrastructure aligns with the Net Zero Investment Framework (NZIF) and follows an investor-led consultation launched in 2022.
Signatories to the Net Zero Asset Managers initiative and the Paris Aligned Asset Owners initiative can use the new guidance to update net zero targets with infrastructure assets.
IIGCC also announces that it will lead the second phase of the development of the Physical Climate Risk Assessment Methodology (PCRAM) for infrastructure, as part of expanding focus on climate resilience.
IIGCC has released net zero guidance for infrastructure, taking the total number of asset classes covered by the Net Zero Investment Framework (NZIF) to five. Developed by IIGCC with support of network partners AIGCC and IGCC, the document provides guidance for investors on aligning and managing infrastructure portfolios with the goal of achieving global net zero emissions by 2050 or sooner.
The guidance, which was released for consultation in June 2022, has already been used in target setting as part of the Net Zero Asset Managers (NZAM) initiative by notable infrastructure investors including DIF Capital Partners.
Beyond these early adopters, asset owners and asset managers that are signatories to Paris Aligned Asset Owners and Net Zero Asset Managers initiatives are encouraged to utilise this methodology to meet the requirements of these net zero commitment initiatives.
The guidance includes a number of different ways for investors to set targets for their infrastructure assets, so that it is useful for both multi-asset and specialist infrastructure investors.
It includes a step-by-step approach to:
Assessing asset alignment based on six criteria including the timeframe of aligning an asset with net zero, whether targets cover all scopes of emissions and how this will be addressed via a comprehensive decarbonisation strategy.
Setting portfolio coverage targets and indicating how the % of AUM aligned towards the goal of net zero will increase over time.
Actions to increase alignment of portfolio with net zero goals, covering engagement and stewardship which includes the recommendation that 100% of carbon-based energy and transport infrastructure assets should immediately be the subject of engagement, or management interventions.
In addition to launching the new infrastructure guidance, IIGCC also today announces that it will lead the second phase of the development of the Physical Climate Risk Assessment Methodology (PCRAM).
PCRAM was formally launched in September 2022 by Mott MacDonald and the Coalition for Climate Resilient Investment (CCRI).Its methodology aims to give infrastructure owners and operators the means to evaluate physical climate risks to infrastructure and analyse their long-term impact on asset performance. The methodology has been tested by Mott MacDonald on five real world infrastructure assets, with the results showing physical climate risks creating ‘valuation risk’ owing to higher project capital costs and variance in operational cashflows.
Leading the PCRAM 2.0 workstream from April 2023, IIGCC will work with CCRI and IIGCC members on identifying new case studies to further prove the methodology and co-develop workplans including a new stream for investor adaption. Following this, IIGCC will integrate insights from this methodology into overall guidance for infrastructure in the Climate Resilience Investment Framework, over the course of 2023 and 2024.
Stephanie Pfeifer, CEO, IIGCC, said:“The new infrastructure guidance will be extremely valuable to those investors with net zero commitments and who have exposure to the asset class. That a number of investors who have set net zero targets have decided to follow the guidance is a positive sign and we look forward to seeing many more taking similar decisions.”
“We know that decarbonising infrastructure globally will be vital if we are to deliver net zero and that within this context investors have a pivotal role to play, not least owing to the level of investment held in the asset class.”
“In addition to the pursuit of net zero, due to its unique characteristics infrastructure is arguably the most important asset class to build resilience into at the same time. Ultimately, it’s critical that our infrastructure, including roads, energy systems and cities, not only support a net zero transition but are also resilient to floods, heat and other physical impacts of climate change that are going to increase.”
Mahesh Roy, Investor Practices Programme Director, IIGCC, said: “PCRAM not only builds out the case for integrating physical climate risk into valuation models, but reaffirms net zero efforts as the best way to defend against the worst effects of climate change. When you look at the costs and benefits of building resilience in assets in 1.5 ºC or 2 ºC degrees scenarios, in many cases this augmented cashflow model can help investors to be prepared and should allow many projects to go ahead in confidence.”
Rebecca Mikula-Wright, CEO, AIGCC and IGCC, said: “Investors from Asia, Australia and New Zealand have significant holdings in infrastructure, an asset class that will be crucial to the climate resilience of our economies and communities. Our regional networks helped design this guidance so that it meets local investors’ needs, whether in understanding their current net-zero alignment, setting targets, or accelerating the decarbonisation of this critical element of net zero investment strategies.”
Angela Roshier, Partner, Head of Asset Management, DIF Capital Partners, said: “As an investment manager with a Net Zero commitment in the infrastructure sector, we are delighted that the Net Zero Investment Framework now incorporates guidance for infrastructure. We played a supportive role in its development alongside other infrastructure investment managers and IIGCC, and will use the guidance as we continue to review and update our Net Zero targets.”
Carlos Sanchez, Executive Director, CCRI, said: “We are delighted to work in close collaboration with IIGCC as they lead the next phase of development for PCRAM. The first phase has highlighted the importance of addressing valuation risk and we look forward to working with IIGCC and its members on new case studies to further prove this methodology and see it becoming increasingly useful for investors with infrastructure assets.”