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Net Zero Investment Framework

The Net Zero Investment Framework is the most widely used guide by investors to set targets and produce related net zero strategies and transition plans.

NZIF outlines key components of a net zero strategy and transition plan for investors, with two key objectives:

Paris aligned asset

Transitioning investment portfolios in a way that is consistent with the mitigation goals of the Paris Agreement, focusing on real economy decarbonisation.

improving portfolios

Increasing investment in the range of climate solutions to enable the transition.

How to use NZIF

NZIF  should be read subject to the legal statement below. It is purposefully a guide and not a prescriptive protocol or a transition plan standard. NZIF is designed to be implemented at the organisation level via an ‘implement or explain’ approach.

Core action points are particularly relevant and where investors should initially focus: for example, to fulfil the Paris Aligned Asset Owners (PAAO) initiative and Net Zero Asset Managers (NZAM) initiative commitment statements. 

Advanced action points are best practice recommendations which would benefit users and external stakeholders but may not be possible in the short term and may not be essential to fulfilling commitment statements.

NZIF is purposefully a guide and not a prescriptive protocol or a transition plan standard. NZIF is designed to be implemented at the organisation level via an ‘implement or explain’ approach. It can also be flexibly applied at fund or asset class level. It is acknowledged that investors will implement NZIF differently according to their own unique circumstances and strategies.

Asset Level Assessment & Targets

Helping investors shift the alignment of underlying holdings (assets) to be consistent with net zero goals and objectives.

Governance & Strategy

Establishing the basis, legitimacy, and actions required by investors to address climate-related transition risks.

Objectives

Establishing net zero objectives over a ten-year period, enabling net zero strategy and target performance assessment.

Strategic Asset Allocation

Integrating net zero objectives into the asset allocation process, complementing traditional risk/return objectives.

Policy Advocacy

Addressing barriers to, and capturing opportunities for, net zero alignment created by the wider policy and regulatory environment.

Stakeholder & Market Engagement

Facilitating the availability of data, mandates, and investment advice necessary to achieve net zero objectives.

What's new

‘NZIF 2.0’ aims to make life easier for investors by bringing together the wide range of resources available to them all in one place. Each element supports a unifying goal - to support real economy emissions reductions.

An evolution of the original framework, NZIF 2.0 incorporates some revised target terminology and criteria as well as updated guidance on asset classes. The resource also summarises best practices shared by investors, collected from three years of implementation, converting them into more than 40 potential actions an investor can take. It references various supplementary guidance and tools which can support its use, designed to be a first port of call rather than a one-size-fits-all approach.

From the beginnings of setting a net zero strategy through to objectives and target setting, analysing asset classes to engaging with assets, information is now more accessible, intuitive and coherent in NZIF 2.0.

Asset class and thematic guidance

Most of the 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. There are also further updates and clarifications to our Real Estate guidance. In addition, we have included extracts from asset class components released during the last three years:


  • Infrastructure (2023)
  • Private Equity (2023)
  • Private Debt (2024)

NZIF 2.0 does not retire these documents as they contain further implementation guidance to support understanding and adoption. There is also reporting guidance for Hedge Funds and Derivatives, along with the inclusion of more detailed metrics on Climate Solutions for Listed Equity and Corporate Fixed Income .

Within NZIF 2.0, target setting and implementation guidance across every asset class adopts the same conceptual base. This facilitates adoption across multiple teams and aggregation across asset classes.

Objectives and target

The ‘Portfolio Decarbonisation Reference Target’ has been repositioned as the ‘Portfolio Decarbonisation Reference Objective’. This is to better support its original purpose which is orientated towards:


  • Translating net zero goals into quantified objectives to support portfolio management.
  • Monitoring and understanding changes in portfolio emissions.
  • Monitoring the effectiveness of net zero strategies relative to portfolio emissions.

It is not intended to be used for portfolio optimisation, investment decision making, or as a target setting tool to reduce financed emissions through year-on-year reductions. A portfolio decarbonised through actions that do not reduce real economy emissions is likely to still be exposed to systemic financial risks. It is also not necessarily ‘Paris Aligned’ in so far as the Paris Agreement calls for financial flows towards low carbon and resilient development, not for attributed financial portfolio emissions to mirror climate scenarios.

NZIF 2.0 places emphasis on improving the alignment of investments via asset selection, management, engagement, as well as climate solutions investments. Emphasis is also placed on policy advocacy, as well as stakeholder and market engagement, which are crucial to create the enabling conditions for decarbonisation to occur.

We continue to recommend that investors use all objectives and targets together, on the basis that they serve different purposes. However, it is understood that for various reasons, ranging from capacity to specialty, it may be that not all are relevant or can be set at once, especially target setting across all asset classes.

Changes to material sectors

NZIF 2.0 has reclassified ‘Agriculture, Forestry and Fishing’ (NACE section A, Divisions 1 – 3) as a high impact material sector. This means associated entities must meet NZIF’s decarbonisation plan and capital allocation alignment criteria to be classified as aligned to a net zero pathway.

The change recognises the importance of GHG emissions emanating from Agriculture, Forestry, and Other Land Uses (AFOLU). Also, it is the start of ongoing efforts to highlight the importance of nature impacts and dependencies on net zero ambition.

Recommended action points

NZIF 2.0 has incorporated action points that have been recommended by major initiatives. This has been done on a best effort basis as many initiatives have only recently published their guidance. Many action points integrated into NZIF 2.0 originate from the TCFD expectations of transition plans and map to global disclosure frameworks such as IFRS/ISSB.

The premise is that they all support investors to develop their own best practice net zero strategies and transition plans. Also, implementing recommended action points within NZIF can consequently enable investors to satisfy wider industry expectations.

The intention is not that investors should be immediately expected to implement every recommended action point. Investors should choose and prioritise recommended action points that are most appropriate to their circumstances.

Recommended action points are described as either ‘core’ or ‘advanced’. Core action points are deemed to be those where attention should be originally focused within each particular section. However, NZIF does not have any formal requirements; it is a guide to help support investors to develop their own net zero strategies and transition plans to support the management of their own individual portfolios.

Most of the 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. There are also further updates and clarifications to our Real Estate guidance. In addition, we have included extracts from asset class components released during the last three years:


  • Infrastructure (2023)
  • Private Equity (2023)
  • Private Debt (2024)

NZIF 2.0 does not retire these documents as they contain further implementation guidance to support understanding and adoption. There is also reporting guidance for Hedge Funds and Derivatives, along with the inclusion of more detailed metrics on Climate Solutions for Listed Equity and Corporate Fixed Income .

Within NZIF 2.0, target setting and implementation guidance across every asset class adopts the same conceptual base. This facilitates adoption across multiple teams and aggregation across asset classes.

The ‘Portfolio Decarbonisation Reference Target’ has been repositioned as the ‘Portfolio Decarbonisation Reference Objective’. This is to better support its original purpose which is orientated towards:


  • Translating net zero goals into quantified objectives to support portfolio management.
  • Monitoring and understanding changes in portfolio emissions.
  • Monitoring the effectiveness of net zero strategies relative to portfolio emissions.

It is not intended to be used for portfolio optimisation, investment decision making, or as a target setting tool to reduce financed emissions through year-on-year reductions. A portfolio decarbonised through actions that do not reduce real economy emissions is likely to still be exposed to systemic financial risks. It is also not necessarily ‘Paris Aligned’ in so far as the Paris Agreement calls for financial flows towards low carbon and resilient development, not for attributed financial portfolio emissions to mirror climate scenarios.

NZIF 2.0 places emphasis on improving the alignment of investments via asset selection, management, engagement, as well as climate solutions investments. Emphasis is also placed on policy advocacy, as well as stakeholder and market engagement, which are crucial to create the enabling conditions for decarbonisation to occur.

We continue to recommend that investors use all objectives and targets together, on the basis that they serve different purposes. However, it is understood that for various reasons, ranging from capacity to specialty, it may be that not all are relevant or can be set at once, especially target setting across all asset classes.

NZIF 2.0 has reclassified ‘Agriculture, Forestry and Fishing’ (NACE section A, Divisions 1 – 3) as a high impact material sector. This means associated entities must meet NZIF’s decarbonisation plan and capital allocation alignment criteria to be classified as aligned to a net zero pathway.

The change recognises the importance of GHG emissions emanating from Agriculture, Forestry, and Other Land Uses (AFOLU). Also, it is the start of ongoing efforts to highlight the importance of nature impacts and dependencies on net zero ambition.

NZIF 2.0 has incorporated action points that have been recommended by major initiatives. This has been done on a best effort basis as many initiatives have only recently published their guidance. Many action points integrated into NZIF 2.0 originate from the TCFD expectations of transition plans and map to global disclosure frameworks such as IFRS/ISSB.

The premise is that they all support investors to develop their own best practice net zero strategies and transition plans. Also, implementing recommended action points within NZIF can consequently enable investors to satisfy wider industry expectations.

The intention is not that investors should be immediately expected to implement every recommended action point. Investors should choose and prioritise recommended action points that are most appropriate to their circumstances.

Recommended action points are described as either ‘core’ or ‘advanced’. Core action points are deemed to be those where attention should be originally focused within each particular section. However, NZIF does not have any formal requirements; it is a guide to help support investors to develop their own net zero strategies and transition plans to support the management of their own individual portfolios.

Maximising contributions to real economy decarbonisation

NZIF guides investors in the management of their own individual portfolios. In doing so, it recommends investors use the levers at their disposal to support real economy emissions reductions to the maximum practical extent possible. It is only through the reduction of GHG emissions in the real economy that the systemic financial risks posed by climate change can be mitigated.

NZIF focuses on ‘asset alignment’ as the premise through which investors could pursue real economy emission reductions, based on its multi-criteria and maturity scale. Investors are encouraged to use identified levers to support investments to improve their performance against relevant net zero pathways.

The various recommended action points across the framework support investors to contribute towards the achievement of global climate goals, as well as address transition risk within their portfolios and take advantage of any potential opportunities posed by the net zero transition.

It is recognised that action by other stakeholders (e.g. governments) is crucial for the global economy to reach net zero emissions. Additionally, it is recognised that short term progress towards reducing real-economy emissions could be inhibited by:

  • Legal obligations, fiduciary duties, and client mandates.
  • Available, reasonable, and supportable information without undue cost or uncertainty.
  • Internal skills, capabilities, and resources.
  • Available methodologies and scenarios.
  • Policies that create an enabling environment.

The NZIF has a comprehensive structure which supports investors to work to address these barriers within net zero strategies as part of maximising their efforts to ‘finance reduced emissions’ rather than ‘reduce financed emissions'.

Net zero decarbonisation pathways

NZIF supports investors to adopt net zero-aligned decarbonisation pathways when setting climate objectives and to underpin asset-level alignment assessment. Net zero-aligned decarbonisation pathways (‘net zero pathways’) refer to science-based emissions, technology, and/or investment trajectories that limit global average temperature rise to 1.5°C above pre-industrial levels with a sufficiently high probability.

Net zero pathways enable rigorous net zero objectives, strategies, and targets allowing investors to:

  • Set decarbonisation and climate solutions objectives.
  • Assess alignment of, and set, asset-level targets.
  • Ensure market service providers use a proper analytical basis.
  • Contextualise target setting.

When setting net zero goals and objectives, NZIF continues to recommend the IPCC 1.5°C Special Report, the IEA's Net Zero by 2050 roadmap and the One Earth Climate Model. These global net zero pathways are consistent with global carbon emissions reaching net zero by 2050, with low or no overshoot, and thus providing a sufficient probability of limiting warming to 1.5°C.

Recent developments with national-level net zero pathways are noted and NZIF recommends these are used if they are of sufficient quality. The use of such pathways is important to ensure emerging and frontier markets are not expected to decarbonise in the same manner as developed markets. It is important that national-level net zero pathways take into account fair share considerations to facilitate a just transition.

It is important to note most net zero pathways are not specifically developed for transitioning investment portfolios to net zero, and per all forward-looking scenarios, they are illustrative and informative of possible futures, not deterministic. They are modelled using the best available physical science, with various economic overlays and assumptions. They are subject to both technical and political review by various stakeholders in reaching consensus.

As such, and as per standard practice of using projections in risk management and investment strategies, multiple net zero pathways may be used by investors, and the structure of NZIF is designed to be used in relation to any forward-looking climate model.

NZIF recommends investors disclose the pathways utilised, including associated assumptions and limitations. Engagement with pathway providers will become an increasingly important activity for investors as they continue to navigate the transition across a broad range of markets with differing characteristics and circumstances.

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News, insights and case studies

Read our insights and case studies below to understand more about NZIF and understand how investors are putting it into action.

NZIF 2.0 and IIGCC

NZIF 2.0 provides a summary of what is necessary to understand the methodology at a high-level but is insufficient to operationalise NZIF by itself. This is where IIGCC comes in, to support investors to make progress against their plans to achieve their net zero goals. The NZIF should be viewed as interconnected with IIGCC and a gateway to our wider and highly valuable offer. 

Working groups

Our support

Our support in helping investors make progress against their net zero goals incorporates every part of IIGCC – from policy advocacy to corporate engagement and more. It involves everything we do.

Flagship tools and framework

Our views

We present clear views and provide detailed investor-led guidance, working groups, and initiatives supporting investors to make progress against their plans to reach net zero. This is delivered to members via surgeries, webinars, supplementary guidance, investor expectations, policy notes and more.

Climate action

Our role

Our role is to also constantly consider enhancements to existing views and guidance, and to establish new views and supplementary guidance for additional topics and areas. We are dynamic.  

NZIF 2.0 legal statement

All written materials, communications, surveys and initiatives undertaken by IIGCC are designed solely to support investors in understanding risks and opportunities associated with climate change and take action to address them. Our work is conducted in accordance with all relevant laws, legislation, rules and regulations including data protection, competition laws and acting in concert rules. Participants in any initiative will not be asked for and must not disclose or exchange strategic or competitively sensitive information or conduct themselves in any way that could restrict competition between members or their investment companies or result in members or the investment companies acting in concert. These materials serve as a guidance only and must not be used for competing companies to reach anticompetitive agreements. IIGCC’s materials and services to members do not include financial, legal or investment advice.    

 

As a foundational principle, IIGCC and the investor networks who have contributed to the Net Zero Investment Framework 2.0 (‘NZIF 2.0’) do not require or seek collective decision-making or action with respect to acquiring, holding, disposing and/or voting of securities. Investors are independent fiduciaries responsible for their own investment and voting decisions and must always act completely independently to set their own strategies, policies and practices based on their own best interests and decision making and the overarching fiduciary duties owed to their clients and beneficiaries for short, medium and long–term value preservation as the case may be. The use of particular tools and guidance, including the scope of participation in any initiatives, is at the sole discretion of individual signatories and subject to their own due diligence. 

 

No Financial Advice: The information contained in NZIF 2.0 is general in nature. It does not comprise, constitute or provide personal, specific or individual recommendations or advice, of any kind. In particular, it does not comprise, constitute or provide, nor should it be relied upon as, investment or financial advice, a credit rating, an advertisement, an invitation, a confirmation, an offer, a solicitation, an inducement or a recommendation, to buy or sell any security or other financial, credit or lending product, to engage in any investment strategy or activity, nor an offer of any financial service. While the authors have obtained information believed to be reliable, they shall not be liable for any claims or losses of any nature in connection with information contained in this document, including but not limited to, lost profits or punitive or consequential damages. The guidance does not purport to quantify, and the authors make no representation in relation to, the performance, strategy, prospects, credit worthiness or risk associated with the NZIF 2.0, any strategy, or any investment, nor the achievability of any stated climate or stewardship targets. The NZIF 2.0 and this webpage is made available with the understanding and expectation that each user will, with due care and diligence, conduct its own investigations and evaluations, and seek its own professional advice, in considering investments’ financial performance, strategies, prospects or risks, and the suitability of any investment therein for purchase, holding or sale within their portfolio. The information and opinions expressed in this document constitute a judgment as at the date indicated and are subject to change without notice. The information may therefore not be accurate or current. The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made by IIGCC, the contributing investor networks or authors as to their accuracy, completeness or correctness.  

 

Exclusion of liability: To the extent permitted by law, IIGCC and any contributing investor networks or authors will not be liable to any user for any direct, indirect or consequential loss or damage, whether in contract, tort (including negligence), breach of statutory duty or otherwise, even if foreseeable, relating to any information, data, content or opinions stated in this document or on this webpage, or arising under or in connection with the use of, or reliance on its contents.