Global framework for investors to achieve net zero emissions alignment launched – $8 trillion investors put it into practice
- Framework launch sees 22 asset owners committing to achieve net zero alignment.
- Global investor groups to mainstream ‘net zero investing’, supporting investors with practical approaches to achieving portfolio alignment, through IIGCC’s Paris Aligned Investment Initiative.
- $1.3 trillion real-world investor portfolio testing shows investors ‘need not wait to act’, with net zero alignment offering scope for significant benefit over business-as-usual.
The Institutional Investors Group on Climate Change (IIGCC) is today launching the ‘Net Zero Investment Framework’, enabling investors to maximise the contribution they make to decarbonisation of the global economy and tackling climate change1. This is achieved by ensuring investment portfolios are aligned with net zero emissions and investors are working in a comprehensive manner to help deliver on the goal of the Paris Agreement to keep global warming below 1.5°C. Building on IIGCC’s existing work to date, the finalised Framework is being published in partnership with other investor groups across North America, Asia and Australasia. It will be rolled out globally as the basis for investors worldwide to implement their net zero strategies.
22 asset owners, with $1.2 trillion (Tn) in assets, have used publication of the Framework to commit to achieve net zero alignment by 2050 or sooner2. The funds in question are drawing on the Framework to deliver these commitments, alongside a number of asset managers who are already working with clients on net zero alignment.
This means 38 investors, managing $8.5 Tn in assets – including both asset owners and asset managers – are already putting the Framework to practical use. Just some of these investors include Scottish Widows, the Environment Agency Pension Fund, NN Group, New York State Common Retirement Fund, Royal London, National Grid UK Pension Scheme, the Church of England Pensions Board, PKA, Brunel Pension Partnership, Northern LGPS (covering the Greater Manchester, Merseyside and West Yorkshire local government pension scheme funds), PensionDanmark, Phoenix Group, AP2, Lloyds Banking Group Pensions Trustees Limited, Nest Corporation, Bundespensionskasse AG, AXA Investment Managers, DWS, Aberdeen Standard Investments, PIMCO, Legal & General Investment Management, Jupiter Asset Management, Robeco and Fidelity International. See notes to editor for a full list of all 38 investors3. The majority of these early adopters participated in creation of the Framework and are taking the first steps to defining an industry standard approach to ‘net zero investing’. They are part of a wider group of more than 110 investors representing $33 trillion in assets, involved in its development through the Paris Aligned Investment Initiative, which was launched by IIGCC in 2020 and is now being taken global4.
“The global investment community has been called on to play its part in the transition to net zero – and it is answering that call,” explains Stephanie Pfeifer, CEO, Institutional Investors Group on Climate Change. “This new swathe of net zero commitments from asset owners demonstrates the growing determination from investors to make important decisions to support a net zero and resilient future.”
“Commitments are vital, but only meaningful for the long-term when realised. The net zero transition itself requires an ongoing transition from making commitments to delivering impact. The Net Zero Investment Framework, developed with and for investors, is a blueprint for action that will enable and support investors in reaching these goals.”
Many asset managers using the Framework have also made net zero commitments through the Net Zero Asset Managers initiative launched in December, which is also delivered by IIGCC and partner investor groups5.
More investor commitments such as those announced today will follow, helping build momentum in the run-up to the United Nations COP26 climate talks, taking place Glasgow in November. The Framework is also expected to be included in the United Nation’s Race to Zero Campaign, following the completion of an independent assessment process currently underway6.
“Investing in a net zero future is key to tackling the climate crisis and unlocking truly sustainable growth. It is actually in the interest of all,” explains Patricia Espinosa, Executive Secretary, United Nations Framework Convention on Climate Change. “I encourage others to join investors already showing leadership in using the Net Zero Investment Framework. The race to a net zero future is on and the benefits it offers are critically important.”
“Bringing climate change to the top of the agenda and ensuring that Britain’s pension investments act on managing climate change risk will not only help the UK reach net zero, but ensure a brighter future for all,” adds UK Minister for Pensions Guy Opperman. “In the run-up to COP26, more countries than ever are signing up for net zero. This creates huge opportunities, but also risks, for institutional investors such as pension schemes. That is why we’re the first major economy to legislate to require pension schemes to set targets to manage their own climate risks.”
“I therefore welcome both the ambition and hugely practical guidance contained in this framework, which will help even more institutional investors aim for net zero.”
The Framework enables investors to decarbonise investment portfolios and increase investment in climate solutions, in a way that is consistent with and contributes to a 1.5°C net zero emissions future. Investors do this by developing a ‘net zero investment strategy’ built around five core components of the Framework. These key components are: objectives and targets, strategic asset allocation and asset class alignment, alongside policy advocacy and, investor engagement activity and governance.
The ‘net zero investment strategy’ is also underpinned by three types of targets, as the main metrics to measure effective action7:
- Portfolio level targets for decarbonisation and investment in climate solutions
- Timebound portfolio coverage targets for companies and assets to meet net zero or aligned criteria
- Engagement coverage threshold (>70% emissions in material sectors) ensuring intensive engagement to drive the transition
Investors drawing on the Framework explain:
“We’re proud to support the launch of the IIGCC Net Zero Commitment as founding signatories,” explains Barry O’Dwyer, CEO, Royal London Group. “The IIGCC commitment reflects our view that decarbonising our portfolio alone is not enough. As institutional investors we must influence the companies we invest in to reduce their emissions and invest in the solutions that will help us realise the goals of the Paris Agreement.”
“Becoming net-zero is the best way we can protect our members’ from the investment risks posed by climate change,” adds Helen Dean, CEO Nest. “The evidence is clear – companies adapting for the low carbon economy should have a better chance of long-term success and profitability.”
“We hope other investors follow suit and use the Net Zero Investment Framework. There are challenges to overcome in developing net zero aligned portfolios, but working together and sharing ideas gives us the best chance of finding the right solutions.”
“The importance of investors contributing to achieve net zero emissions is clear while the economic benefits and investment opportunities of renewables and renovating buildings are becoming even more important,” says Asoka Wöhrmann, CEO, DWS Group. “Guided by the IIGCC framework, DWS is working to ensure that we select the best net zero emissions investment framework that will deliver a positive outcome for the world and our clients.”
“It is easy to make a long-term commitment to be net zero, but the key question is the path you take to achieve it,” adds Adam Matthews, Chief Responsible Investment Officer, Church of England Pensions Fund. “We have jointly chaired this process to pool the expertise and wisdom of the asset owner and fund manager community to create a framework that is both practical and credible and gets you to net zero. This is a vital part of the investment architecture that was missing. As a fund we are committed to using this Net Zero Investment Framework and are delighted to make the Asset Owner commitment today.”
“Climate shocks, like storms and heatwaves, present a material risk to investments,” adds Emma Howard Boyd, Chair, Environment Agency. “We wanted to help Environment Agency Pension Fund members to be part of the solution so we asked them what they wanted and 92% of those surveyed told us they thought it was important the Fund had a net zero target. We have been using the IIGCC framework to help us set out a roadmap to a net zero target. It has helped us think about how our portfolio needs to evolve. The Net Zero Investment Framework is an excellent tool and we would encourage all investors to use it.”
“Asset owners have a vital role to play in supercharging the UK’s transition to low carbon and unlocking the huge benefits the green economy presents for us all,” explains Antonio Lorenzo, Chief Executive of Scottish Widows. “That’s why we’ve set ourselves a target to ensure every penny of our £170bn investments are net zero by 2050 and have signed the IIGCC Net Zero Asset Owners’ pledge.”
“The IIGCC’s Net Zero Investment Framework, which we helped develop, provides both a flexible and targeted approach to cutting carbon emissions in line with the Paris Agreement. By signing up to the framework, asset owners can send a clear signal to companies and policy makers that they will only back businesses which are actively shifting to a low carbon approach.”
“Climate change poses significant risks and opportunities for the New York State Common Retirement Fund, the markets, and the economy as a whole,” said Thomas P. DiNapoli, sole fiduciary of the New York State Common Retirement Fund. “At the same time, it is becoming clear that efforts to comply with the Paris Agreement are on the rise by countries and companies alike. The actions listed in the Net Zero Asset Owners Commitment provide examples of the sort of forward-thinking ideas investors can use to protect the long-term value of their investments. We have put the Fund in a strong position for a net zero future and strongly encourage others to do the same.”
“The Net Zero Investment Framework provides a much-needed toolkit for putting our commitments into practice,” comments Jenn-Hui Tan, Head of Stewardship and Sustainable Investing, Fidelity International. “Investors need to take a holistic approach to ensure they contribute to the transition to a low carbon economy as reducing the carbon footprint of portfolios is not enough to solve climate change. Fidelity International is actively working on embedding the Framework into our company analysis, stewardship activities and fund range.”
“We are proud to have contributed to the IIGCC’s Net Zero Investment Framework,” adds Rod Paris, CIO, Aberdeen Standard. “As investors we have a critical role to play in achieving net zero emissions globally. As we seek to take tangible action, this innovative framework is extremely valuable as it provides a practical means for developing net zero solutions for our clients and supporting the goals of the Paris Agreement.”
The Framework is intended to provide a practical implementation guide, supporting investors in defining and delivering their own net zero investment strategy. While this process will always be heterogeneous and unique to each investor, the Framework helps inform these approaches based on best practice methodologies and metrics. An increasing number of investors are expected to use the Framework following its publication.
“There is growing momentum behind the transition to net zero across the global economy, including from governments, regulators and companies,” explains Stephen Cohen, designate Head of EMEA and member of the Global Executive Committee, BlackRock. “This shift will drive profound changes for investors. It is our deeply held conviction that climate risk is investment risk, and as markets reckon with these risks, we are already starting to see a significant reallocation of capital. Against this backdrop, the transition to net zero presents investors with a historic investment opportunity, and asset managers and asset owners should consider how to position themselves at the forefront of that transition.”
The four investor groups are also coming together to drive investor net zero commitments and global uptake of the Framework through the Paris Aligned Investment Initiative. Established by IIGCC at the request of European asset owner investors in August 2020, the initiative will now go global. This collaboration will increase the reach of the initiative and help address the urgency of supporting investors worldwide in driving a shift to ‘net zero investing’ across the sector as a whole.
The investor organisations involved are: Institutional Investors Group on Climate Change (IIGCC) engaging with European investors, Ceres covering North America, the Asia Investor Group on Climate Change (AIGCC) covering Asia and the Investor Group on Climate Change (IGCC) covering Australasia.
Bringing investors together, the Paris Aligned Investment Initiative will be the global forum to support asset owners and managers in setting and delivering on net zero targets. Activity will build on existing collaboration, in providing investors with a best practice standard and consistent approach to net zero alignment across the global investment sector. Work will also continue in expanding the focus of the Framework8.
The urgency of addressing the climate crisis is increasingly understood and achieving net zero emissions is key to success. Momentum is increasingly clear, with nine of the world’s 10 largest economies pledging to reach net zero emissions by mid-century. Investors have a vital contribution to make to this process but have lacked a standardised approach to convert intent into practical decisions and action. The Net Zero Investment Framework fills this gap.
The findings of real-word portfolio testing, using the Framework to assess the impacts of net zero alignment – across five investor funds collectively valued at $1.3 Tn, will also help strengthen the case for further uptake9. The analysis developed by Vivid Economics, shows net zero alignment is a no regrets choice with scope for investors to secure notable benefits over a business-as-usual approach to investment10. This includes the opportunity for significant reductions in exposure to climate-related financial risks and helping ensure investors are best placed to benefit from opportunities that arise as decarbonisation of the global economy continues to gather pace.
IIGCC’s Paris Aligned Investor Initiative has been working with investors since May 2019 with the goal of supporting and enabling investors to commit to and transition to net zero. The UN-convened Net-Zero Asset Owner Alliance is a group of asset owners working in this direction, and issuing interim target-setting milestones starting in 2025. Engagement is taking place between the two initiatives with a view to further aligning approaches to achieving net-zero investment portfolios. Discussions are ongoing and detailed work is about to start.
– Ends –
Supplementary investor comment
In addition to comments included in the main press release, see below comment from investors on the launch and implementation of the Net Zero Investment Framework. Each of the investors is part of an initial group of investors putting the Framework into practice.
Eva Halvarsson, CEO, AP2: “As investors we have a great opportunity to contribute to the transition through the investments we make and thus we can increase the pace of reaching net zero. At AP2 we are committed to develop our portfolio in line with the Paris Agreement, with the aim of having a net zero portfolio by 2045. To reach this we need to manage the risks, but we also have to make investments that accelerate the transition. At AP2, we last year started a mandate, which invest in sustainable infrastructure that facilitate the transition.”
Guy Matthews, CEO, Sarasin & Partners: “Net zero alignment is a bit like, as the old adage goes, “motherhood and apple pie”. We can all agree that this is a goal we should all get behind. Without it, none of our futures are secure. The challenge is in delivery.
The Net Zero Investment Framework published by the IIGCC today provides a vital roadmap for investors to act. There can be few excuses left for those that turn the other way. A new benchmark has been set for our industry.”
Laura Chappell, CEO, Brunel Pension Partnership: “We are proud to have worked with the IIGCC for some time and to have been involved in the development of the Net Zero Investment Framework. The depth of that partnership was reflected in the recent appointment of Faith Ward as IIGCC Chair.
We are confident that the framework has been effectively designed, having participated in the portfolio testing process. As a result, we believe it will enable us to deliver on our climate ambitions, both in our own funds and in our determination to encourage broader change across the industry.”
Magdalena Wahlqvist Alveskog, CEO, Handelsbanken Fonder: “At the end of 2020 we committed to Net Zero Asset Managers which marked an important step in the work to align our portfolios with the Paris Agreement and contribute to a sustainable future. We are currently finalising our new climate targets and internal guidelines for company engagements, which will be based on the Net Zero Investment Framework. Working together with other investors as we develop tools and reporting will be key going forward in order to deliver in accordance with our commitment.”
Jelle van der Giessen, NN Group’s Chief Investment Officer and IIGCC Board member: “At NN one of our strategic commitments is to contribute to the well-being of people and the planet and therefore we are proud to have contributed to this launch of the Net Zero Investment Framework. We believe that the Framework provides a clear roadmap for investors to help accelerate progress towards a net zero future. We will be using the framework to guide us in further developing the strategy to reach our target of net zero greenhouse gas emissions for our own investment portfolio by 2050.”
Carola van Lamoen, Head of Sustainable Investing, Robeco: “Robeco has been using several tools to address the challenges of climate change for many years in the transition to a low-carbon economy. These range from engaging with companies it invests in to launching client solutions such as the world’s first-ever Paris-aligned fixed income strategies in our efforts to combat climate change and lower the carbon footprint of our investments. The Net Zero Investment Framework is an important new comprehensive framework for delivering on our ambition for net zero emissions by 2050 across all our assets under management. It is the toolbox that brings together our different tools for climate action.”
Abbie Llewellyn-Waters, Fund Manager, Head of Sustainable Investing, Jupiter Asset Management: “We are delighted to be able to draw on the insights and recommendations of the Net Zero Investment Framework to support the alignment of our portfolio with the temperature goal of the Paris Agreement, which is a key requirement for all our investments. The climate emergency is one of the most pressing systemic issues globally and this initiative supports actionable targets and clear reporting to help direct capital in support of a more sustainable future for all.”
Dr. Henrik Pontzen, Head of ESG, Union Investment: “The Net Zero Investment Framework is an important milestone on our way to a sustainable future. In line with this, Union Investment was the first major German asset manager to commit to a complete phase-out of financing for coal while actively and individually engaging with more than 100 coal mining companies. In 2021 we will further strengthen our climate strategy to help forming a climate neutral future.”
Gilles Moec, Group Chief Economist, Head of Research of AXA IM: “We have been among the first asset managers committing to reach net zero greenhouse gas emissions by 2050 across all our assets under management. Leveraging on the objectives and work done as part of our involvement in the IIGCC’s Paris Aligned Investment Initiative, we have recently developed our own Climate Alignment Principles. We will start to incorporate the recommendations of the IIGCC to ensure a whole-of-market transition, through investing in heavily decarbonising companies, alongside the benefits and financial resilience to a range of temperature scenarios created by investing in climate solutions. Measuring tools and KPI monitor our progresses to ensure we are on the right pathway to meet our targets.”
Atul Shinh, Investment Director, Ninety One: “We welcome that the Net Zero Investment Framework identifies increasing the investment in climate solutions as an investment strategy that provides a pathway to net zero emissions. We consider all the companies owned within the Ninety One Global Environment strategy as contributing to this goal. Our approach to managing the fund is aligned with aspects of the Framework’s components relating to setting targets and objectives, and advocacy and engagement.”
Iancu Daramus, Senior Sustainability Analyst, Legal and General Investment Management: “With net zero emissions now a focal point of government action, investors are also stepping up. As part of LGIM’s commitment to help transition clients’ portfolios towards net zero, we will continue to work with trusted partners like IIGCC to help evolve common standards for net zero-aligned investing.”
Notes to Editor
- URL link for inclusion in reporting: https://www.parisalignedinvestment.org
- A version of the Paris Aligned Investment Initiative, Net Zero Asset Owner Commitment can be found on p28 of the Net Zero Investment Framework. Investors making the commitment are: AP2, Avon Pension Fund, Brunel Pension Partnership, BT Pension Scheme, Bundespensionskasse AG, Church of England Pensions Board, Cornwall Pension Fund, Devon County Council, Environment Agency Pension Fund, Lloyds Banking Group Pensions Trustees Limited, National Grid UK Pension Scheme, NEST Corporation, New York State Common Retirement Fund, NN Group, Northern LGPS (the collective asset pool for the Greater Manchester (GMPF), Merseyside (MPF) and West Yorkshire (WYPF) local government pension scheme funds), Oxfordshire County Council Pension Fund, Pædagogernes Pension, PensionDanmark, PKA, Royal London, Scottish Widows and Sierra Club Foundation.
- The list of investors already known to be drawing on the Framework is: Aberdeen Standard Investments, AP2, Avon Pension Fund, AXA Investment Managers, Brunel Pension Partnership, Bundespensionskasse AG, Church of England Pensions Board, Cornwall Pension Fund, Devon County Council Pension Fund, DWS, Environment Agency Pension Fund, Fidelity International, Handelsbanken, Jupiter Asset Management, Lazard Asset Management, Legal & General Investment Management, LGT Capital Partners, Lloyds Banking Group Pensions Trustees Limited, M&G Investments, National Grid UK Pension Scheme, Nest Corporation, New York State Common Retirement Fund, NN, Northern LGPS (the collective asset pool for the Greater Manchester (GMPF), Merseyside (MPF) and West Yorkshire (WYPF) local government pension scheme funds), Oxfordshire County Council Pension Fund, Pædagogernes Pension, PensionDanmark, Phoenix Group, PIMCO, PKA, Robeco, Royal London, Sarasin & Partners LLP, Scottish Widows, SEB Investment Management, Sierra Club Foundation and Union Investment.
- See p31 of the Net Zero Investment Framework and here for a list of investors involved in the Paris Aligned Investment Initiative.
- See here for details on the Net Zero Asset Managers initiative and commitment.
- See here for more detail on the Race to Zero campaign.
- See p10 of the Net Zero Investment Framework for detail on specific requirements of each target.
- Four different asset classes – sovereign bonds, listed equities and corporate fixed income and real estate – are already covered by the Framework. Others will follow, with two additional asset classes – infrastructure and private equity – already identified and work getting underway. This comes alongside a focus on how investors can align to adaptation and resilience goals of the Paris Agreement.
- See here for a full version of the analysis. The investors whose portfolios were used for the modelling are APG, Pension Partnership, the Church of England Pensions Board, PKA and Phoenix Group. They collectively represent over $1.3 trillion in assets under management.
- Key takeaways among others from the Vivid Economics analysis include:
- The Framework achieves its intended purpose: enabling investors to successfully align their portfolios with the goals of the Paris Agreement, without this needing to affect returns across investments.
- Net zero alignment offers significant reductions in exposure to climate-related financial risks.
- The process of alignment is achieved at manageable cost to portfolio performance (with no impact on risk-adjusted returns).
- It enables investors to ensure they can be better positioned to benefit from the opportunities that arise through the transition to an emerging net zero economy.
About Paris Aligned Investment Initiative
The Paris Aligned Investment Initiative is a collaborative investor-led forum to support investors to align their portfolios and activities to the goals of the Paris Agreement, and achieve net zero alignment. The initiative involves more than 110 investors representing USD $33 trillion in assets.
Launched in May 2019 by the Institutional Investors Group on Climate Change (IIGCC), the initiative is now a global collaboration involving three other additional regional investor networks supporting a growing number of investors take action: the Asian Investors Group on Climate Change (AIGCC – Asia), Ceres (North America), and the Investor Group on Climate Change (IGCC – Australasia).
The Institutional Investors Group on Climate Change (IIGCC), is the European membership body for investor collaboration on climate change and the voice of investors taking action for a prosperous, low-carbon future. IIGCC has more than 275 members, mainly pension funds and asset managers, across 16 countries, with over €35 trillion in assets under management. IIGCC works to support and help define the public policies, investment practices and corporate behaviours that address the long-term risks and opportunities associated with climate change. For more information visit www.iigcc.org and @iigccnews.