Below is NZIF 2.0 implementation guidance for listed equity & corporate fixed income assets, outlining a 5-step process to set, deliver and monitor asset level targets.
Asset alignment target: A 5-year target for increasing the % of AUM in material sectors that are ‘aligning’ or ‘aligned’ to a net zero pathway, or achieving net zero’.
Engagement threshold target: A minimum proportion of financed emissions are assessed as achieving or aligned to a net zero pathway, or are subject to engagement.
As with all asset classes, the asset alignment target can be can be split into the five steps.
1. Setting the scope
All assets within listed equity and corporate fixed income portfolios and funds are recommended to be considered within initial scope.Within this, all sectors considered “material” to the net zero transition, defined as those in NACE code categories A-H and J-L, are recommended to be considered for assessment and subject to the asset alignment target.
2. Assessing alignment
The alignment assessment utilises six alignment criteria.
High impact companies are encouraged to be assessed against all six alignment criteria, which includes the asterisked criteria in the table below. All other companies are deemed material but ‘lower impact’. Investors can assess the alignment of lower impact material companies against the criteria: ambition, targets; disclosure; and emissions performance.
Criteria underpinning alignment assessment
Key
Green ticks represent when a criterion is required to be fulfilled for a particular alignment category to be obtained.
Criteria
Committed to aligning
Aligning to a net zero pathway
Aligned to a net zero pathway
Achieving net zero
Asset with emissions intensity required by the sector and regional pathway for 2050 and whose operational model will maintain this performance.
Emissions performance: Current absolute or emissions intensity is at least equal to a relevant net zero pathway.
Capital allocation alignment*: A clear demonstration that capital expenditures are consistent with a relevant net zero pathway.
Decarbonisation plan*: A quantified set of measures exists to achieve short and medium term science-based targets by reducing GHGs and increasing green revenues, when relevant.
Disclosure: Disclosure of operational scope 1, 2 and material scope 3 emissions.
Targets: Short and medium term science-based targets to reduce GHG emissions.
Ambition: A long term goal consistent with the global goal of achieving net zero by 2050.
*Additional alignment criteria that a corporate within a high impact material sector needs to meet.
Data
Investors are recommended to use the following data sources to assess the alignment of their listed equity and corporate fixed income assets where possible:
Climate Action 100+ Net Zero Company Benchmark
Transition Pathway Initiative
Science Based Targets initiative
CDP Climate Change Questionnaire
Carbon Tracker
Net Zero Standards
An excerpt of the Implementation Guidance provides a mapping of public datasets against NZIF’s alignment criteria.
3. Setting the target
Once the investor carries out a baseline year assessment, the investor can set an asset alignment target:
A 5-year asset alignment target for increasing the percentage of AUM or financed emissions in material sectors that are ‘aligned’ or ‘aligning’ to a net zero pathway, or ‘achieving net zero’.
As a minimum, NZIF recommends that the target is set with the ambition to achieve 100% asset alignment by 2040, and that engagement and stewardship action continues until companies are aligned or net zero.
4. Delivering the target
Investors may utilise multiple levers to support the transition of assets and increase the likelihood of achieving an asset alignment target. NZIF identifies three main levers – engagement and escalation strategy, portfolio construction, and investment mandates – that can be used alongside other levers that are not necessarily asset class specific, such as policy advocacy and engagement with other industry actors.
5. Monitoring the target
Investors are recommended to review and update targets, with portfolio alignment assessments and disclosures recommended to take place on at least a yearly basis.
