3. Setting the target
Once an approach to assess and classify sovereign issuers in the alignment scale has been established, investors can set a target to scale up the proportion of aligned assets:
- A 5-year target for increasing the percentage of sovereign bonds allocation to issuers that are categorised as ‘aligned’ to a net zero pathway or ‘achieving net zero’.
4. Delivering the target
IIGCC recognises achieving net zero targets for sovereign bond portfolios will be particularly challenging. Such challenges can be disclosed by investors when setting out net zero strategies for sovereigns.
Despite the limitations, more resources are increasingly available to facilitate discussions between investors and sovereigns, and to support the delivery of an asset alignment target for sovereign bonds. These include new assessment tools and better data, improved granularity in sectoral and regional decarbonisation pathways, new opportunities to engage, and enhanced target setting and implementation guidance for sovereign bonds.
Case study
A fair assessment of governments’ transition to net zero: Ninety One’s Net Zero Sovereign Index
5. Monitoring the target
Investors are recommended to establish a process to periodically review the categorisation of sovereign issuers, at least once a year, and commit to update with any new information, such as an update to NDC commitments.
To enhance transparency, investors are recommended to disclose relevant information relating to the development of their alignment approach and setting of targets.
