NZIF recommends that investors aim to set portfolio decarbonisation reference objectives that encompass all asset classes.
Integrating scope 3 emissions into portfolio level objectives is not currently recommended. Investors need to take a nuanced approach to scope 3 of investments, outlined in IIGCC’s Supplementary Guidance on Scope 3 Emissions of Investments.
Investors are recommended to set a 2019 baseline to both align with science-based net zero pathways which indicate a global 50% emissions reductions from 2019 levels to 2030 is required, and to increase comparability for net zero objectives.
Recognising several years have passed since 2019, investors setting net zero objectives and targets can work backwards, where possible, to calculate a fund or portfolio’s baseline emissions in 2019.
If investors choose to set a different baseline year, investors are recommended to fully explain:
Investors may consider setting 5-year interim targets in addition to the <10-year objective. These shorter-term objectives can be reviewed and revised once five years have passed, at the latest.
NZIF recommends that the portfolio decarbonisation reference objective is expressed in absolute or intensity terms.
It is further recommended that investors take a dashboard approach to measuring and reporting portfolio emissions, including utilising an absolute metric and at least one intensity-based metric.
There are three primary portfolio level metrics available for investors to utilise in objective setting and reporting for portfolio emissions, all of which have various advantages and disadvantages outlined in the guidance:
Investors can establish portfolio decarbonisation reference objectives that align with science-based net zero pathways produced by credible parties and are in line with the global carbon budgets provided by the IPCC.
For enhanced robustness, investors are encouraged to consider more granular net zero pathways, including sectoral and country pathways.
Investors can be guided by global 1.5°C pathways, such as the IPCC P1, P2, P3 scenarios with no or limited overshoot. Investors are recommended to consider rising emissions since the pathway baseline year, all GHG emissions, and data lags to ensure the objective reflects the required decarbonisation rates implied by 1.5°C scenarios and any changes in real economy emissions.
Where possible, for enhanced robustness, investors are encouraged to consider more granular net zero pathways, including sectoral and country pathways.
Investors are encouraged to set a <10-year CO2e emissions reduction objective, expressed in absolute or intensity terms. At portfolio level, this should include scope 1 and 2 emissions.
Investors have a range of approaches available to setting the portfolio decarbonisation reference objective, each with their own merits and disadvantages which the guidance outlines in detail.
|
The self-decarbonisation approach |
Investors taking a self-decarbonisation approach set decarbonisation reference objectives relative to the portfolio’s own baseline emissions. |
|
Benchmark-relative approach |
Investors taking a benchmark-relative approach determine a starting point relative to a chosen benchmark and set a decarbonisation reference objective relative to the emissions of that benchmark. |
|
Point-in-time objective |
Identifies a future year and selects an appropriate rate of emissions reductions, guided by the pathways identified in step 5. For example, 30% emissions reduction by 2025 or 55% by 2030, relative to the baseline year, 2019. |
|
Portfolio carbon budget-based objective |
A budget will be based on the cumulative GHG emissions applicable to a portfolio over a specific timeframe, such as between 2019 to 2025, 2030, or 2050. For example, a reduction of 940tCO2e between 2019 and 2030. |
Investors are recommended to seek to understand which factors are driving the changes in portfolio emissions by conducting decarbonisation attribution analysis, which allocates emissions change to multiple drivers.
Decarbonisation attribution analysis offers a comprehensive way to assess and monitor the achievement of emissions reduction objectives, providing investors with key insights and action points, as outlined in the guidance.
Drivers of emissions change can be categorised into four buckets:
The figure below provides an example of attribution analysis in practice.
Recalculating portfolio baseline year emissions, or ‘rebaselining’, is a practice that investors may want to undertake to ensure consistency and relevance of reported GHG data over time and to reliably track progress against the portfolio decarbonisation reference objective.
As a general principle, the portfolio baseline is recommended to be reflective of the most recent emissions data and advanced estimation methodologies, and adjusted for changes in financial metrics unrelated to emissions.
A portfolio emissions rebaselining policy can cover:
Investors are recommended to ensure transparency is always maintained in the setting and monitoring of the portfolio decarbonisation reference objective.
The document provides a detailed transparency framework to support investors in communicating a robust portfolio decarbonisation reference objective, with recommendations across all 7 steps listed above.
NZIF recommends that investors aim to set portfolio decarbonisation reference objectives that encompass all asset classes.
Integrating scope 3 emissions into portfolio level objectives is not currently recommended. Investors need to take a nuanced approach to scope 3 of investments, outlined in IIGCC’s Supplementary Guidance on Scope 3 Emissions of Investments.
Investors are recommended to set a 2019 baseline to both align with science-based net zero pathways which indicate a global 50% emissions reductions from 2019 levels to 2030 is required, and to increase comparability for net zero objectives.
Recognising several years have passed since 2019, investors setting net zero objectives and targets can work backwards, where possible, to calculate a fund or portfolio’s baseline emissions in 2019.
If investors choose to set a different baseline year, investors are recommended to fully explain:
Investors may consider setting 5-year interim targets in addition to the <10-year objective. These shorter-term objectives can be reviewed and revised once five years have passed, at the latest.
NZIF recommends that the portfolio decarbonisation reference objective is expressed in absolute or intensity terms.
It is further recommended that investors take a dashboard approach to measuring and reporting portfolio emissions, including utilising an absolute metric and at least one intensity-based metric.
There are three primary portfolio level metrics available for investors to utilise in objective setting and reporting for portfolio emissions, all of which have various advantages and disadvantages outlined in the guidance:
Investors can establish portfolio decarbonisation reference objectives that align with science-based net zero pathways produced by credible parties and are in line with the global carbon budgets provided by the IPCC.
For enhanced robustness, investors are encouraged to consider more granular net zero pathways, including sectoral and country pathways.
Investors can be guided by global 1.5°C pathways, such as the IPCC P1, P2, P3 scenarios with no or limited overshoot. Investors are recommended to consider rising emissions since the pathway baseline year, all GHG emissions, and data lags to ensure the objective reflects the required decarbonisation rates implied by 1.5°C scenarios and any changes in real economy emissions.
Where possible, for enhanced robustness, investors are encouraged to consider more granular net zero pathways, including sectoral and country pathways.
Investors are encouraged to set a <10-year CO2e emissions reduction objective, expressed in absolute or intensity terms. At portfolio level, this should include scope 1 and 2 emissions.
Investors have a range of approaches available to setting the portfolio decarbonisation reference objective, each with their own merits and disadvantages which the guidance outlines in detail.
|
The self-decarbonisation approach |
Investors taking a self-decarbonisation approach set decarbonisation reference objectives relative to the portfolio’s own baseline emissions. |
|
Benchmark-relative approach |
Investors taking a benchmark-relative approach determine a starting point relative to a chosen benchmark and set a decarbonisation reference objective relative to the emissions of that benchmark. |
|
Point-in-time objective |
Identifies a future year and selects an appropriate rate of emissions reductions, guided by the pathways identified in step 5. For example, 30% emissions reduction by 2025 or 55% by 2030, relative to the baseline year, 2019. |
|
Portfolio carbon budget-based objective |
A budget will be based on the cumulative GHG emissions applicable to a portfolio over a specific timeframe, such as between 2019 to 2025, 2030, or 2050. For example, a reduction of 940tCO2e between 2019 and 2030. |
Investors are recommended to seek to understand which factors are driving the changes in portfolio emissions by conducting decarbonisation attribution analysis, which allocates emissions change to multiple drivers.
Decarbonisation attribution analysis offers a comprehensive way to assess and monitor the achievement of emissions reduction objectives, providing investors with key insights and action points, as outlined in the guidance.
Drivers of emissions change can be categorised into four buckets:
The figure below provides an example of attribution analysis in practice.
Recalculating portfolio baseline year emissions, or ‘rebaselining’, is a practice that investors may want to undertake to ensure consistency and relevance of reported GHG data over time and to reliably track progress against the portfolio decarbonisation reference objective.
As a general principle, the portfolio baseline is recommended to be reflective of the most recent emissions data and advanced estimation methodologies, and adjusted for changes in financial metrics unrelated to emissions.
A portfolio emissions rebaselining policy can cover:
Investors are recommended to ensure transparency is always maintained in the setting and monitoring of the portfolio decarbonisation reference objective.
The document provides a detailed transparency framework to support investors in communicating a robust portfolio decarbonisation reference objective, with recommendations across all 7 steps listed above.
