Incorporating Derivatives and Hedge Funds into the NZIF: Consultation Responses
IIGCC published a discussion paper on incorporating derivatives and hedge funds into the Net Zero Investment Framework in May 2022 and opened it for public consultation.
During the four-week consultation period, 22 written responses were received, 16 of which came from investors.
There was broad support for the incorporation of derivatives into the Net Zero Investment Framework, with many viewing this as an important step for investors with net zero commitments.
Summarising the detailed feedback, overall, respondents agreed with the use of the Theory of Change, while the expansion of the range of metrics to incorporate longs and shorts into gauging portfolio alignment was similarly positively received. There is agreement that reporting all positions (longs and shorts) is important but, as seen in other industry reviews, opinions are split on the merits of incorporating shorts into portfolio measurement.
IIGCC will develop a new workplan for the next phase of preparing to incorporate derivatives into the Net Zero Investment Framework. This plan will respond to the feedback from the consultation in focusing on areas that were not covered in the original discussions, reviewing specific suggestions made for net alignment measures as well as on whether the behavioural consequences of the approach proposed in the consultation paper can be mitigated through specific guidance or modifications to the components.