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Net Zero Investment Framework component for private debt

Net Zero Investment Framework component for private debt

This private debt guidance establishes a consistent industry-wide approach to measuring progress toward net zero. It emphasises the real economy decarbonisation of borrowers issuing loans within the private debt industry.

It reflects changes suggested by investors during a three-week open consultation period. Feedback was overwhelmingly positive and led to no material changes to the key elements of the guidance. Instead, some prompts led us to provide additional clarification on certain terms, such as the ambition criteria, and on the strategies in scope versus those not in scope.


A consistent foundation

The Net Zero Investment Framework aims to provide a consistent foundation for asset owners and managers to align their individual portfolios with net zero emissions by 2050 or sooner. A new version, NZIF 2.0, is scheduled to launch in Summer 2024.

While the framework provides recommendations and approaches to alignment with net zero that a broad range of investors can use, it also recognises that investors will set their own specific strategies and undertake actions according to their individual circumstances, mandates and legal requirements.

Investors using NZIF are therefore asked to do so on an ‘implement or explain’ basis to take account of these differing contexts and the need for unilateral decision-making. Jurisdiction, regulation, and best practice will determine the approach that can be taken by a particular investor.

Distinct actions required

Decarbonisation at the borrower level, expressed through their individual targets and science-based decarbonisation strategies, is a key driver to the real-economy emissions reduction required to meet the Paris Agreement’s goals. While asset allocation may play a significant role in an investor’s net zero strategy, the primary focus of this Guidance is decarbonisation goals.

This guidance can be adopted by any private debt investor active across private debt, be that in direct corporate lending, venture debt, and other segments of the market including private structured credit. This introduction explains the methodology and nuances which differentiate NZIF 1.0 in private markets. Sections 1-3 then provide a background and overview of the Guidance, before Section 4 onwards offers a detailed implementation guide.

This guidance has been developed with inputs from leading participants in the private debt industry. It takes the view that, given the unique characteristics of private debt investments, distinct actions are required to meet their own specific decarbonisation goals.

As such, the broader concepts of NZIF 1.0 have been adapted specifically for private debt investments due to the different normative practices, legal structures and regulation which define the industry. To ensure a consistent approach across private markets, the guidance leverages the existing Private Equity (PE) NZIF 1.0 component as the starting point to design a framework suitable for private debt investors.