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Sovereign bonds and country pathways - target setting guidance

Sovereign bonds and country pathways - target setting guidance

This target setting and implementation guidance was developed to provide preliminary steps investors can take to increase adoption of sovereign bonds into net zero investment strategies.

Ahead of this guidance, IIGCC published a discussion paper summarising the challenges and the enabling tools that are a basis for target setting activities. 

Together with our sovereign bonds and country pathways working group, we explored the tools to integrate sovereign bond holdings into net zero investment strategies and the steps that investors can begin to take while being cognisant of the limitations:

  1. Tracking and measuring financed emissions for sovereign bond holdings, ​
  2. Creating or endorsing methodologies to assess net zero alignment at country (issuer) level,​
  3. Setting net zero alignment objectives and targets, ​
  4. Mapping and seeking engagement opportunities that enhance the use of their ‘voice’, and​
  5. Where possible, increasing funds to climate solutions and transition finance, especially in Emerging Markets and Developing Economies (EMDEs).

Practical steps 

​This resource offers practical steps to help target setting and implementation. Investors committed to adopting sovereign bonds holdings within their individual net zero strategies can do so by following these steps. For each sovereign bond holding within a portfolio… 

  1. Calculate sovereign bonds' apportioned emissions
  2. Assign a 'Common but Differentiated Responsibilities and Respective Capabilities' (CBDRD+RC) category to consider 'fair share' elements​
  3. Assign Net Zero Investment Framework alignment metrics (at the issuer level)
  4. Set targets and objectives within individual mandates

The guidance includes detailed explanations and recommendations for each section; including guidance on assessing scopes and calculating emissions, assessing country decarbonisation pathways and using relevant alignment criteria. It also includes preliminary mapping of various assessment methodologies against the NZIF criteria and practical examples in an easy-to follow slideshow format.