Major investors to pilot new net-zero framework on $1.3trn of assets
Standard Life and the Church of England Pensions Board are among a coalition of investors trialling what has been described as the world's first blueprint for aligning investment portfolios with the Paris Agreement on climate.
The blueprint was published today (5 August) after months of development work from the Institutional Investors Group on Climate Change (IIGCC), carried out in collaboration with more than 70 global investment firms. Collectively, the cohort manages more than $16trn (£12.2trn) of assets.
It aims to help investors of all sizes align their portfolios with the Paris Agreement’s more ambitious 1.5C trajectory by simultaneously divesting from high-emitting companies without credible decarbonisation plans; engaging with companies that are developing such plans; and investing in more projects and companies providing climate solutions.
The blueprint helps investors to develop time-bound numerical targets around each of these pillars, covering four asset classes: sovereign bonds, listed equities, corporate fixed income and real estate. It also provides best-practice advice on advocacy.
Ahead of a wider rollout at the end of 2020, five investors have agreed to trial the blueprint in real-world scenarios, namely Brunel, APG, Scottish Widows, the Church of England Pensions Board and Standard Life. Collectively, they will apply the blueprint to assets valued at $1.3trn (£1trn). The trial will be used to inform a consultation on the framework, which will help the IIGCC finalise the framework and get more investors to sign up ahead of COP26.
In time, the IIGCC is hoping to establish the framework as “a global industry standard”. It wants the new tool, simply called the ‘Net-Zero Investment Framework’, to complement – not compete with – existing standards on climate disclosure and portfolio decarbonisation.
“Investors need to play a central role if the world is to meet the Paris commitment of limiting climate change to below two degrees,” Brunel Pension Partnership’s chief executive Laura Chappell said.
“The net-zero investment framework is of critical importance because it answers the fundamental and urgent question of what a Paris-aligned portfolio actually looks like…It is a major step forward for the industry.”
Recent weeks have seen many major finance firms announce new climate approaches as governments around the world beefed up plans to deliver “green” Covid-19 recovery packages.
The past fortnight alone saw Morgan Stanley, NatWest Group and the Bank of America join the Partnership for Carbon Accounting Financials (PCAF) initiative. The initiative binds members to disclosing the climate impact of their portfolios and to collaboratively develop a global accounting standard – for use in the financial sector – to improve portfolio transparency of greenhouse gas emissions attributed to financing activities.
Elsewhere, the Initiative Climat International (iCI), originally launched in 2015 by a group of French private equity firms, was extended through a new UK network that aims to help investors engage with corporates working to develop Paris-aligned emissions strategies.
With experts forecasting that the global economy will contract by 5.5% this year, many are, understandably, concerned about a downturn in funding for low-carbon projects, products, systems and technologies. But the pandemic seems to have placed a renewed focus on ESG or impact investing.
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