Net Zero Investment Framework to widen scope to new asset classes; collaborative efforts also stepped up.
Asset owners with a combined AUM of more than US$600 billion – including ABP, Europe’s largest pension fund – have committed to decarbonising their portfolios via the Paris Aligned Investment Initiative.
Alongside Netherlands-based ABP, the UK’s National Trust, the Church of Sweden, South Yorkshire Pension Fund, Wiltshire Pension Fund and TPT Retirement Solutions signed up to the initiative’s Net Zero Asset Owner Commitment, trebling the framework’s total assets to US$1.9 trillion.
ABP has almost three million beneficiaries from the government and education sectors in the Netherlands.
The Paris Aligned Investment Initiative is a collaborative investor-led global forum established to help investment institutions to align their portfolios and activities to the goals of the Paris Agreement.
Signatories of the initiative’s 10-part asset owner commitment must decarbonise their investment portfolios by 2050 or sooner and increase investment in climate solutions in line with keeping climate change to 1.5°C, setting interim targets (by 2030 or sooner), undertaking policy advocacy and engagement consistent with net zero goals, and reporting annually according to the recommendations of the Task Force on Climate-related Financial Disclosures.
As a result of today’s announcement, 44 institutional investors – asset owners and investors with approximately US$9 trillion AUM – now use the initiative’s Net Zero Investment Framework to guide their efforts to align with their Paris Agreement goals.
Widening scope; new partnerships
The framework currently provides metrics and methodologies for four asset classes – sovereign bonds, listed equities, corporate bonds and real estate – but is expected to extend to infrastructure and private equity following the release of recommendations by the IIGCC later this year. The initiative is also working toward guidance on aligning use of derivatives to net zero goals via a new workstream, which will also facilitate a broadening of the framework’s scope to include hedge funds.
The five components of the framework – governance and strategy, objectives and targets, strategic asset allocation, asset class alignment, and policy advocacy and investor engagement – are designed to achieve ‘real-world’ as well as portfolio decarbonisation.
The Paris Aligned Investment Initiative was formed in May 2019 by the Institutional Investors Group on Climate Change (IIGCC) and is now supported by four regional investor networks – AIGCC (Asia), Ceres (North America), IIGCC (Europe) and IGCC (Australasia) – and is included in the UN’s Race to Zero campaign.
The initiative’s Net Zero Asset Owner Commitment was developed specifically for asset owners looking to use the Net Zero Investment Framework.
There are parallels – in terms of shared objectives – with the UN-convened Net-Zero Asset Owners Alliance, which recently announced the addition of five new members, bringing its collective AUM up to US$6.6 trillion. The alliance, however, has focused its efforts on developing and deploying a target-setting protocol designed specifically to decarbonise asset owners’ portfolios in five-year steps, while the initiative provides guidance on net-zero strategies for both asset managers and owners. The two are actively engaged in efforts to further align their approaches to achieving net-zero investment portfolios.
“Climate change is one of the biggest issues facing the world today. We at ABP are taking actions in our Responsible Investment Policy to counter it. Much depends on standards to be able to steer in the right direction. The Net Zero Investment Framework commitment will help ABP on our pathway to an effective net zero investment strategy,” said Loek Sibbing, board member, ABP.
According to a statement, the initiative is working with the Partnership for Carbon Accounting Financials (PCAF) to develop a harmonised approach to measuring and disclosing greenhouse gas emissions of loans and investments.