Introduction

The Net Zero Investment Framework (NZIF) 2.0 was developed to guide investors in aligning their portfolios with the Paris Agreement goals. Originating from collaboration among 110 IIGCC members, it now includes updated methodologies and guidance.

NZIF 2.0 offers detailed methodologies for various asset classes, governance structures, strategic asset allocation, and policy advocacy. The framework aims to achieve real economy emissions reductions through independent fiduciary decisions. It also ‘recommends setting four objectives and targets, which when used together, promotes an approach that seeks real economy decarbonisation.’

Governance and strategy

This section outlines the legitimacy and actions required to address climate transition risks. It recommends core actions, such as committing to net zero portfolio emissions and integrating net zero goals into investment manager selection.

Advanced action points:

• Develop energy and deforestation policies.
• Establish internal monitoring systems for net zero strategies.
• Integrate net zero objectives into remuneration incentives.

Objectives

Net zero objectives over a ten-year period are established to enable strategy and target performance assessments. The section includes guidance on setting and disclosing medium-term portfolio level reference objectives and targets.

Advanced action points:

• Disclose performance against targets.
• Develop strategies to address scope 3 emissions at the portfolio level.

Strategic asset allocation

This section integrates net zero objectives into asset allocation processes, complementing traditional risk/return objectives. It provides recommendations for setting short-term targets and improving asset alignment.

Advanced action points:

• Integrate non-financial climate metrics into asset valuation.
• Review constraints within portfolio optimisation.

Asset level assessment and targets

Guidance is provided to help investors align their underlying holdings with net zero goals. It includes asset class-specific target setting and implementation strategies.

Core action points:

• Align direct and indirect policy advocacy efforts towards achieving global net zero emissions.
• Participate in policy advocacy to promote climate and economic policies supporting net zero objectives.

Policy advocacy

This section addresses barriers and opportunities for net zero alignment created by the wider policy and regulatory environment. It emphasises the importance of engaging with regulators and policymakers to advocate for coherent policies.

Advanced action points:

• Disclose interdependencies between net zero targets and the wider policy environment.
• Engage with portfolio companies on their lobbying practices to promote alignment with the Paris Agreement.

Stakeholder and market engagement

Stakeholder and market engagement are crucial for achieving net zero objectives. This section highlights the need for data, mandates, and investment advice to support investors.

Advanced action points:

• Participate in industry initiatives to develop standards for transition plans and disclosures.
• Engage with asset managers to provide strategies and products aligned with net zero goals.
  Recommendations

NZIF 2.0 includes recommendations for investors to:

• Assess and disclose climate financial risk.
• Commit to net zero portfolio emissions.
• Develop and disclose transition plans.
• Integrate net zero goals into investment mandates.

This structured approach aims to facilitate the alignment of investment portfolios with global net zero emissions targets, ensuring comprehensive climate risk management and sustainable investment practices.