The Net Zero Investment Framework 1.0 is designed to provide a basis on which a broad range of investors can make commitments to achieving net zero emissions and define strategies, measure alignment, and transition portfolios. It sets out a number of components for an effective net zero investment strategy, with recommendations on the key actions and methodologies that can be used to implement such a strategy.

The key aspects of the Framework are as follows:

1. Governance and Strategy:

• Commit to the goal of achieving net zero portfolio emissions by 2050, or sooner, and adopt an investment strategy consistent with the achievement of global net zero emissions by this date
• Define beliefs, set investment strategy and mandates/performance objectives for portfolio managers, asset managers, and other relevant personnel
• Undertake climate financial risk assessment in line with Task Force on Climate-related Financial Disclosures (TCFD) recommendations
• Publish a clear action plan, and disclose information on governance, strategy, metrics and targets, and management in relation to achieving alignment to net zero

2. Targets and Objectives:

• Set medium term (< 10 years) emissions reduction and climate solutions reference targets to inform strategic asset allocation (SAA) and monitor impact of strategy.
• Emissions reduction targets and monitoring at the portfolio level should include at least scope 1 and 2 emissions initially, and phase in scope 3 emissions over time.

3. Strategic Asset Allocation

• Update capital market assumptions based on scenario analysis
• Optimisation with emissions and climate solutions metrics
• Set asset class mix with climate variants
• Review constraints to increasing alignment

4. Asset Class Alignment

The framework recommends following a consistent process across the four asset classes that are addressed in detail in the report (Sovereign bonds, listed equity, corporate fixed income, real estate).

• Assess assets based on current and forward looking alignment criteria, and investment in climate solutions
• Set goals for increasing the percentage of assets under management invested in aligned assets
• Implement an engagement goal to ensure at least 70% of financed emissions in material sectors are either net zero, aligned to a net zero pathway, or the subject of direct or collective engagement and stewardship actions
• Utilise implementation methods to drive alignment, including portfolio construction methods (such as screening), engagement, selective divestment and direct investment/management actions for directly owned assets. Overall, the Paris Aligned Investment Initiative (PAII) recommends that an investment strategy should prioritise engagement and stewardship and direct management (where relevant), particularly for existing assets, as the primary mechanism to drive alignment.

5. Policy Advocacy and Market Engagement:

• Investors should ensure that direct and collective policy advocacy supports policy and regulation relevant for achieving global net zero emissions by 2050 or sooner. Focus should specifically be on net zero aligned policy and regulation, disclosure and shareholder rights.
• Collective and direct advocacy delivered through meetings, letters, responding to consultations, and media activity, as well as ensuring trade association advocacy is consistent with net zero goals.

6. Disclosure

The Report recommends investors disclose annually in line with the recommendations of the TCFD with respect to climate-related financial risk.

1. The Net Zero Implementation guide is a practical, implementable framework that can assist asset owners seeking to align their portfolios with the Paris goals. It also provides guidance for asset managers that are part of the Net Zero Asset Managers initiative.
2. Successful alignment to net zero requires a clearly articulated, portfolio wide strategy supported by a strong governance framework that provides accountability for the implementation of an effective strategy over time.
3. The PAII advocates a public and transparent approach, making public commitments, providing transparency on targets and objectives, outlining the investor’s intended strategy to meet those objectives and reporting on progress.
4. The primary objective is achieving emission reductions in the real economy. Investors are expected to focus on investment in climate solutions as well as emission reduction in their portfolios. Likewise, implementation of the investment strategy at the asset class level is expected to focus primarily on engagement and stewardship and, where relevant, on direct management of assets, with divestment and screening playing a smaller role.
5. The framework is intended to be practical and adaptable for investors in different regions and with differing fiduciary contexts. With that backdrop, investors adopting the Framework are expected to use it on an ‘implement or explain’ basis.
6. Investors are encouraged to set interim targets at both the portfolio and asset class level and measuring success against these targets. Setting a long term objective is not sufficient.