Global alliance managing $16T pushes plan to decarbonize investments

August 5, 2020.

Seventy global investors controlling more than $16 trillion pitched a novel framework Wednesday that they say should enable asset owners and managers to heed intensifying calls to cut carbon out of their portfolios by 2050.

The Net Zero Investment Framework is the “first-ever practical blueprint” for portfolio managers to get out of greenhouse gas-emitting investments and redirect funds toward climate-friendly areas, the coordinating Institutional Investors Group on Climate Change said.

The 70 global pension funds and investment managers involved in the project include numerous big names. Asset management divisions at , , and are among them.

The framework is meant to help asset managers meet a growing demand for sustainable investments from clients as well as regulators. It incorporates the EU Taxonomy, ambitious European Union performance thresholds for investors and other financiers marching toward the EU’s 2050 deadline for climate neutrality. 

Investors are willing to decarbonize their portfolios but have lacked a proper framework for doing so, said Stephanie Pfeifer, the CEO of the IIGCC.

“Countries, cities and companies around the globe are committing to achieve the goal of net-zero emissions and investors need to show similar leadership,” she said.

The group is collecting feedback on the draft framework until Sept. 25. 

APG Asset Management in the Netherlands, U.K. insurer Phoenix Group and the Church of England are among the five pension funds that will test the framework on their collective $1.3 trillion portfolio for an analysis that will accompany the final framework to be released before the end of the year.

Phoenix Group Chief Investment Officer Michael Eakins said the framework will help everyone make “vital” progress.

“This project has given us valuable insights into what the net-zero journey for our investment portfolios could look like,” Eakins said.

The framework is the first big project out of the IIGCC’s Paris Aligned Investment Initiative, which began last May to examine how investors can align their portfolios with the goals of the Paris Agreement. That accord, like the new framework, aims to limit global temperature rise by 1.5 degrees Celsius to avoid the most catastrophic effects of climate change.

The framework suggests emissions-reducing actions, metrics and methodologies covering four asset classes: sovereign bonds, listed equities, corporate fixed income and real estate.

“An ‘investment strategy’-led approach, supported by concrete targets set at portfolio and asset level — combined with smart capital allocation, and engagement and advocacy activity — ensures investors can maximize their impact in driving real-world decarbonization,” the IIGCC said.

The group’s release of the framework follows the Partnership for Carbon Accounting Financials sharing Monday its draft international standard for measuring and disclosing the climate impact of institutional loans and investments. That effort is backed by global players such as and .

“Investors need to play their part, and for our efforts to be effective, it’s vital that we have a shared understanding of what Paris alignment means, and are able to articulate that to our clients,” said Vicki Bakhshi, director of responsible investment at . “We are proud to be involved in the framework issued today and to play our part in the wider investor movement toward making finance a force for good.”