$16trn AuM investor group launches decarbonisation tutorial

On the 08/06/20 at 7:53AM


Laurence Pochard

European institutionals and asset managers are promoting this method of taking action.

“Setting a long-term decarbonisation target is the easy thing. The real challenge is having a credible and transparent framework that allows your funds to convert intentions into practical decisions and actions”. As Adam Matthews, head of ethics and engagement at the Church of England pension board and one of the project initiators said, it is time for asset holders and managers to get into the meat of the carbon neutrality process in order to achieve the Paris Agreement’s climate goals.

To do so, the Institutional Investors Group on Climate Change (IIGCC), with its 70 signatories managing $16trn in assets, has established a framework called Net Zero Investment Framework. This is a working document under review until 25 September 2020, pending the release of an update in autumn. The framework is meant to allow investors to align with two goals: to obtain carbon-neutral portfolios and to boost investment in climate solutions, such as renewable energies low-carbon real estate.

A step-by-step approach

The methodology takes a step-by-step approach. It starts by adjusting governance and strategy to these goals before laying down the objectives and measures needed at the portfolio level. This results in a shifting of asset allocation strategy, followed by a strategy alignment for each asset classes, including government bonds, listed markets, fixed income and real estate. The last step is a standard-bearer role in exerting pressure to shift environmental policies and investment in virtuous solutions and demanding that the market have tools and advice needed to implement the strategy.

“The transition towards carbon neutrality is fundamentally a transition in investment, i.e., shifting capital from high-emitting activities towards low-emitting ones”, added Keith Skeoch, CEO of Standard Life Aberdeen, which is one of the network’s 70 investors. The IIGCC also includes French institutional investors, such as ERAFP and Banque Postale, as well as asset managers like Axa Investment Managers and OFI Asset Management. The group plans to recruit other members to obtain as many users as possible of its framework.

But the job is not over. The project promotors have already announced the following phase, when the methodology will be detailed for infrastructure and private equity. How to integrate the Paris Agreement’s goals of “adaptation and resilience” will be discussed, along with those flaws identified during the first phase, including: measuring Scope 3 emissions (the most indirect), examining offset and CO2-capture technologies, and specifying how to measure emissions reductions at the level of each asset. Means of boosting investment in climate solutions will also be debated.