NZIF 2.0: new asset classes, focus on real world impact

The new framework, which is a widely used instrument for net zero investment strategies is being put forward by the Asia Investor Group on Climate Change (AIGCC), Ceres, the Investor Group on Climate Change (IGCC), and the Institutional Investors Group on Climate Change (IIGCC). It has been developed with input from more than 200 investors.

The real deal

One of the significant updates is the repositioning of the new Portfolio Decarbonisation Reference Objective, in acknowledgement that a focus on financed emissions can dissuade investment in climate solutions. Instead, the framework will now put greater emphasis on 'financing reduced emissions' over 'reducing financed emissions'.

In practice, this is aimed at generating a greater emphasis on real economy impact rather than focussing on emissions at portfolio level. It is also aimed at preventing greenwashing by ensuring credit is not taken for financed emissions reductions not attributable to changes in the real economy, the new guidance said.

“Identifying emissions associated with climate solutions (such as renewable energy) is important, as these could rise in line with their required global scale up. Emissions associated with manufacturing and installation will be the largest source of lifetime emissions for many of these activities, especially in the short term” the guidance stated.

It also acknowledged that investors should pay particular attention to emissions associated with emerging market investments as these might decarbonise along different pathways and could take longer to reach a peak in emissions.

New asset class guidance

In addition to this, there is new guidance for Sovereign Bonds, Real Estate, and Private Debt, along with updated guidance for Infrastructure and Private Equity, initially published post-2021. The framework also introduces new emissions performance criteria for listed equities and corporate fixed income, as well as new certificate deposits guidance for net zero cash management. NZIF 2.0 consolidates best practices from three years of implementation into over 40 potential actions for investors, making risk and return considerations more accessible and coherent.

Stephanie Pfeifer, CEO of IIGCC, remarked, "Based on three years of practical experience, NZIF 2.0 incorporates the latest guidance on net zero target setting and the latest thinking on the levers available to investors to meet their net zero goals. For investors looking to identify and manage climate-related transition risks and opportunities in their portfolios, the Net Zero Investment Framework has cemented its position as the number one resource to accompany them along their journey."

Rebecca Mikula-Wright, CEO of AIGCC and IGCC, added, "Investors are under all kinds of pressure to show their climate commitments are credible, are translating to real world action, and support good returns for beneficiaries. The Net Zero Investment Framework is the best practice tool to guide investment practice and give trustees confidence that climate risks and opportunities are being properly addressed."

Investor feedback

Prominent figures in the investment community have praised the updated framework. Nathalie van Toren, head of Responsible Investment at NN Group, highlighted the NZIF's value in developing and implementing net zero strategies, noting its role as a crucial starting point for setting initial targets. Adam Matthews, chief responsible investment officer for the Church of England Pensions Board, emphasised the framework's credibility and rigour in operationalising climate commitments. He welcomed the evolution of the framework to reflect best practices and lessons learned from implementation.

Takeo Omori, head of Sustainable Investment Group at Asset Management One, praised NZIF 2.0 for its forward-looking emphasis and asset class differentiation, which aligns with diverse geographical contexts. He confirmed its continued use as a vital resource for their net zero alignment strategy.

Initially developed by IIGCC and launched in 2021, the NZIF was a key output of the Paris Aligned Investment Initiative (PAII), an investor-led forum supporting portfolio alignment with the Paris Agreement goals. Delivered by four investor networks—AIGCC, Ceres, IGCC, and IIGCC—the NZIF is now a global reference framework used by over 200 investors to develop net zero strategies.

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IIGCC: is a global baseline for climate disclosures within reach?