LONDON: An investor group managing more than US$16 trillion on Wednesday (Aug 5) launched the world's first step-by-step plan to help pension funds and others align their portfolios with the Paris Agreement on climate change.
Many investors have pledged high-level support to the goals of the 2015 Paris deal, but the "Net Zero Investment Framework" is the first to lay out the steps they need to take to ensure the commitment is backed up by the necessary action.
Specific targets could include increasing the percentage of assets invested in low-carbon passive indexes and ensuring the leaders of investee companies link pay to climate-related targets.
"Countries, cities and companies around the globe are committing to achieve the goal of net-zero emissions and investors need to show similar leadership," said IIGCC Chief Executive Stephanie Pfeifer
"The willingness is there, but until now the investment sector has lacked a framework enabling it to deliver on this ambition."
Since the Paris deal was struck in 2015, investors have launched a number of initiatives to help them better manage climate-related risks.
While many were useful, the Institutional Investors Group on Climate Change (IIGCC) said its framework was the first to give investors practical guidance on how to both decarbonise portfolios and boost investments in solutions to climate change.
Developed with input from 70 global investors, including bond giant PIMCO and Dutch pension investor APG, the plan sets concrete targets at the portfolio and asset class level and also addresses asset allocation, engagement and lobbying.
The first phase of the framework, which will now go out to consultation, covers listed equities, credit, sovereign debt, real estate and strategic asset allocation. A later phase will look at addressing private equity and infrastructure.