IIGCC paves the way for net-zero hedge funds

Created research group to look into how funds using derivatives can join Net Zero Investment Framework


Natalie Kenway

The Institutional Investors Group on Climate Change (IIGCC) has launched a workstream to look into how derivatives can be aligned with net-zero targets so that sophisticated strategies such as hedge funds can come under its Net Zero Investment Framework.

Launched in March, the framework is used by fund managers and asset owners to maximise their contribution to mitigating climate change with metrics and methodologies to calculate investment portfolios impact on the environment.

Currently, this is only available across four asset classes: sovereign bonds, listed equity and corporate fixed income and real estate, but a workstream has been launched to define how to align to net zero for derivatives as an asset class. This will broaden the scope of strategies and asset classes covered by the framework, including hedge funds, said IIGCC.

Stephanie Pfeifer, CEO of IIGCC, said: “There is no recognised approach for measuring or attributing climate impact of derivatives, or managing a portfolio of these type of assets to align to net zero. It is therefore a key missing piece in investors’ efforts to credibly achieve net zero portfolios. IIGCC is launching a workstream to address this, through a collaborative effort with our members.”

New signatories

The IIGCC also announced the number of asset owners committing to its Paris Aligned Investment Initiative has grown so that $1.9trn of pension fund assets is aligned with net zero.

Europe’s largest pension fund ABP, the National Trust for Places of Historic Interest or Natural Beauty, the Church of Sweden, South Yorkshire Pension Fund, Wiltshire Pension Fund and TPT Retirement Solutions are the latest joiners, collectively representing $617bn.

The Paris Aligned Investment Initiative is a collaborative investor-led global forum which supports investors in aligning their portfolios and activities to the goals of the Paris Agreement. The asset owner Commitment will see the pension funds decarbonise their investment portfolios by 2050 or sooner and increase investment in climate solutions, in line with a 1.5°C net-zero emissions future. It is also outlined that they must also set interim targets for decarbonisation and investment, and undertake policy advocacy and engagement, and voting in line with net-zero goals.

IIGCC CEO Pfeifer said: “Net-zero commitments are vital but must be matched with robust action plans. Growing uptake of the Net Zero Investment Framework ensures more investors are now able to maximise their contribution to the energy transition by adopting a net-zero investment strategy.”

The asset owners will use the Net Zero Investment Framework on a practical basis to achieve their goals. There are now 44 investor groups signed up to the Paris Aligned Investment Initiative.

Loek Sibbing, board member, ABP, said: “Climate change is one of the biggest issues facing the world today. We at ABP are taking actions in our Responsible Investment Policy to counter it. Much depends on standards to be able to steer in the right direction. The Net Zero Investment Framework commitment will help ABP on our pathway to an effective net zero investment strategy.”

The IIGCC also highlighted the Paris Aligned Investment Initiative is also now collaborating with the Partnership for Carbon Accounting Financials (PCAF) to develop a harmonised approach to measuring and disclosing greenhouse gas emissions of loans and investments.

Another collaboration by the IIGCC is the Net Zero Asset Managers Initiative which in March saw the number of signatories triple to 73 and the assets under management targeting net-zero emissions grow to $32trn, as Vanguard and BlackRock signed up.

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