INSIGHT by IIGCC
〉By scaling the number of companies engaged, the new initiative aims to support investors align more of their investment portfolio with the goals of the Paris Agreement.
〉107 companies have received individual letters from investors seeking confirmation that they have developed, or intend to develop, a net zero transition plan.
〉Through a scalable and agile approach, the initiative aims to accelerate real world impact.
The Institutional Investors Group on Climate Change (IIGCC) has today launched the Net Zero Engagement Initiative (NZEI), a new initiative to scale and accelerate climate-related corporate engagement.
93 investors have agreed to participate in the initiative including Church of England Pensions Board, Schroders and PGGM.
By expanding the universe of companies engaged beyond the Climate Action 100+ focus list, including those across the demand side, the objective is to help investors align more of their portfolio with the goals of the Paris Agreement as set out by investor net zero commitments, such as the Net Zero Asset Managers initiative and the Paris Aligned Asset Owners initiative.
While Climate Action 100+ has transformed the scale and prominence of climate engagement with 166 high emitting focus companies, many more companies need to be engaged to align portfolios with net zero. Moreover, investors that have set their net zero commitment using the Net Zero Investment Framework need to engage, or classify as aligned, assets that account for 70% of financed emissions in material sectors. The NZEI addresses both points.
The initiative has been developed so that it could scale globally to cover more companies in the next 18-24 months. Doing so would further support investors with aligning their portfolio overall with net zero.
| Investor expectations and engagement ‘sprints’
The initiative has started with an initial 107 companies being sent letters from a total of 93 investors outlining their expectations for a net zero transition plan (Note: Not all investors signed all letters).
In line with the Net Zero Investment Framework corporate criteria, the key transition plan recommendations set out in the letter are:
1) a comprehensive net zero commitment;
2) aligned GHG targets;
3) emissions performance tracked; and
4) credible decarbonisation strategy.
To support this request, IIGCC has also published Investor Expectations of Corporate Transition Plans: From A to Zero which further details the information investors may wish to seek to assess transition plans, the rationale for these requests and guidance on how companies can meet them.
Based on the response from companies, investors participating in NZEI will develop an appropriate engagement strategy for each company. For those identified as strategic priorities, this will include engagement ‘sprints’ featuring agile engagement focusing on key pools of companies. This approach is designed to tackle companies facing specific challenges and those with sector-wide barriers.
Stephanie Pfeifer, CEO, IIGCC, said: “The Net Zero Engagement Initiative provides part of the solution to the greatest challenge facing investors who have made net zero commitments: how to deliver on these through engagement with companies. By building on other initiatives, including Climate Action 100+, and by scaling up engagement, the NZEI adds to the ‘how’. In doing so, the NZEI supports investors in the implementation phase of their net zero journey.”
“We are excited about the scalability of the initiative and look forward to growing it in the coming years, both in terms of the investors involved and the number of companies covered. Importantly, the NZEI also shows the continued support from investors in playing their role in trying to accelerate the decarbonisation of the global economy.”
Adam Matthews, Chief Responsible Investment Officer, Church of England Pensions Board and Co-Chair of the IIGCC Corporate Programme, said: “Expanding the universe of companies responsible investors engage with to deliver on net zero targets is critical to achieving the Paris Agreement.”
“As a fund we are committed to achieving net zero and to do so need to engage all the companies in which we invest. This is a major step in enabling investors to engage beyond the most carbon intensive companies and drive disclosure standards consistent with the transition guidance published today.”
“This is a major step in enabling investors to engage beyond the most carbon intensive companies and drive disclosure standards consistent with the transition guidance published today.” – Adam Matthews
Carol Storey, Climate Engagement Lead, Schroders, said: “Schroders has undertaken a significant programme of climate engagement as part of our net zero commitment to clients and we are excited to support the shared objectives of the Net Zero Engagement Initiative. Encouraging companies to develop credible transition plans is the key focus of this initiative; we believe how a company responds to the challenges of climate change could ultimately in the future be key to its bottom line.”
Andres van der Linden, Senior Responsible Investment Advisor, PGGM, said:“The NZEI represents the next chapter in climate-focused engagement. Building on the lessons learned in the Climate Action 100+, it helps to further scale investor impact by combining a centralised approach with focused engagement sprints. It comes at a critical phase of the energy transition, where particular attention to the demand-side of energy is needed.”
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.
