IIGCC releases reports on net zero assessments

May 22nd, 2024

The Institutional Investors Group on Climate Change (IIGCC) has published guidance on incorporating sovereign bonds into a net zero investment strategy.

The group has also collaborated with the Climate Bond Initiative, Climate Arc, Sustainable Markets Initiative (SMI) and Glasgow Financial Alliance for Net Zero (GFANZ) on a tool to enable financial institutions to assess and categorise companies on their transition to net zero.

The discussion paper on integrating sovereign bonds mapped available data for assessing sovereign net zero alignment and assessed different countries’ decarbonisation pathways to inform on their alignment with an investor’s net zero targets.

The paper also included ‘fair share’ elements to incorporate the common but differentiated responsibility and respective capability (CBDR+RC) principle set out by the UN as part of the Paris Agreement.

The principle recognises that different countries have different levels of capability and responsibility to address climate change, depending on how developed the market is, their natural resources and other factors.

IIGCC noted that sovereign bonds account for around 50% of the global outstanding bond market in 2020, meaning that incorporating them into a net zero portfolio is crucial to achieving the goals set out in the Paris Agreement.

Additionally, IIGCC partnered with various climate change organisations to produce the Navigating Corporate Transitions report, which proposed a methodology to classify corporate transitions based on a company’s maturity, ambition and the credibility of their transition plan.

The report outlined five categories of corporate decarbonisation transition maturity, ranging from companies with no commitment to Paris-aligned pathways to those already at net-zero emissions.

It also identified the key indicators for a corporate’s inclusion in each of those categories.

The report highlighted that shareholders and other investors must understand the current emissions and forward-looking transition plans of the corporates they are financing to effectively engage with them.

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