The Institutional Investment Group on Climate Change (IIGCC) has today published new net zero guidance for infrastructure, providing institutional investors with detailed advice on how to ensure their investments in infrastructure projects are in line with targets to deliver net zero emissions by 2050 at the latest.
The guidance is the latest addition to the IIGCC’s Net Zero Investment Framework, taking the total number of asset classes covered by the initiative to five.
The guidance, which was released for consultation in June 2022, aims to help investors align and manage infrastructure portfolios with their net zero goals.
Asset owners and managers that are signatories to Paris Aligned Asset Owners and Net Zero Asset Managers initiatives are now being encouraged to utilise the new methodology in support of their stated net zero goals. However, the IIGCC said the guidelines have already been used for target setting by a number of notable infrastructure investors, including DIF Capital Partners.
“The new infrastructure guidance will be extremely valuable to those investors with net zero commitments and who have exposure to the asset class,” said Stephanie Pfeifer, CEO at the IIGCC. “That a number of investors who have set net zero targets have decided to follow the guidance is a positive sign and we look forward to seeing many more taking similar decisions. We know that decarbonising infrastructure globally will be vital if we are to deliver net zero and that within this context investors have a pivotal role to play, not least owing to the level of investment held in the asset class.”
The guidance features detailed methodologies for assessing how infrastructure assets align with net zero goals across six criteria, including the timeframe for aligning an asset with net zero, whether targets cover all scopes of emissions, and how emissions are to be addressed via a comprehensive decarbonisation strategy.
It also provides advice on how to set credible portfolio coverage targets that become more demanding over time and sets out actions that can increase portfolio alignment with net zero goals, including through engagement and stewardship initiatives.
It recommends that 100 per cent of carbon-based energy and transport infrastructure assets should immediately be the subject of engagement or management interventions from institutional investors to ensure they have credible net zero strategies in place.
Separately, the IIGCC today also announced it is working on further infrastructure investment guidance, with the start of the second phase of the development of the Physical Climate Risk Assessment Methodology (PCRAM).
PCRAM was formally launched in September 2022 by engineering giant Mott MacDonald and the Coalition for Climate Resilient Investment (CCRI). IIGCC is to now take the lead on the development of the new methodology and will work with CCRI and IIGCC members on identifying new case studies to further test the approach and co-develop workplans, including a new stream for investor adaption.
IIGCC will then integrate insights from the methodology into overall guidance for infrastructure in the Climate Resilience Investment Framework, over the course of 2023 and 2024.
“PCRAM not only builds out the case for integrating physical climate risk into valuation models, but reaffirms net zero efforts as the best way to defend against the worst effects of climate change,” said Mahesh Roy, investor practices programme director at the IIGCC. “When you look at the costs and benefits of building resilience in assets in 1.5C or 2C degrees scenarios, in many cases this augmented cashflow model can help investors to be prepared and should allow many projects to go ahead in confidence.”