A major economic shift is poised to unfold.
More than $40 trillion in assets are now overseen by institutional investors committed to achieving net zero greenhouse gas emissions across all their investments by 2050 or sooner and implementing interim emissions reduction targets by 2030 or sooner. This is a major turning point, but we need all investors to start taking action.
Governments too, are propelling this shift to net zero, with those representing half the world's economy pledging to reduce emissions from their national economies to net zero by 2050 - and many committing to halve their emissions by 2030. And at last count, 1,500 companies and municipalities across the world have likewise pledged to reach net zero emissions by 2050 or sooner, according to the United Nations.
These investors, governments and companies are heeding the science that warns that global emissions must be slashed to net zero by mid-century or sooner or the economic and human toll will be devastating. Investors are also heeding pressure from clients, competitors, policymakers, shareholders and regulators as they address this systemic risk of climate change and align their investments with the goals of the Paris Agreement.
So now the hard work begins. Some investors will be taking their very first step on climate, which will likely involve beginning to articulate a formal position on integrating climate considerations into their investment strategy and decision-making. Other investors may be looking to make the next step by moving to fulfill climate commitments through strategic decision making, detailed planning, regular measurement and data collection on progress and transparent disclosure. Wherever the investor is on their journey, they will need to make an action plan.
But where should investors start? This is new territory and, to date, there has been no agreed upon set of best practices for investors on what a climate action plan in line with the global goal of reaching a net-zero emissions future by 2050 could look like. That is why the Investor Agenda’s Founding Partners -- AIGCC, CDP, Ceres, IIGCC, IGCC, PRI, and UNEP FI -- have drawn on their combined experience to provide the much-needed expectations for investors on how to take action on the climate crisis and accelerate the transition to a more just and sustainable net-zero emissions economy.
This week, we released the Investor Climate Action Plans (ICAPs) Expectations Ladder and Guidance to help investors develop and implement plans of climate action, at whatever stage they are on the journey, including steps investors can take to support the goal of a net-zero emissions economy by 2050 or sooner. It helps investors navigate existing expectations and initiatives on climate and focuses their attention on a set of key actions they can take right now in the four interlocking areas of the Investor Agenda: investment, corporate engagement, policy advocacy, and investor disclosure.
Investors can understand where they currently stand on the ICAPs Expectations Ladder and identify the actions they might take to strengthen their approach. Progress can be measured using a four-tier system, starting with “just beginning to think about climate change” to the highest tier “a net-zero standard setter.” For investors just starting on their climate action journey, the first step is getting on the ICAPs Expectations Ladder and then formulating a plan for eventually getting to net zero (regardless of whether the investor has yet made a net-zero commitment).
The rigor of the ICAPs Expectations Ladder increases by each tier. For instance, asset allocations in Tier 1 (highest tier) includes investing in 1.5-degrees Celsius aligned companies, products, and infrastructure projects in all asset classes and eliminating all investments in thermal coal. At lower Tiers 3 and 4 in the investment focus area, asset managers and owners should have an investment strategy that establishes a formal investment policy on fossil fuels and other high climate impact sectors, has a clear commitment to divest from thermal coal, and aligns with just transition principles. Investors will begin by developing and starting to implement a decarbonization strategy for at least one portfolio or asset class. Investors can use the ICAPs Expectations Ladder to self-assess their progress on corporate engagement, disclosure and policy advocacy - the four focus areas of the Investor Agenda.
The accompanying ICAPs Guidance enables investors to interpret the ICAPs Expectations Ladder. It offers a select set of tools to support investor actions at every tier and provides a link to the PRI and CDP annual reporting frameworks so that an investor’s climate action plan is not a new reporting framework.
The ICAPs Expectations Ladder and Guidance builds on current climate reporting methodologies, such as Task Force on Climate-related Financial Disclosures (TCFD) recommendations, providing guidance for forward looking and holistic investor plans that include policy and engagement actions not covered by other risk or disclosure frameworks as well as the early stages of action not covered by exclusively net zero initiatives.
We hope this new framework will help normalize the practice in the investment community of developing climate action plans. As U.S. Special Presidential Envoy for Climate John Kerry said at a side event before the Leaders Summit on Climate in April, “I encourage every financial institution to lay out a climate action plan with specific targets year-on-year to align your investments with net zero."
If investors were to heed this call, their climate action plans could propel the global economy forward towards net zero faster by sending a signal to governments and regulators that investors support climate action. Investors, in turn, could facilitate further climate action around the world, and drive the ambition we need for the future we all seek.
The Rev. Kirsten Snow Spalding is the Senior Program Director of the Ceres Investor Network at Ceres. Jesica Andrews is the Investment Practice Lead at the United Nations Environment Programme Finance Initiative (UNEP FI). Spalding and Andrews together led the development of the ICAPs Expectations Ladder and Guidance by all 7 Founding Partners of The Investor Agenda.