Climbing the Ladder to Net Zero: Investors have made progress but the journey is far from donePosted 30th November 2022
Most investors have heard about climate action plans, whether through voluntary initiatives such as the Investor Climate Action Plans (ICAPs) from the Investor Agenda or the Financial Institution Transition Plan Guidance from GFANZ, or mandated government requirements in countries like the U.K. Climate action plans enable investors to operationalize their climate commitments into a set of clear time-bound actions across a number of focus areas and track progress on an ongoing basis.
To look at what progress has been made, the Investor Agenda has reviewed public data on climate action planning for a sample of 100 asset owners and managers, representing the most significant investors in terms of asset size, geographical reach and influence, to identify initial themes on investor climate action planning.
The majority of investors have published ICAPs
Of the investors reviewed, 71% have published climate action plans, the majority doing so across a range of formats (including as part of TCFD or sustainability reporting, in climate policies or across website pages etc). For 57 investors, these plans are published over multiple documents, with many choosing to integrate climate action plans holistically as part of their existing annual climate reporting, while 14 investors have standalone climate action plans.
Despite seeing some progress, there is a need for investors to more clearly set out the forward-looking actions, goals and accountability mechanisms for the organisation to reduce emissions to reach invest in climate solutions over the short, medium and longer term. This should include clearly detailing immediate actions that the investor will taking to achieve interim milestones. Though recent ICAPs case studies here, we are now seeing leading investors set out clear climate KPIs for action over the short term using the Ladder and Guidance. This demonstrates positive adoption of ICAPs and indicates that investors are developing comprehensive plans.
Investors are accelerating progress on portfolio alignment and climate-related disclosures
The Investor Agenda considered investor activity across the ICAPs focus areas of investment, corporate engagement, policy advocacy, investor disclosure and the cross-cutting theme of governance. Investors reviewed showed significant progress in both investment – in particular portfolio alignment – and climate-related disclosures.
The ICAPs Expectations Ladder uses a tiered system approach, from Tier 4 to Tier 1 showing increased ambition and progress through each tier. As seen in the figure below, 32 investors are meeting Tier 1 expectations as defined by the criteria below. A further 11 investors have set interim targets aligned with Tier 1 expectations, but have not explained the methodologies or frameworks used for setting these targets. As such, further data would be needed to appropriately comment on the rigor, feasibility and overall ambition of these targets.
While it is encouraging that 62 investors have reached tiers 1 or 2 in the investment focus area, more needs to be done to galvanize the 15 investors who have done no more than measure portfolio emissions (Tier 4), and the 23 investors who are still not disclosing any actions.
Investor Disclosure is also an area where the majority of investors (63) are meeting higher Tier 1 and 2 expectations, with 43 investors meeting the highest ambition Tier 1 expectation by disclosing quantitative details of interim net zero targets and reporting progress against them. The Investor Agenda expects that disclosures are made public and may be contained in climate action plans, transition plans and/or a TCFD report.
|ICAPs criteria for the Investment focus area||ICAPs criteria for the Investor Disclosure focus area|
|Tier 1||investor target is aligned with 1.5ºC and global net zero emissions by 2050 OR sooner, plus Set intermediate targets covering all assets every 5 years using recognized methodologies and frameworks for setting, assessing, reporting, and verifying performance||The investor disclosed quantitative details of interim net-zero targets and reports progress against them.|
|Tier 2||The investor has an emissions reduction target aligned with 1.5ºC and global net zero emissions by 2050.||The investor published organizational and portfolio objectives / targets on climate change and report on progress against these (at this stage, climate targets may/may not be calibrated to net zero).|
|Tier 3||The investor has a portfolio emissions reduction target aligned with domestic policy goals or NDCs.|
|Tier 4||The investor has measured portfolio emissions.||The investor has published a formal statement recognizing that climate change (1) presents new and material challenges (2) requires an organization-wide commitment to integrating related risks and opportunities into investment practice – statement should be on website – this may or may not be in a climate action plan, transition plan and/or TCFD report.|
Figure 5: Tiered ICAPs criteria for the Investment & Investor Disclosure focus areas
Climate action plans indicate there are still gaps that investors need to address
Looking across the 71 investors that have set climate actions, the research showed that 29 investors have plans that include all ICAPs focus areas. However, 42 investors are missing key actions in one or more focus areas. The most significant gaps are in the areas of policy advocacy and governance with 37 of the 100 investors failing to identify any actions related to policy advocacy in their climate planning. Since investors have a critical role to play in influencing policy both at the international and regional level to reach Paris-aligned climate goals, this presents as an important area for progress.
The Investor Agenda’s Founding Partners – AIGCC, CDP, Ceres, IGCC, IIGCC, PRI and UNEP FI – are already working both collectively and individually with their memberships to provide further resources and implementation support on policy advocacy for investors. This includes specific policy tools and resources available on our website, such as the Global Investor Statement which congregates large groups of investors to set out specific calls to actions for governments globally.
Leaders showcase where investors should go next
To support investors on the way forward, the Investor Agenda is publishing 4 case studies from investors who are adopting holistic approaches to climate action, which considers investment, corporate engagement, policy advocacy, disclosure and governance in near equal measure.
California State Teachers’ Retirement System (CalSTRS)
This case study looks at CalSTRS’ commitment to continuing to enhance its climate action plan and to building an investment organization that is skilled and knowledgeable in understanding climate-related risks and opportunities.
Click here to read the full CalSTRS ICAPs case study
This case study looks at how Cbus uses roadmaps to identify and track the specific actions it hopes to achieve in both the near and longer term.
Click here to read the full Cbus ICAPs case study
First Sentier Investors (FSI)
FSI’s case study explores its Climate Change Action Plan and sets out the steps and pathways it is taking to meet its net zero commitments. In developing this plan, FSI used the ICAPs Expectations Ladder in order to comprehensively address progress and actions across each focus area.
Click here to read the full FSI ICAPs case study
Finnish Climate Fund
The Finnish Climate Fund case study explains how a state-linked investor considers its climate investment action, measures impacts, and sees the increased role of blended finance in many investor climate strategies.
Click here to read the full Finnish Climate Fund ICAPs case study
These case studies reinforce the fact that investors must commit to making changes across a number of areas simultaneously and not piecemeal. While investors will need to start at their current baselines, they must quickly climb the ladder in order to move the investment industry forward and accelerate the transition to a net zero emissions.