Frequently Asked Questions
What is the Investor Climate Action Plans (ICAPs) Expectations Ladder and Guidance?
The ICAPs Expectations Ladder summarizes key actions investors can take to tackle the climate crisis in the four interlocking areas of the Investor Agenda: investment, corporate engagement, policy advocacy, and investor disclosure. The ICAPs Expectations Ladder can be used by investors to: (1) assess their current approach to managing climate change risk and opportunity; (2) publish a standalone ICAP; (3) embed elements of the ICAPs into their climate change strategies and disclosures; (4) communicate their current activities and future plans to stakeholders.
The ICAPs Guidance has also been developed to enable investors to interpret the ICAPs Expectations Ladder. It helps investors self-assess where they are on the ladder to understand the specific climate actions they can take to strengthen their approach and make further progress.
Are investors expected to publish an investor climate action plan?
The ICAPs Expectations Ladder is a framework that enables investors to assess their current approach to addressing climate change and to identify areas where they can strengthen their approach. It can also be used by investors to communicate their current and planned future approach on climate change to stakeholders.
The ICAPs Expectations Ladder is not a reporting framework. Investors are not expected to publish a formal stand-alone report explaining how they perform against each of the elements of the Expectations Ladder. They are encouraged to use other public reporting – depending on the investor, these may include integrated reports, TCFD reporting, the PRI signatory reporting and assessment process, and the CDP Financial Services Climate Change Questionnaire – to report on how they implement the various elements of the ICAPs Expectations.
Do asset managers and asset owners have the same obligations?
The ICAPs Expectations Ladder is designed to be relevant to all institutional investors, including asset owners and active and passive asset managers. The approach that different institutional investors take to climate change will be driven by factors such as their size, their position in the investment chain, their legal duties and obligations, and the needs and interests of their clients and beneficiaries. The ICAPs Expectations Ladder recognizes that certain elements may not be relevant (e.g. the investor might not have listed equity investments, the investor may not delegate investment management) or the investor may decide that a specific action is not relevant to or appropriate to its strategy.
What are the main differences within the Investor Climate Action Plans (ICAPs) Expectations Ladder and the Net Zero Investment Framework?
The actions summarised in the ICAPs ladder are drawn from and reflect a range of sources including the Net Zero Investment Framework (NZIF) and other resources of the IA Founding Partners and third party organisations. The NZIF is a more detailed guide for investors to implement net zero investment strategies, and is relevant to supporting those taking actions in the higher tiers of the ICAPs ladder.
The Investor Agenda Founding Partners are closely engaged with the Net Zero Investment Framework (NZIF) as all four networks behind NZIF are also part of the Investor Agenda. As a result, the ICAPs and NZIF are aligned and, indeed, complementary to each other. Moreover as part of making the net zero commitments recommended in the NZIF, investors commit to producing a transparent climate action plan.
As such, the expectation to publish an ICAP is embedded into NZIF. In turn, the ICAPs Guidance signposts investors to NZIF as a key net zero target setting resource.
Understanding The ICAPS Expectations Ladder And Guidance Framework
How does an investor self-assess progress across the Tiers if an investor is moving at variable speeds in each of the focus areas?
The general expectation is that investors meet most or all of the requirements in a Tier before they move to the next Tier. However, there are various reasons why an investor might not meet all the requirements of a particular Tier. For example, certain elements may not be relevant (e.g. the investor might not have listed equity investments) or the investor may decide that a specific action is not relevant to or appropriate to its net zero strategy.
Should Tiers be assessed for each focus area or on an overall basis?
Investors can assess their performance on each of the focus areas in the ICAPs Expectations Ladder. Investors can sit in different tiers in different focus areas. For example, an investor may be Tier 3 on Investment, Tier 4 on Corporate Engagement and Tier 1 on Policy Advocacy.
The Investor Agenda has not developed a mechanism for assessing or scoring an investor’s approach against the ICAPs Expectations Ladder but is actively considering the introduction of an assessment mechanism in 2022 or 2023.
What should an investor do if a methodology is not available?
Net zero performance assessment, net zero scenario analysis, climate change risk assessment and net zero reporting are all evolving disciplines. There are areas where significant progress has been made and there are other areas – examples include derivatives and private markets – where robust methodologies have yet to be developed.
As a general rule, investors can consider that they meet the requirements for a particular Tier when they have taken the specified action for all of the asset classes, sectors or geographies where appropriate tools and methodologies are available. As with other aspects of the Expectations, they should be prepared to identify those asset classes, sectors or geographies where progress is limited by the absence of appropriate tools or methodologies. Investors are encouraged to contribute to the development of methodologies.
Will reporting against the TCFD reporting requirements be sufficient to enable an investor to meet the expectations in the ICAPs Expectations Ladder’s Investor Disclosure focus area?
There is significant commonality between the TCFD requirements and the ICAPs Expectations Ladder’s Investor Disclosure focus area expectations. However, to meet the expectations in the ICAPs Expectations Ladder’s Investor Disclosure focus area, investors would need to explicitly check that the actions under this focus area have been included in TCFD disclosures. For example, the TCFD does not explicitly require investors to report on their policy advocacy or on how they integrate just transition principles into their decision-making.
What does the Investor Agenda encourage investors to do regarding investment in fossil fuels?
The Investor Agenda encourages investors to commit to phasing out their investments in thermal coal activities (specifically thermal coal mining and coal-fired power generation) in line with credible 1.5C emissions pathways. However, the Investor Agenda has not defined formal thresholds for these exclusions. Different investors have defined this requirement to phase out fossil fuel investments in different ways: some exclude pure play coal companies, others define quantitative thresholds based on the percentage of a company’s revenues that are derived from coal and others exclude companies deriving any or more than a de minimis proportion of their revenues from coal.Phase-out for any fossil fuel type is region and technology specific, therefore specific sector pathways should be followed.
Findings from portfolio analysis may lead some investors to conclude that they should reduce or exit from their holdings in other fossil fuel companies. The results may also lead investors to engage with these companies to encourage changes in their business strategies to align business plans with achieving the goals of the Paris Agreement.
How should investors set targets?
Target-setting for investor climate action should focus on reducing GHG emissions in the real economy consistent with the best available science. For investors this may include a range of target types. The Investor Agenda endorses four initiatives that provide target setting methodologies and guidance:
– The Net Zero Asset Managers initiative
– The United Nations-convened Net-Zero Asset Owner Alliance and the Target Setting Protocol
– The Science Based Targets initiative for financial institutions
– The Paris Aligned Investment Initiative and the Net Zero Investment Framework 1.0
What is meant by intermediate targets?
Net zero targets are usually defined by reference to 2050. Intermediate targets are intended to allow the investor and stakeholders to track progress towards these long-term targets. As a rule of thumb, the Investor Agenda would expect a long-term net zero target to be supplemented by shorter-term and intermediate targets set at five yearly intervals.
How does the ICAPs Expectations Ladder relate to the Glasgow Financial Alliance for Net Zero (GFANZ) and the UN’s Race to Zero?
The Investor Agenda Founding Partners are closely engaged with new initiatives like GFANZ and the UN’s Race to Zero. Several of the founding partners convene and the Investor Agenda supports a number of Race to Zero initiatives including the Net Zero Asset Managers initiative, the UN-Convened Net Zero Asset Owners Alliance, the Paris Aligned Investment Initiative and the Science Based Targets initiative for financial institutions.
The ICAPs Expectations Ladder clearly articulates the pathway towards making high-ambition, robust net zero commitments, and ultimately helps investor initiatives in meeting and implementing the Race to Zero minimum criteria.