IMPLEMENTATIONGUIDEPRODU C E D BY

PARIS ALIGNED INVESTMENT INITIATIVEVERSION 1.0 MARCH 2021

The Paris Aligned Investment Initiative is deliveredby four investor networks. The four networks aresupporting investors globally to implement the
Net Zero Investment Framework 1.0.

IIGCC
EuropeThe Institutional Investors Group on Climate Change (IIGCC) is the European membershipbody for investor collaboration on climate change and the voice of investors taking action
for a prosperous, low-carbon future. IIGCC has more than 275 members, mainly pension
funds and asset managers, across 16 countries, with over €35 trillion in assets undermanagement.
Our mission is to mobilise capital for the low carbon transition and to ensure resilience tothe impacts of a changing climate by collaborating with business, policy makers and fellow
investors. IIGCC works to support and help define the public policies, investment practices
and corporate behaviours that address the long-term risks and opportunities associatedwith climate change. www.iigcc.org

Ceres

North America
Ceres is a nonprofit organization working with the most influential capital market leaders
to solve the world’s greatest sustainability challenges. Through our powerful networks andglobal collaborations of investors, companies and nonprofits, we inspire action and drive
equitable market-based and policy solutions throughout the economy to build a just andsustainable future. www.ceres.org

Asia Investment Group on Climate Change
Asia

The Asia Investor Group on Climate Change (AIGCC) is an initiative to create awarenessand encourage action among Asia’s asset owners and financial institutions about therisks and opportunities associated with climate change and low carbon investing.
AIGCC provides capacity for investors to share best practice and to collaborate on
investment activity, credit analysis, risk management, engagement and policy. With astrong international profile and significant network, AIGCC represents the Asian investor
perspective in the evolving global discussions on climate change and the transition to agreener economy. AIGCC has 49 members from 11 markets representing over US13 trillion
in assets under management. www.aigcc.net

Investor Group on Climate Change
Australasia

The Investor Group on Climate Change (IGCC) is a collaboration of Australian and New
Zealand institutional investors and advisors, managing over $2 trillion in assets undermanagement and focusing on the impact that climate change has on the financial value ofinvestments. IGCC aims to encourage government policies and investment practices that
address the risks and opportunities of climate change. www.igcc.org.au

IIGCC is grateful to the sponsors and funders of this initiative:

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

Contents
1.

Foreword

4

2.

Introduction

5

3.

The Net Zero Investment Framework

7

4.

Governance and Strategy

95.

Targets and Objectives

10

6.

Strategic Asset Allocation

12

7.

Asset Class Alignment

13

7.1.

Sovereign Bonds

14

7.2.

Listed Equity and Corporate Fixed Income

16

7.3.

Real Estate

20

8.

Policy Advocacy and Market Engagement

22

9.

Recommended Disclosures

23

10.

Asset Manager application of the Framework components

24

11.

Appendix

11.1.

Appendix A: Emissions accounting and offsetting

25

11.2.

Appendix B: High Impact Sectors

26

11.3.

Appendix C: Paris Aligned Investment Initiative Net Zero
Asset Owner Commitment

28

11.4.

Appendix D: Net Zero Asset Managers Commitment

29

Investor Participation

31

Legal Disclaimer

33

Acknowledgements
IIGCC would like to thank the steering group of the Paris Aligned Investment Initiative
and the co-leads of the four working groups for their guidance, support
and leadership in the development of the Framework.
Members of the steering group: Adam Matthews (Church of England Pensions Board), Claudia Kruse (APG AssetManagement), Lucian Peppelenbos (APG Asset Management/ Robeco), Christina Olivecrona (AP2), Peter Smith(TPT Retirement Solutions), Michael Marshall (RPMI Railpen), Faith Ward (Brunel Pension Partnership), David
Adkins (Lloyds Banking Group Pensions Trustees), Dewi Dylander (PKA).
Co-leads of the four working groups: Craig Mackenzie (Aberdeen Standard), Bart Kuijpers (BMO GAM),
Inger Huus-Pedersen (PKA), Lupin Rahman (PIMCO), Kaisie Rayner (Scottish Widows / Royal London), Francis
Condon (UBS Asset Management), Murray Birt (DWS) and Faith Ward (Brunel Pension Partnership).
IIGCC would like to thank Vivid Economics and Planetrics for their expert input and peer review of documents.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

1.

Foreword

The climate crisis has been with us for too many years. It is now rapidly becoming acatastrophe that will dwarf the impact of the Coronavirus pandemic. To build a productive
and sustainable future, it is critical that we accelerate and mainstream sustainability into
every aspect of our economy – this lies at the heart of my Terra Carta which aims to serveas the basis of a recovery plan for Nature, People and Planet.
I am very glad to know that the global investment community is responding to the urgencyof the situation we face. I welcome the net zero commitments being made by both asset
owners and asset managers and these commitments signal the understanding of theclimate imperative and the willingness to take action. Through IIGCC and their network
partners, we can see institutional investors coming together as a true community and“coalition of the willing” who are making public commitments to support a net zero andresilient future.
Market-leading companies have demonstrated that it is entirely possible to be profitable
and sustainable at the same time. In fact, businesses and investments that are ESGaligned are increasingly out-performing those that are not. By COP26, my great hope isthat we might also see global financial institutions and institutional investors go beyond
commitments and outline publicly accessible roadmaps that define the steps to take theirportfolios towards net zero between 2021 to 2030. After all, we know that it is not a lack of
capital that is impeding our progress, but how we deploy it.
The good news is that, on every pressing issue we face, there are solutions that are notjust available, but increasingly cost effective. At the same time, there are trillions of dollars
in sovereign wealth funds, pension funds, insurance and asset portfolios looking forinvestible and sustainable projects with good long-term value and rates of return. To meetthe commitments being made by investors, there will be a need not only to decarbonise
portfolios, but also to increase financing for sustainable solutions in a way that cantransform the economy.
This Net Zero Investment Framework both encourages and raises ambition for theinvestment community, and supports investors in realising their net zero goals. This is atime for urgent action and the Framework provides a practical blueprint guiding, supportingand enabling investors to make significant progress this decade and well beyond.
I need hardly say that the time is now. The global firepower of institutional investors mustbe harnessed and directed towards a net zero future. I very much welcome the work of
IIGCC in creating a framework that shows how this can be done, in practical measures,to support investors and our global society. I greatly welcome those investors who
are already implementing the Framework and would encourage all those in the global
investment community to commit to net zero and use this Framework to align their future
returns with the future of our planet.

HRH The Prince of Wales

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

2.

Introduction
The Paris Aligned Investment Initiative was launched by theInstitutional Investors Group on Climate Change (IIGCC) in
Europe in May 2019, to explore how investors can align theirportfolios with the goals of the Paris Agreement.
More than 110 IIGCC members, representing
over USD 33 trillion in assets under management
engaged in a series of working groups which
provided key inputs to the development of a draft
Net Zero Investment Framework (‘the Framework’).
The Framework was first published in August 2020,and IIGCC undertook a public consultation period
during which over 90 written responses to theconsultation were received. IIGCC also engaged
with more than 780 stakeholders through eventsand roundtables to showcase the Framework andreceive feedback. IIGCC is grateful to all those
who provided valuable and thoughtful feedback
to the consultation. A number of amendments andclarifications have been made to the Framework
based on this feedback as outlined in IIGCC’s
consultation response document. This version of
the Framework, therefore, represents an updated
version of the initial Framework: The Net Zero
Investment Framework 1.0.
Following the initial phase of work and publicationof the draft Net Zero Investment Framework, four
regional investor networks have come together tolaunch the Paris Aligned Investment Initiative asa global effort. This includes further developmentof the Net Zero Investment Framework as a key
tool for implementation, and supporting investors
globally to implement net zero commitments andalign with the Paris goals.

The investor networks are working globally todeliver the Paris Aligned Investment Initiative:• Asia Investor Group on Climate Change(AIGCC): Asia
• Ceres: North America• Investor Group on Climate Change (IGCC):
Australasia• Institutional Investors Group on Climate Change(IIGCC): Europe
This new global Paris Aligned Investment Initiative
includes the following work to expand and enhance
the Framework: providing methodologies andapproaches for the alignment of two additional
asset classes (infrastructure and private equity);
incorporating recommendations relating toalignment with the adaptation and resilience goalsof the Paris Agreement; and addressing analyticaland data gaps, including investment trajectories
to guide target setting for climate solutions,assessment of scope 3 emissions, and use ofoffsetting.
The work of the PAII recognises, and will continue
to take account of, evolving work and best practicein relation to methodologies and approaches, andwill incorporate these in future updates of the
Framework. The networks supporting the Paris
Aligned Investment Initiative will publish the Net
Zero Investment Framework 2.0 ahead of COP26.
The PAII will continue to follow the five principles
used to assess methodologies, as outlined in Box 1.
This Net Zero Investment Framework 1.0 ispresented as an implementation guide. Key
requirements of the Framework are denoted bycheck boxes ( ■ ), with additional recommendations
and guidance provided in boxes.
Learn more about the initiative here:
Paris Aligned Investment Initiative5

N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

Box 1: Guiding principles for developing the Framework
The PAII follows 5 key principles to guide its
work, and to assess methodologies and test
conclusions.
⊲ Impact
The primary objective is achieving emissions
reductions in the real economy. While different
investors have varying scopes for undertaking
action, the Framework should encourage
investors to maximise their efforts to achieve thegreatest impact possible.
⊲ Rigour
Alignment should be based on sound evidence
and data, and be consistent with the best
available science on meeting the temperature
goals of the Paris Agreement (see Box 2).

The Net Zero Investment Framework 1.0 is designed
to provide a basis on which a broad range ofinvestors can make commitments to achieving net
zero emissions and define strategies, measurealignment, and transition portfolios. It sets out anumber of components for an effective net zero
investment strategy, with recommendations on the
key actions and methodologies that can be used
to implement such a strategy. The aim is to provide
a framework that can be used by asset owners
and asset managers, considering their different
mandates and starting points. In that context,
investors adopting the Framework are expected
to use it on an ‘implement or explain’ basis, in thecontext of their fiduciary duties, and may, therefore,take account of specific contexts and strategies
where some elements of the Framework may not
be applicable. This includes where approaches may
not be possible in certain regions or jurisdictions,or where regulation or best practice may determine
or affect the approach that can be taken. The
Framework is also based on the expectation thatgovernments and policymakers will deliver oncommitments to achieve the 1.5°C temperature goalof the Paris Agreement.

⊲ Practicality
The methods and approaches should be feasible
for a range of investors to implement, build on
existing work, and be compatible with existingprocesses or requirements of investors.
⊲ Accessibility
Definitions, methodologies and strategies should
be clear and easily applied, using publicly
available information and assessments where
possible.
⊲ Accountability
Definitions, methodologies and strategies should
allow clients, beneficiaries and other stakeholders
to assess whether investors and assets arealigned with the goals of the Paris Agreement.

The Framework is primarily written from theperspective of an asset owner, who would be
expected to consider and use all Framework
components or ensure their asset managers
are implementing mandates accordingly. The
Framework is also a tool to guide asset manager
actions, including supporting the implementationof commitments made by asset managers that arepart of the Net Zero Asset Managers initiative. Assetmanagers should refer to Section 10 for specificrecommendations on their expected application of
the Framework components.
As part of the Paris Aligned Investment Initiative,
the four investor networks are inviting investors
to make a net zero commitment as set out in thisFramework, and to use the Framework as a basis toimplement their net zero strategies. Investors whowant to make this commitment are also invited tojoin one of the partner networks – AIGCC, Ceres,
IGCC, IIGCC – through which they can accessfurther support and guidance in taking forward theiractions towards Paris-alignment.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

3.

The Net Zero Investment Framework 1.0
The Net Zero Investment Framework 1.0 ('theFramework') proposes key components of a net zero
investment strategy. Such a strategy should focus onachieving two alignment objectives:■ Decarbonise investment portfolios in a waythat is consistent with achieving global net zero
greenhouse gas (GHG) emissions by 2050.

■ Increase investment in the range of ‘climate
solutions’ needed to meet that goal.

The Framework recognises that investors
have a range of levers at their disposal to drive
decarbonisation and increase investment inclimate solutions, and these should be used toensure progress in the real economy as well as
reaching targets for the portfolio itself. It provides
recommended methodologies and actions whichasset owners and asset managers should use toassess and undertake alignment of their portfolios

towards net zero, to maximise their contribution to
the decarbonisation of the real economy.
The Framework puts forward metrics to assess
investments and measure alignment, and requires
investors to set clear, science-based targets at
the portfolio and the asset class level. It also setsout implementation actions in order to effectively
achieve portfolio alignment, meet targets and enablea broader transition towards net zero, through a
combination of portfolio construction, engagement,
and policy advocacy. The Framework covers four
asset classes, and PAII expects only these asset
classes to be addressed by investors undertaking
net zero commitments and net zero investment
strategies. References to the ‘portfolio’ therefore
refer only to the scope of assets covered by thisFramework, with the expectation that further asset
classes will be incorporated and used by investors
over time.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

The following diagram outlines the main components and actions of the Net Zero Investment
Framework 1.0 and signposts to the corresponding sections of this document which provide
more detail on the recommended actions.

4

Sets direction andportfolio structure
for alignment

Governance and Strategy■ Commit to the goal of achieving net zeroPO RTFO L IO / FUND L E VE L

portfolio emissions by 2050, or sooner, andadopt an investment strategy consistent withthe achievement of global net zero emissions
by this date

■ Define beliefs, set investment strategy and■ Undertake climate financial risk assessment inline with TCFD recommendations■ Publish a clear action plan, and disclose

information on governance, strategy, metrics
and targets, and management in relation toachieving alignment to net zeromandates/performance objectives for portfolio
managers, asset managers, and other relevant
personnel

5Targets and Objectives■ Set medium term emissions reduction and climate solutions reference targets to inform SAA andmonitor impact of strategy

6Strategic Asset Allocation■ Update capital market assumptions based on
scenario analysis■ Optimisation with emissions and climate■ Set asset class mix with climate variants■ Review constraints to increasing alignment

solutions metrics

7

Shifts alignment ofassets to meet
portfolio goals

Asset Class Alignment

ASSET CLASS LEVEL

Assess assets and set targets:■ Assess assets based on current and forward
looking alignment criteria, and investment inclimate solutions■ Set goals for increasing % AUM invested inaligned assets■ Implement an engagement goal toensure at least 70% of financed emissions
in material sectors are either net zero,aligned to a net zero pathway, or the
subject of direct or collective engagement
and stewardship actions

Implement:■ Portfolio construction: Screening, positive

and negative weighting, tilted benchmarks toallocate capital to support alignment and invest
in climate solutions■ Engagement: Criteria based escalating

engagement and voting strategy for nonaligned assets; tenant and issuer engagement■ Selective divestment: Based on climate-related
financial risk; engagement escalation; nonpermissible activity thresholds■ Investment/management actions for directly
owned assets (e.g. real estate)

8

EXTERNAL

Influences enabling
environment tofacilitate alignment

Policy Advocacy■ Net zero aligned policy and regulation■ Disclosure; shareholder rights■ Collective and direct advocacy delivered

through meetings, letters, responding toconsultations, and media activity, as wellas ensuring trade association advocacy is
consistent with net zero goals

8 Market Engagement■ Asset manager or client■ Market actors including credit rating agencies,
auditors, stock exchanges, proxy advisers,
investment consultants, and data and service
providers

While the Framework does not seek to create its own reporting standard, investors using the Framework areencouraged to disclose their targets, and report annually on progress towards these targets and actions to
implement net zero. A summary of recommended disclosures is provided in Section 9, which can be reported in
the structure of the Task Force on Climate-related Financial Disclosures (TCFD) reporting standard.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

4. Governance and Strategy
Appropriate governance and a portfolio-wide
strategy provides the basis for portfolio alignmentand broader actions by an investor to achieve
the net zero goal. The following components
should be implemented to set the appropriate
strategic direction, and provide accountability for
implementation of an effective strategy over time:■ The board or investment committee commits to

the goal of achieving net zero portfolio emissions
by 2050, or sooner1. The PAII recommends
making public commitments as set out by the
Net Zero Asset Managers initiative for asset
managers and the Paris Aligned Investment
Initiative Net Zero Asset Owner Commitment for
asset owners. See Appendix C and Appendix D.

■ The board or investment committee agrees

principles and publishes beliefs in relation to
Paris alignment, and adopts an investment
strategy consistent with the achievement of
global net zero emissions by 2050 or sooner.1■ The approach and investment strategy should

The investment strategy should define how theinvestor considers these targets and actions torepresent the maximum possible effort to achieve
real economy emissions reductions and increase
allocations to climate solutions, subject to fiduciaryand regulatory constraints.

■ Undertake risk assessment and management
including scenario analysis, in line with therecommendations of the TCFD.

■ The board or investment committee updates

mandates and performance objectives for
asset managers, portfolio managers and otherrelevant personnel as relevant to ensure assets
are managed to reflect the net zero investment
strategy, reviewing the implementation of thesemandates and performance over time.

■ The board or investment committee monitors andreports on the implementation of the net zero
investment strategy and performance against
objectives and targets set.

address the five elements of the Net Zero
Investment Framework:• governance and strategy• targets and objectives• strategic asset allocation (or equivalent process)• asset class level alignment, for sovereign
bonds, listed equity, corporate fixedincome and real estate, including portfolio
construction, engagement and management
strategies, and selective divestment• policy advocacy and market engagement.

1.

The main focus of investor net zero commitments relates to addressing GHG emissions associated with investments in the portfolio, which is also the focus of
this Framework. However, as reflected in the recommended commitment texts, investors should also set a target and take action to reduce their operationalemissions in line with the goal of achieving global net zero emissions by 2050 or sooner.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

5.

Targets and Objectives
Objectives and targets set the direction andambition of a net zero investment strategy and act
as a means to monitor the effectiveness of thisstrategy. Targets should be set in line with sciencebased pathways that are consistent with achieving
net zero global emissions by 2050, or sooner.
The main driver for achieving portfolio emissions
reduction targets should be the increasingalignment of assets within the portfolio with net
zero pathways.

It is expected that targets will be determined by
identifying the relevant sector and regional pathways
towards net zero emissions by 2050 or sooner, as
well as the various current exposures and starting
points of individual investors. See Box 2 on pathways.
At the asset class level, set:

■ A 5-year portfolio coverage goal for increasing thepercentage of AUM invested in assets in material
sectors7 that are i) achieving net zero, or, meetingthe criteria to be considered ii) ‘aligned’ or iii)
‘aligning’ to net zero (see asset class sections 7.17.3). This target should increase towards the goalof 100% of assets to be i) net zero or ii) aligned to
net zero, by 2040.8

At the portfolio level, set the following reference
targets, and review and update at least every 5 years:■ A <10-year2 CO2e emissions reduction target,

covering listed equity and corporate fixedincome, and real estate3. At portfolio level, thisshould include scope 1 and 2 emissions. Thistarget may be expressed in absolute or intensity
terms (CO2e/$mn invested). However, when
doing so investors should provide the following
to the extent possible:■ An engagement goal which ensures that at least

70% of financed emissions in material sectors
are either assessed as net zero, aligned witha net zero pathway, or the subject of direct orcollective engagement and stewardship actions.
This threshold should increase to at least 90% by
2030 at the latest. Investors should disclose theproportion that is considered net zero or aligned,
disaggregated from the total.

• evidence of how the target has been
determined and a) reflects net zero pathways
that will meet absolute emissions reductions
required over time, and b) is adjusted to takeaccount of factors that are not related to real
economy emissions reductions4 as relevant.

To set the asset level targets, investors will need to
first undertake the alignment assessment set out insections 7.1-7.3.

• when monitoring and reporting progressannually, measure a) absolute emissions
reductions achieved in aggregate at the asset
level, and b) progress towards an absolute or
intensity target at the portfolio level.

The Framework is focused on supporting investors toachieve net zero in relation to an investor's portfolio(or 'financed' emissions). However, the PAII also
encourages investors to address their operationalemissions, consistent with efforts to achieve global
net zero emissions by 2050 or sooner. Therefore,
investors should:■ A <10-year goal for allocation to climate solutions

representing a percentage of revenues or capexfrom AUM (based on EU taxonomy mitigation
criteria5), increasing over time, in line with investment
trajectories based on a net zero pathway.

■ Set a target and reduce operational (scope 1 andscope 2) emissions in line with achieving global
net zero emissions by 2050, or sooner.

Emissions reduction targets and monitoring at theportfolio level should include at least scope 1 and 2
emissions initially, and phase in scope 3 emissions
over time6, although these should be set andreported on separately given measurement andaggregation challenges.

2. This timeframe is currently consistent with the UNFCCC Race to Zerocriteria. However, investors are encouraged to set 5 year targets if possible.

6. In line with the emerging European timetable for the Sustainable Finance
Disclosure Regulation.

3. The portfolio level target setting methodology of the UN-Convened NetZero Asset Owner Alliance Target Setting Protocol is consistent with thisapproach and can be used to inform investors in setting these targets.

7.

4. Non-relevant variables such as exchange rate, inflation and interest rate.
5. Both climate change mitigation and climate change adaptation categoriesof the EU taxonomy are relevant here. IIGCC is developing morecomprehensive guidance for the inclusion of adaptation and resilience into
the Net Zero Investment Framework as part of Phase II of the Paris Aligned
Investment Initiative.

Material sectors is defined as those in NACE code categories A-H and J-L

8. This target is comparable to the Science Based Targets initiative forfinancial institutions (SBTi FI) portfolio coverage metric, and in this regard
the target should involve a linear increase year on year to the extent
possible. The 2040 date to reach 100% recognises that, in order to beconsistent with net zero by 2050, companies and assets will have to have
set targets and made plans to achieve the transition well in advance of the2050 date.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

Box 2: Pathways
Pathways is the term used to describe theemissions, technologies and investment
trajectories that will be needed to deliver
net zero. Pathway information will be usedby investors to determine their own portfolio
level targets regarding emissions reductions
and investments, to assess the alignment ofunderlying assets with a net zero pathway,
and to ensure methodology providers whooffer these services are using an appropriate
basis for their analysis. They are therefore thekeystone of a rigorous investment strategy
towards net zero.
The PAII considered that economic, emissions,and technology pathways that result in a highprobability of achieving the 1.5°C goal will beconsidered to be ‘Paris aligned’. Achieving
this is only likely in the context of reaching
global net zero CO2 emissions by 2050, withcorresponding reductions in other GHGs,
such as methane. Optimally, therefore, Parisaligned investors should use pathways that areconsistent with global net zero emissions by
2050 to inform alignment of their portfolios andunderlying assets.
As part of the PAII, a range of global models andscenarios were assessed to determine available
pathways to guide alignment. A key finding of
our work is that very few available and credible
pathways achieve net zero emissions by 2050.
While available pathways are sufficient tosuggest general trajectories for a decline in
portfolio emissions, the most significant gap
is robust pathways for net zero emissions andinvestment trajectories broken down by sector
and region.

The PAII emphasises the need for thedevelopment of these granular pathways
to provide decision-useful information forinvestors and ensure that portfolio alignment
and the assessment of the alignment of assets
is credible and science-based. At a minimum,
pathways used by investors, companies anddata providers should:• Be associated with limiting warming to 1.5°C
above pre-industrial levels with at least 50%
probability.
• Reach global net zero emissions by 2050,
or sooner.
• Provide differentiated pathway information
for regions and sectors which may require net
zero emissions earlier or later, consistent withthe global goal.
• Have a global peak emissions year of thecurrent year or later.
• Ideally be (or linked to) a multi-sector model,
taking account of all emissions sources.
• Rely on a limited volume of Negative
Emissions Technologies (NETs) to 2050.
Investors should be transparent on thepathways and scenarios used as the basis fortarget setting or assessing asset alignment,
main assumptions and limitations, and therationale where models not consistent withthe above parameters are being used. The
networks also welcome the announcement by
the International Energy Agency (IEA) that it willproduce a 2050 net zero scenario in May 2021,
and expects this to become broadly used as thebasis for methodologies for assessing net zeroalignment.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

6.

Strategic Asset Allocation
Most investors have a top-level process for allocating
assets across different investment opportunities
in order to achieve long-term objectives. This isoften known as strategic asset allocation (SAA).
SAA and other similar processes are a key tool
for the achievement and fiduciary governance ofParis alignment by asset owners. SAA and similar
processes can optimise the way assets are allocatedfor achieving Paris alignment by incorporatingalignment objectives within the process. Investors
should aim to do the maximum possible to reduce
emissions and increase allocations to climate
solutions, subject to relevant constraints.
Investors should select from the following tools
to improve alignment through SAA or similar
processes, as relevant.

■ Use scenario analysis to ensure capital market

assumptions are informed by a realistic
assessment of climate risks and opportunities,
or to stress test portfolios. As a consequence,
investors should also more systematicallyincorporate this analysis in risk/return
expectations, including at the stock-specificlevel. This may involve updating terminal values,
adjusting discount rates, altering revenue
assumptions etc.

■ Supplement standard financial objectives withthe following climate change objectives:• CO2e/$m invested (at least scope 1 and 2)• Climate solutions allocation as % of portfolio(using EU Taxonomy standards)• Forward-looking metrics that capture thetransition potential of an asset may also be
included, such as:• Exposure to fossil fuel reserves• Percentage of portfolio with net zero targets• Aggregate management indicators score• Level of capex relating to EU Taxonomy
activities■ Set targets for these metrics according to thetargets set for the portfolio and in line with a
trajectory consistent with net zero emissions by
2050, taking into account specific circumstancesof the investor.

■ Consider less familiar asset classes whenconstructing portfolios, such as renewableenergy infrastructure.

■ Specify variants of asset classes that use more

systematic approaches to reduce carbon intensity
and increase exposure to climate solutions.
Examples of recommended variants include:• Climate-tilted indices• Custom benchmarks• Climate-focused variants■ Optimisation: implement portfolio construction to

include alignment objectives alongside standard
indicators such as expected returns, expectedvolatility and other relevant risk measures used informulating SAA views. Such additional alignment
objectives are:• carbon intensity• percentage allocated to climate solutions(EU Taxonomy)

Judgement is necessary to ensure that the optimal
portfolio is not overexposed to specific risk factors.
It will be important to consider whether a proposed
optimal portfolio is well-diversified across regions,
technologies and sectors, and not over-exposed to
the risk of policy reversals.

■ Review constraints to achieving alignment tounderstand if they are strictly necessary.

■ Set investment mandates and benchmarks

to ensure that climate-related objectives are
specified in sufficient detail and performance
objectives clearly defined.

■ Monitor achievement of alignment objectives

including portfolio carbon intensity and allocation
to climate solutions.

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7.

Asset Class Alignment
The key driver for achieving net zero targets andsecuring emissions reductions in the real economy
is the increasing alignment of assets to net zero
pathways within asset class portfolios. The sections
below outline the actions required to assessalignment and transition a portfolio towards net
zero and deliver impact over time.
The Framework recommends following a consistentprocess across the four asset classes:■ Set the scope to confirm which assets should be

Overall, the PAII recommends that an investment
strategy should prioritise engagement andstewardship and direct management (where
relevant), particularly for existing assets, as theprimary mechanism to drive alignment. Portfolio
construction can also be a relevant tool to weight
portfolios towards assets aligned or transitioning
towards net zero as an incentive for thesecompanies to align. Selective divestment isrecommended in specific circumstances as part of
the toolbox for aligning a portfolio.

considered within scope for alignment action.

■ Assess the current and forward-looking

alignment of existing and new assets using thecriteria and methodologies specified below.

■ Set alignment targets and implement a strategy

to increase alignment of assets to net zero andincrease allocation to climate solutions over time.

Asset class targets and measurement
Asset Class

Sovereign Bonds

Listed Equity/Corporate Fixed
IncomeTargets/
objectives⊲ Increase average climate
performance / AUM (maximum
extent possible), exceeding the
average benchmark score⊲ Set portfolio coverage target for % of AUM in net zero, aligned, or⊲ Increase allocation to green
or SDG climate bonds,
if possible
Assetalignment
and climate
solutionsassessment
criteria⊲ Past and future expected
territorial production emissions
performance /capita or /GDPagainst net zero pathway⊲ Past and future performance on
key sectors (energy use, andexposure of the economy tofossil fuels)

Real Estatealigning assets⊲ Set target for increase % climate solutions revenues/AUM⊲ Set engagement goal for coverage of assets aligned or under active
engagement at >70% of financed emissions from material sectors⊲ A long term 2050 goal consistent
with global net zero;⊲ Short & medium term emissions
reduction targets;⊲ Current emissions intensity
performance (scope 1, 2, andmaterial scope 3)⊲ Other national and international
policy positions⊲ Disclosure of scope 1, 2 and+ allocation to verified green or
SDG climate bonds⊲ A quantified plan to deliver⊲ Current alignment ofbuilding carbon emissions
and energy use in line with
regional/building typenet zero pathway⊲ Future expected alignment
based on plan for retrofit,
demand management andrenewable energy use

material scope 3 emissions
targets;⊲ Capital allocation alignment+ Revenues from EU mitigation
taxonomy activities
Recommended
Methodologies

Germanwatch Climate Change
Performance Index

Climate Action 100 benchmark;Transition Pathways Initiative;
Science Based Targets Initiative

Carbon Risk Real Estate
Monitor (CRREM)

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

7.1. Sovereign Bonds
Assessment of assets■ Include all sovereign issuance in scope, except
domestic issuance for liability matching■ Assess and score assets against performance
criteria■ Prioritisation for engagement based on level ofcurrent performance, emissions and investor
exposure

Implementation
A. Portfolio construction■ Increase weighting, or use tilted benchmarks,

towards higher climate performing issuance to the
maximum extent possible■ Increase allocation to green or SDG climate bonds,
including municipal green bonds

B. Engagement:

Alignment Metrics (M) and Targets (T)■ Active direct engagement with highest impact

M. Current and forward looking alignment criteria■ Participate in collective engagement both directly⊲ Past and future expected emissions performance/ capita or /GDP⊲ Past and future performance on key sectors(energy use, and exposure of the economy
to fossil fuels)⊲ Other national and international policy positions
T. Increase average climate performance / AUM to the
maximum extent possible, at a minimum exceeding
the weighted average benchmark score for climate
performancesovereigns or largest exposures that do not score
highly across the scoring criteria.
with governments or indirectly through networks
such as IIGCC, AIGCC, Ceres, IGCC, the Investor
Agenda etc.

■ Engage with issuers, investment banks anddevelopment agencies to increase issuance ofParis-aligned verified green and SDG climate bonds

C. Selective divestment:■ Consider exclusion of continued poor performers
from portfolios

T. Increase allocation to verified green or SDG climate
bonds, if possible

Set the scope:■ Include all issuers that are national governments.
Investors may exclude domestic issuance held
for liability matching purposes.

■ Regional and municipal authorities that issue

bonds may be included on a best effort basis
as assessment methodologies are not widely
available.

■ Where the issuer is a publicly (majority) owned

company, investors should follow the Framework
for corporate fixed income.

Assess the alignment of assets:■ Past and future expected territorial production

emissions performance per capita, or per GDP,against a net zero pathway. The most relevant
GHG performance indicators are:• Past trend of GHG emissions• Current level of GHG emissions compared to a
1.5°C pathway• GHG emissions reduction targets■ Past and future expected performance in key

sectors/indicators (energy use, renewables,
fossil fuel exports). The most relevant policy andsectoral decarbonisation indicators are:• Past trend of total primary energy supply(TPES)• Current level of TPES compared to a 1.5°C
pathway• TPES target• Current share of renewable energy (RE)compared to a 1.5°C pathway• Renewable Energy Targets• Economic dependency on fossil fuels

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

■ Other national and international policy positions.

■ Increase allocation to verified green or SDG• National policy strength towards net zeroglobal emissions (e.g. low carbon transport;
fossil fuel subsidy phase out; carbon pricing;decarbonisation of state owned enterprises)

Actions to align portfolios and achieve targets:

Other policy indicators are:• International policy positions.
To assess GHG performance, methodologies
should account for all emissions associated with theterritory on a production basis; normalise emissions
measurements by GDP or per capita, and accountfor the differentiated pathways towards net zero thatcan be expected from countries at different levels of
economic development.
Methodologies used to assess the alignment ofassets should include the above features. The
recommended methodology for the assessment of
this asset class is:⊲ Germanwatch Climate Change Performance Index9
The PAII notes that no equivalently comprehensive
or directly applicable performance assessment exists
for municipalities, and availability of data to conduct
such an assessment is very limited. Various sourcesof information that include relevant indicators havebeen identified during the assessment of the working
group, such as, 100 resilient cities10 and CDP city
ranking11. In the short term, investors who wish
to apply a scoring methodology to municipalities
may be able to use elements of this information
and rankings to identify and increase allocation to‘good performers’. However, the PAII encourages
data providers and issuers to provide information
relating to the following metrics in order to facilitate ascoring of municipal issuance. Relevant indicators formunicipalities may include:• Past trend in GHG emissions, and GHG emissions
reduction targets• Past trend of total primary energy use, andenergy use targets• Proportion of renewables in total energy use, andrenewables targets• Policy frameworks and targets, in particulartransport, electrification and emissions; wasterelated emissions; and buildings.
Set targets for alignment:

climate bonds, if possible.

■ Tilt portfolios towards higher performing issuers
based on the climate performance indicators
set out above, to the maximum extent possible,
exceeding the average benchmark score.

■ Provide transparency on the climate performanceof the sovereign portfolio relative to thebenchmark, and how the maximum available
reallocation towards higher climate performancehas been assessed.

■ Maintain an appropriate proportion of exposure
between developed market and emerging
market.

■ Increase allocation to verified green (mitigation)or SDG climate-linked bonds, if possible.

Engage with assets, policymakers and otherstakeholders:■ Engage in active, direct engagement withsovereigns to which you have the largest
exposure or that have the highest impact on
global emissions and that do not score highly
across the scoring criteria.

■ Participate in collective engagement both

directly with governments, or indirectly throughthe investor networks, the Investor Agenda,etc (see section 8: Policy Advocacy and Market
Engagement).

■ Engage with index providers and data/service

providers to request data and services based on
the scoring system of this Framework.

■ Engage with issuers, investment banks anddevelopment agencies to actively seek toincrease issuance of Paris aligned green and SDG
climate bonds.

Set the scope:■ Identify listed equity and corporate fixed-

income assets undertaking activities material
to the transition to net zero for assessment andalignment action. The PAII recommends thesematerial companies are those covered by sectors
in NACE code categories: A-H and J-L.12 13■ Increase average climate performance/ AUM (tothe maximum extent possible), exceeding the
average benchmark score.

9. The CCPI includes all above metrics except dependency on fossil fuels.
Data to include this additional metric in assessment of relative performanceis available from public sources such as the BP Statistical Review of World
Energy.
10. https://www.100resilientcities.org/
11. https://www.cdp.net/en/cities/cities-scores/
12. These sectors include: Agriculture Forestry and Fishing; Mining and
Quarrying; Manufacturing; Electricity, Gas, Steam and Air Conditioning Supply;
Water supply; sewerage; waste management and remediation activities;

Construction; Wholesale and retail trade; repair of motor vehicles andmotorcycles; Transporting and Storage; Information and Communication;
Financial and insurance activities; Real Estate. These codes are translated to
BICS and GICS codes more commonly used by investors in: EU TEG (2019)
Report on Benchmarks: Handbook of Climate Transition Benchmarks, ParisAligned Benchmark and Benchmarks’ ESG Disclosures, December 20th 2019.
13. The PAII notes that for financial institutions such as banks, the alignment
criteria will not be applicable in the same way, and the approach to alignment
may be more similar to implementing this investment framework. An IIGCC
working group is developing investor expectations for the alignment of banks.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

7.2. Listed Equity and Corporate Fixed Income
Assessment of assets

Implementation■ Identify assets in material sectors for assessment andA. Portfolio construction:alignment action■ Active. Screening and/or weighting new■ Assess assets against criteria to assess: i) achieving net
zero, ii) aligned, iii) aligning, iv) not aligned/transitioning

investments based on alignment criteria andclimate solutions revenues■ Assess assets’ revenues from climate solutions■ Invest in specialist products/funds■ Prioritisation for engagement based on emissions■ Passive. Apply benchmark with positive(EU taxonomy revenues or capex)(alignment/climate solutions focussed)
weightings for alignment criteria and climate
solutions revenue metricintensity/exposure

B. Engagement:

Alignment Metrics (M) and Targets (T)■ Set engagement strategy with clear
milestones
and escalation

M. Current and forward looking alignment criteria:⊲ A long term 2050 goal consistent with global net zero;⊲ Short & medium term emissions reduction targets;⊲ Current emissions intensity performance (scope 1, 2,
and material scope 3);⊲ Disclosure of scope 1, 2 and material scope 3
emissions;⊲ A quantified plan to deliver targets;⊲ Capital allocation alignment;
T. Increase % AUM in net zero or aligning assets –5 year goal

■ Undertake engagement and voting to improvecompany performance against metrics in linewith strategy

C. Selective divestment■ Selective divestment based on a) climate
financial risk or b) escalation following
engagement■ Exclusions based on inconsistency ofcompany activity with credible net zero
pathways over time

T. Set target for increasing % climate solutions revenues/AUM
T. Set goal for coverage of assets aligned or under active
engagement to 70% of financed emissions from material
sectors (combined with real assets)■ Assess higher impact companies14 against the

5. Decarbonisation Strategy: A quantified
plan setting out the measures that will be
deployed to deliver GHG targets, proportionsof revenues that are green and where relevant
increases in green revenues

1. Ambition: A long term 2050 goal consistent
with achieving global net zero

6. Capital Allocation Alignment: A clear
demonstration that the capital expenditures of
the company are consistent with achieve net
zero emissions by 2050

Assess the alignment of assets:
following high level current and forward-looking
alignment criteria that constitute a Net Zero
Transition Plan:

2. Targets: Short- and medium-term emissions
reduction target (scope 1, 2 and material
scope 3)
3. Emissions performance: Current emissions
intensity15 performance (scope 1, 2 andmaterial scope 3) relative to targets
4. Disclosure: Disclosure of scope 1, 2 andmaterial scope 3 emissions

14. Companies on the Climate Action 100+ focus list; companies in high impact
sectors consistent with Transition Pathway Initiative sectors; banks; and realestate are considered high impact for the purposes of this assessment. See
Appendix B for the relevant GICS classification for TPI sectors.

Additional criteria that are part of a company’s
overall net zero transition plan that should beincorporated where feasible, as data availability
increases, include:
7. Climate Policy Engagement: The company
has a Paris-Agreement-aligned climate
lobbying position and demonstrates alignmentof its direct and indirect lobbying activities
15. This assessment should be the performance against targets set, wheretargets have been set in line with science-based net zero pathways. It may
be relevant for companies to provide information on absolute as well as
intensity-based metrics

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

8. Climate Governance: Clear oversight ofnet zero transition planning and executive
remuneration linked to delivering targets
and transition
9. Just Transition: The company considers
the impacts from transitioning to a lowercarbon business model on its workers andcommunities
10. Climate risk and accounts: The company
provides disclosures on risks associatedwith the transition through TCFD Reportingand incorporates such risks into its financial
accounts■ Achieving net zero, defined as: companies thathave current emissions intensity performanceat, or close to, net zero emissions with aninvestment plan or business model expected tocontinue to achieve that goal over time
■ Aligned to a net zero pathway, with defined as:• Meeting criteria 1-6 (or 2, 3 and 4 for lower
impact companies)• Adequate performance over time in relation tocriterion 3, in line with targets set.
■ Aligning towards a net zero pathway, defined as:■ Assess other (lower impact) companies within• Have set a short or medium-term target(criteria 2)■ Assess all companies for revenues associated• Disclosure of scope 1, 2 and material scope 3
emissions data (criteria 4)

scope against criteria 2, 3 and 4.

with activities compliant with EU taxonomy
mitigation criteria, from both categories‘substantial mitigation contribution’ and ‘enabling
activities’. Capex may be used where relevant.

Emissions reduction targets, strategies and capex
allocations should be consistent with sector specificpathways related to emissions performance, thatare in line with a science-based global net zero
emissions trajectory.
The criteria laid out above provide a high level
framework for the alignment assessment ofcompanies, and their Net Zero Transition Plans.
Methodologies used to assess the alignment ofassets should include the above features. The
recommended existing methodologies that can beused in the assessment of this asset class are:
⊲ The Climate Action 100+ Net Zero Company
Benchmark and associated sector specificguidance⊲ Transition Pathway Initiative carbon performanceand management quality indicators⊲ Science Based Targets Initiative (for assessing
criteria 2, 3, and 4)
To represent best practice, data vendors providing
assessments consistent with the alignment criteria
should ensure alignment with the latest detailed
guidance on indicators from Climate Action 100+.
We anticipate continued evolution of indicators
under each criterion including subsequentenhanced guidance notes on indicators.
Using the above criteria and methodologies,
investors should determine whether an asset sitson the alignment maturity scale:• A plan relating to how the company willachieve these targets (partial criteria 5)■ Committed to Aligning, defined as:• A company that has complied with criteria 1
by setting a clear goal to achieve net zero
emissions by 2050
■ Not aligned – all other companies
This assessment of categories enables investors to
set and measure performance against the targets
below. It should also inform the strategy for alignment
actions as described in the following sections. Assets
not aligning or showing progress towards meetingthe criteria to be considered as “aligning” (suchas the complementary indicators) should be theimmediate and urgent priority for engagement or
reweighting in portfolio construction.
Consideration for selective divestment or exclusions
should be given to assets that do not meet any of
the criteria that indicate they have the potential
to transition within a specified timeframe that is
consistent with remaining on a global net zero
pathway. Investors should also address companies
that do not continue to improve performanceagainst the criteria over the longer term.
Set targets for alignment as described in Section 5:■ A 5-year portfolio coverage goal for increasing
the percentage of AUM in material sectors16
classified as achieving net zero, aligned oraligning.

■ An engagement goal to ensure at least 70% of

financed emissions in material sectors are either
net zero, aligned to a net zero pathway, or the
subject of direct or collective engagement andstewardship actions.

16. Material sectors is defined as those in NACE code categories A-H and J-L.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

■ A target for increasing the percentage of■ Join collective engagement initiatives, such as

Actions to align portfolios and achieve targets:■ Publish voting records, and rationale forrevenues from climate solutions (revenues/ AUM)

A. Portfolio construction■ For existing active assets, positively weight

towards good performers and underweight poor
performers within a sector based on alignment
criteria and climate solutions revenues.

■ For new active assets, apply screening criteria aspart of investment analysis for inclusion based onalignment or potential for transition.

Climate Action 100+, and play an active role inengagement activities.
deviating from policy and be clear how assets
have been managed in alignment with clients’stewardship and investment policies.

For listed equity, specifically:■ Implement an escalation approach, using the fullrange of routine AGM routes■ Where a company is not on track to achieve■ Use specialist benchmarks, products or funds
focussed on alignment and climate solutions.

its transition plan or targets set for two years
or more, vote against the board, remuneration
policy, annual report and accounts.

■ For passive assets, apply an index that utilises■ Vote against M&A unless the post M&A company

positive weightings based on alignment criteria
and a climate solutions revenue metric.

■ Increase allocation to green bonds that are basedon verifiable forward-looking use of proceeds forclimate mitigation activities, as part of the strategy
to increase investment in climate solutions.

meets or can be expected to meet the criteria
within a reasonable period.

■ Ensure you or your managers have voting rights
to undertake the above actions.

■ Co-file and/or support shareholder resolutions inline with the criteria.

B. Engagement and stewardshipFor corporate fixed income:■ Publish a voting policy that aligns to the■ Engage issuers to secure agreement toFramework.

■ Set an engagement strategy with clear

milestones and an escalation process with afeedback loop to investment, weighting, anddivestment decisions.

■ Prioritise engagement efforts based on relative
exposure (weighted carbon intensity)■ Undertake engagement with companies toimprove performance against the assessment
criteria set out above.

■ Inform companies of expectations in relation toalignment criteria. For listed equity this should
include informing companies of voting intentionsin advance of votes being taken, and reasonsfor the vote after it has taken place, to improvecompany performance against metrics in linewith the engagement strategy.

alignment criteria including the potential use ofcovenants and KPI linked bonds as mechanisms
to ensure alignment criteria are met during the
lifetime of the bond.

■ Engagement should commence well in advanceof the issuance process itself, both as a key partof the research informing investment strategy
and decisions and to set clear expectations ofcompanies in relation to alignment criteria thatshould be demonstrated to secure financing.

■ Corporate fixed income instruments can beissued by different entities within a single group.
The assessment of alignment should be madeat issuer level, although consideration may be
given to parent performance and engagement
undertaken at parent level.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

C. Selective divestment
In particular, where investors already have holdings inassets that are not aligned to net zero, engagement
and stewardship actions are recommended as thefirst tool to drive alignment. However, investors
should consider divestment or exclusion:■ As a consequence of climate financial risk
assessment.

■ As a consequence of escalation following
engagement.

■ For companies whose primary activity is nolonger considered permissible within a credible
pathway towards global net zero emissions,
identify exclusions over relevant timeframes.

In this regard, it is recommended that investors
should not allocate additional capital17 tocompanies which are planning or constructing
new thermal coal projects and associatedinfrastructure (power, mining) or taking forward
new exploitation of tar sands. Where investors
are existing shareholders or bondholders insuch companies, they should use active andescalating engagement with the aim of ensuring
no new thermal coal generation is developed
and no further tar sand resources are exploited,
and also that phase out of existing unabatedcapacity and activity is undertaken in line withnet zero pathways. In advocating for thesetransition plans, investors should recognise theneed for a just transition in countries or regions
where there is significant economic dependence
on thermal coal power or mining.

Box 3: Benchmarks and Indexes
The PAII recommends use of benchmarks
and indexes that reflect company
performance against the set of alignment
and transition criteria, and by weighting
companies in benchmarks to incentivise
companies to align to net zero goals. The
PAII notes that the EU has set out the ParisAligned Benchmark (PAB) and the Climate
Transition Benchmark (CTB), where thebenchmark construction currently expresses“Paris Alignment” as a very ambitious
reduction relative to the respective market,
region or sector benchmark (-50%/-30%
GHG emissions intensity in PAB/CTB)
which the PAB/CTB achieve with/without
exclusions, respectively. Both the CTB and
PAB indices also focus on a 7% year-on-year
carbon footprint reduction as also endorsedby the UN’s Emissions Gap report and canbe developed based on any regionally or
sector-focused instead of overall market
benchmarks, thereby permitting investors
to choose diverging emissions reduction
pathways (e.g. between developed andemerging markets).
The PAII wants to incentivize allocationof capital to assets whose emissions
are declining over time and to climate
solutions. However, it considers this may be
more effectively achieved by maintaining
investment in assets, where there is an
opportunity to maximise real world impacts
by driving reductions in companies thatneed to transition through stewardship andengagement, rather than initially excluding
issuers from a benchmark to achieve an
immediate ambitious emissions reduction
target. Therefore, the PAII suggests thatinvestors would not necessarily need tomeet the PAB requirements for benchmarks
used as part of alignment strategies. CTB
style benchmark construction, where aless aggressive initial emissions intensity
reduction is incorporated, may better reflect
an approach which can take account oftransition potential of assets in the shortterm, while also expecting the overall
emissions reduction requirement to be
met over time through index constituent’s
weighting towards best-performing assets
according to alignment criteria. The PAII
would encourage the European Commission
to further reflect the relevance of productsthat take account of the transition dynamic
for assets as they promote sustainablefinance in the EU and further implementationof its sustainable finance strategy.

17. Additional capital refers to a) primary investment through new share or bond issuance and b) secondary investment in shares or bonds purchased on thesecondary market.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

7.3. Real Estate
Assessment of assets■ Set scope for assessment and alignment■ Assess assets using CRREM tool to determinealignment with 1.5 degree pathway■ Prioritisation for engagement based on level ofstranding risk and exposure■ For direct investments assess options for investment/
management to achieve alignment

Alignment Metrics (M) and Targets (T)M. Current and forward looking alignment based oncarbon emissions and energy use in line with net zero
pathways (CRREM tool)
T. Increase % AUM in net zero or aligned assets –5 year goal
T. Total coverage of assets aligned or under active
management or engagement 70% of financed
emissions from material sectors (combined withequities and corporate fixed income)Set the scope:■ Include individual direct investments, investments
in assets pooled through a fund structure, andinvestments in listed real estate companies.

■ Include all types of real estate (e.g. commercial,residential, industrial etc).

Assess the alignment of assets:■ Assess current and forward-looking alignment

based on carbon emissions and energy intensity
in line with net zero pathways18.

■ For projections of future alignment, account for:• assumptions about the energy mix anddemand in different buildings and locations• potential for, and plans relating to, retrofit andother investments to address emissions andenergy use
Carbon reduction pathways should include
scope 1, 2 and relevant scope 3 emissions.
Scope 3 emissions in the 2019 Global Real Estate

Implementation
A. Portfolio construction:■ Screening and setting criteria for potential
investments using CRREM tool

B. Investment/management■ For direct investments (and own buildings) agree
investment / management plans to align assets
through retrofits to reduce energy use, increase
renewable energy use

C. Engagement:■ Tenant engagement to improve data collection
and facilitate investment/management foralignmentof assets;■ Alignment based escalation strategy and voting(for listed assets);■ Encourage corporate tenants to adopt targets
and align including occupied buildings

Sustainability Benchmark (GRESB) Assessment
were calculated as the emissions associated withtenant- controlled areas, electricity purchased by
the tenant and indirectly managed assets if thesehave not been reported upon already in scope
1 and scope 2 emissions. Scope 3 emissions
should not include emissions generated throughthe entity’s operations or by its employees,
transmission losses or upstream supply chain
emissions. Embodied carbon is not included at thistime, but should be considered in strategies andaccounted for as methodologies become available.
The PAII proposes that, where corporate tenants
have their own net zero targets, these can be taken
into account, providing that these targets include
appropriate goals for energy use in occupied
buildings and meet the criteria, for example, on theuse of offsets, set out in this document.
Methodologies used to assess the alignment ofassets should include the above features. The
recommended methodology for the assessment of
this asset class is:⊲ The Carbon Risk Real Estate Monitor (CRREM)19

18. The PAII recommends including all buildings in the analysis, using estimates and approximations to cover areas where data is missing, rather than excludingthese from scope.
19. https://www.crrem.eu/ and https://www.crrem.org/

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

Set targets for alignment as described in
Section 5:■ A 5-year target to increase the percentage of
AUM in net zero or aligned assets.

■ An engagement goal to ensure at least 70% of

financed emissions in material sectors are either
net zero, aligned to a net zero pathway, or the
subject of direct or collective engagement andstewardship actions.

Actions to align portfolios and achieve targets:
A. Portfolio construction

C. Engagement and stewardship■ Prioritise engagement based on the level ofstranding risk and exposure. For listed real estatecompanies, follow the actions set out in thelisted equity and corporate fixed income section(section 7.2).

■ Engage with tenants, prioritising engagement

based on the level of stranding risk and size of
exposure to assets, in order to:• Improve the data collection process forenergy use by encouraging or even requiring
tenants to share energy use data with building
owners■ Collect necessary data to assess a portfolio using• Facilitate actions and investments that reduceenergy costs for tenants and owners, and cut
carbon emissions in line with science-based
net zero goals■ Screen new investments using the CRREM model• Address the split incentive which sometimes
exists between building owners and tenants
and allow the costs of retrofits to be shared
between building owners and tenants throughbuilding service charges

the CRREM tool or equivalent standard, using
estimations and approximations to cover areas
where data is missing.

or equivalent standard to assess alignment, andincorporate into decision-making in order toachieve targets over time.

B. Investment / management■ Develop a clear timebound management andinvestment strategy supported with strong
ESG policies and appropriate carbon reduction
commitments that, over time, achieves a portfolio
consistent with the pathways set out in the
CRREM tool, or equivalent standard.

■ Strategies and plans adopted and implemented

by all relevant stakeholders and translated into
agreements with relevant parties involved in the
management of real estate assets.

• Encourage corporate tenants to adopt
corporate emissions reduction targets
consistent with net zero
• Strengthen the role of green leases• Strengthen cooperative policy engagement
to improve the policy framework aroundinvestments in building retrofits• Report and disclose with the objective ofachieving a positive scoring on the GRESB
tenant engagement indicators related toclimate and energy use.

■ For direct investments (and own buildings) agree
investment/management plans to align assets
through retrofits to reduce energy use andincrease renewable energy use.

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8.

Policy Advocacy and Market Engagement■ Investors should ensure that direct and collective
policy advocacy supports policy and regulation
relevant for achieving global net zero emissions
by 2050 or sooner.

■ Collectively or directly engage with policymakers
and regulators on:• Carbon pricing relevant to achieving the net
zero transition• The availability of granular sector and regional
pathways towards net zero emissions by 2050
• Improving disclosure of information relevant toassessing alignment and investment in climate
solutions, and advocating for mandatory TCFD
disclosure from companies• Increasing shareholder rights• Integrating the CRREM 1.5°C relevant nationalemission reduction pathways for different
building types, into meaningful and binding
targets, policy frameworks and corresponding
timelines for the real estate industry• Enabling improved energy use data disclosureand data-sharing initiatives• Incentives to promote retrofits and new builds
that meet the required energy efficiency

This advocacy may be delivered throughactivities such as meetings, letters, responding
to consultations, and media activity, as well as
ensuring trade association advocacy is consistent
with net zero goals.

■ Participate in collective policy advocacy activities

of investor networks including signing theInvestor Agenda’s20 Global Investor Statement on
Climate Change, as well as regional or national
policy advocacy activities.

■ Engage with market actors including credit

rating agencies, auditors, stock exchanges,
proxy advisers, investment consultants, anddata and service providers to ensure that theirassessments, data and products are based onalignment criteria, robust methodologies, andconsistent with net zero emissions by 2050.

■ Asset owners should include engagementwith existing and potential asset managers toencourage managers to provide strategies
and products to achieve asset owners net zero
investment goals. Asset managers should engage
with existing and potential clients to encourage
uptake of such strategies and products, provide
research and analysis to support climate risk
assessment and net zero investing.

20. https://theinvestoragenda.org/

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9.

Recommended Disclosures
The networks recognise that investors already havea range of reporting requirements and voluntary
disclosures which they are undertaking. The PAII
does not intend to create a separate reporting
template or standard, and investors should
implement disclosures in line with regulatory
requirements and specific best practice relevant totheir jurisdiction. However, the networks consider itbest practice for investors to set out a transparent
climate action plan which outlines how they intend
to take forward action relevant to alignment withnet zero, including how they expect to implement
components of this Framework.
In terms of disclosure, the networks already advocatethat asset owners and asset managers should
disclose annually in line with the recommendationsof the TCFD with respect to climate-related
financial risk. To ensure transparency and robust
implementation of net zero commitments the
networks also recommend disclosing the following
information related to implementation of the
Framework, which can be done in line with the
TCFD reporting structure as follows.
Governance■ The board/CEO level commitment to the goal ofachieving net zero portfolio emissions by 2050
or sooner, as relevant for asset owners or asset
managers, and responsibility for implementationof the commitment and strategy.

■ How climate objectives have been incorporated
into mandates and objectives for asset
managers, portfolio managers, and otherpersonnel as relevant.

Strategy■ The key principles and components of

the investor’s strategy for achieving thecommitments to net zero and implementing thisFramework, and how the strategy and targets
represent an investor’s maximum possible effort
to reducing emissions and increasing allocation
to climate solutions.

■ If relevant, how climate metrics, targets andobjectives have been incorporated into SAA or
similar processes.

■ Constraints identified to achieving greateralignment and how these have been addressed,
as appropriate.

■ The key principles and components of a net zeroengagement and stewardship strategy, including
escalation and milestones.

Metrics and Targets■ The targets set including how these targets were
calculated, and evidence and information thatwas used to inform the target setting process as
referred to in section 5.

■ The science-based scenario(s) or pathway(s) used

to guide target setting and assess the alignmentof companies, including the name of the relevant
model(s), how these meet the parameters in Box
2, and critical assumptions used.

■ Methodologies used to assess alignmentof assets, and the extent to which these
are consistent with the key features of themethodologies recommended in sections 7.1-7.3.

■ Performance against targets over time, and any

updates or adjustments to targets that are relevant.

Management■ Portfolio construction approaches implemented

and/or products developed to facilitate allocation to
products that support net zero aligned investing.

■ Engagement, stewardship and direct

management actions undertaken in line withrecommendations in sections 7.1-7.3, performancein relation to the engagement threshold, and key
outcomes achieved.

■ Voting policy and voting record, including an

explanation of any deviations from the policy.

■ Policy in relation to exclusions or phase out offossil fuel investments.

■ Where divestment or exclusion has been used,
the rationale, and the extent to which this has
been the means to achieve targets.

■ Information on direct and collective policy

actions undertaken across the key areas foradvocacy mentioned in section 8, including
outcomes achieved.

■ Information on market engagement actions

undertaken as mentioned in section 8, including
outcomes achieved.

When disclosing the information set out above,
where an investor has decided to use an alternative
approach or methodology to those recommended
in the Framework, the investor should provide an
explanation as to how this meets the key criteria
set by the PAII for alignment action as set out in
Box 1.

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10.

Asset Manager application of the Framework components
Asset Managers range from those who provide
all services to a single asset owner, through large
diversified multi-client managers, to specialist
managers (e.g. sector/product/asset class specific).
Where asset managers are carrying out fullmanagement of a single client portfolio, all elementsof this framework can be applied. Where asset
managers are specialists in low-carbon, green
or sustainable investments and are, therefore,
already managing products and portfolios which
are consistent with pathways to net zero, the PAII
encourages these managers to follow the principleof maximising the contribution to alignment andto use best practice methods and approaches in
implementing their investment strategies as set out
in this Framework.
The PAII encourages other asset managers to
implement the Framework across their funds undermanagement to the greatest extent possible. The
following describe specific expectations of asset
managers in this context.
Governance and Strategy
All components in section 4 should be applied byasset managers. However:■ Concerning the overarching commitment to net

zero emissions by 2050, asset managers shouldcommit their organisation to support the goal of
net zero greenhouse gas (‘GHG’) emissions by
2050 or sooner, and to work in partnership withasset owner clients on decarbonisation goals,
consistent with an ambition to reach net zero
emissions by 2050 or sooner across all AUM.

■ It is expected that asset managers will develop

a strategy as set out in this section. Componentsof the Framework, and the associated strategy,
such as policy advocacy, stewardship andengagement should be implemented across thebusiness and all AUM. Alignment actions suchas portfolio construction may only apply to the
proportion of assets under management that are
being managed in line with net zero goals■ It is also expected that asset managers willassess climate risk and incorporate this in theirprocesses and decision-making for all funds
under management.

■ Client engagement is an additional key

component of a net zero strategy for asset
managers, to ensure clients are encouraged toagree on mandates that are Paris aligned, andare aware of and enabled to invest in aligned
funds and products.

■ Asset managers are also encouraged to develop
new Paris aligned products, funds and strategies
across asset classes and educate clients
regarding these offerings.

Targets and Objectives
While asset owners have the jurisdiction to set a
net zero goal and targets across their AUM, asset
managers will need to engage with clients overtime to secure mandates and adjust or design
products to enable an increasing proportion offunds under management to be managed in linewith net zero. Therefore:■ In the short term, asset managers should

establish and disclose what proportion ofassets will be managed in line with a net zero
investment strategy and set the recommended
targets across the AUM being managed
accordingly.

■ Asset managers should seek to increase theproportion of assets being managed in line withnet zero to 100% over time.

Strategic Asset Allocation
Not all asset managers are responsible forundertaking strategic asset allocation, andtherefore the actions set out in this section will only
be relevant where asset managers are responsible
for these processes on behalf of clients. At thesame time, it is relevant for asset managers to
implement the recommendations where they
undertake similar activities in their investment
processes, such as portfolio optimisation.
Asset Class Alignment
For assets under management being managed inline with net zero:■ asset managers should use the recommended

assessment criteria and methodologies, targets,and alignment actions to measure alignment andtransition the portfolio over time.

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N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

11.

Appendix
11.1. Appendix A: Emissions
accounting and offsetting
At the whole portfolio level, investors should
set targets based on scope 1 and 2 emissions
associated with their investments. In the longer
term, inclusion of scope 3 emissions may bepossible. However, noting the significant issueof double-counting at the portfolio level, it isrelevant to consider these separately from scope
1 and 2. Proxies for main scope 3 emissions (i.e.
fossil fuel reserves) should be used in the shortterm and reported separately. Investors may wish
to additionally report separately on emissions
associated with green bonds to demonstrate
how these are impacting the overall performanceagainst emissions reduction targets, although theseshould not be wholly disaggregated from portfolio
emissions targets and reporting.

small changes in sovereign alignment in theachievement of targets versus other assets wherearguably investors have more direct influence. The
PAII, therefore, does not recommend including
sovereign issuers within the portfolio target or as
part of alignment through changes to SAA. Thereis considerable potential for double-counting
emissions across a portfolio, depending on theapproach taken. Examples include corporate
emissions of an equity holding being double
counted as part of territorial emissions of asovereign bond. However, emissions accounting
for the purposes of alignment does not havean objective of apportioning responsibility foremissions or assessing distribution among
investors. The purpose is to track the trajectoryof emissions associated with a portfolio overall
towards net zero. Therefore, providing emissions
accounting is done consistently over time, doublecounting should not be a concern.

At asset level, to assess an asset’s alignment with net
zero, investors should assess scope 1, 2 and material
scope 3 emissions associated with the assets in theirportfolios, to the extent possible, based on GHG
protocol accounting methodologies. For companies,
emissions reported should be on an equity sharebasis. In terms of the attribution to the investor, as
proposed by Partnership for Carbon Accounting
Financials (PCAF), emissions should be proportionallyattributed to the providers of the company’s total
capital (exposure divided by the sum of enterprisevalue). In Phase II of the PAII, we expect to assess thedefinition for material scope 3 emissions by sector,
and identify the most robust scope 3 accounting
approaches to recommend. Investors need to
advocate for transparent reporting on emissions
from companies, including scope 3, through policy
engagement on disclosure regulations and corporate
engagement on TCFD disclosures.

As a general principle, investors should not usepurchased offsets at the portfolio level to achieve
emissions reduction targets. They should also
adopt a precautionary approach when assessing
assets’ alignment with net zero and the use ofoffsets. Recognising the finite availability of offsetsfrom land use in particular, and the need to rapidly
decarbonise all activities within sectors to theextent possible, investors should not allow theuse of external offsets as a significant long-term
strategy for achievement of decarbonisation goals
by assets in their portfolios, except where there isno technologically or financially viable solution. The
PAII will undertake further analysis in Phase II toassess the appropriate use of offsetting in specificsectors. Credits purchased by participants within
regulated carbon markets that are designed tomeet the net zero emissions goal can be used.

For sovereign bonds, as set out in section 7.1,
when considering the alignment performance ofa sovereign issuer, the PAII considers it relevant
to assess the full territorial emissions of theissuer on a production basis to assess alignment
performance. As such, these represent verysignificant emissions and are not comparable
to other equity, corporate fixed income or real
assets. Aggregating these emissions within atarget could result in significantly over-rewarding

Decarbonisation and avoided emissions should
generally be treated separately. Similarly, investors
should not offset emissions in one part of theirportfolio through accounting for avoided emissions
in another part. Given the necessity of effectively
reaching zero emissions from investments over time,
trading these two against each other is not consistent
with creating incentives for investors and underlying
assets to maximise their efforts to decarbonise theirportfolios to the full extent possible.

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11.2. Appendix B: High Impact Sectors
TPI Sector

GICS Sector Name

GICS Sub Industry

Electricity utilities

EnergyIntegrated Oil & Gas (10102010)
Electric Utilities (55101010)

Utilities

Independent Power Producers & Energy Traders(55105010)
Multi-Utilities (55103010)

Oil & gas

EnergyIntegrated Oil & Gas (10102010)
Oil & Gas Refining & Marketing (10102030)
Oil & Gas Exploration & Production (10102020)
Oil & Gas Storage & Transportation (10102040)

Oil & gas distribution

Materials

Diversified Chemicals (15101020)

EnergyOil & Gas Storage & Transportation (10102040)
Oil & Gas Exploration & Production (10102020)

Coal mining

Materials

Diversified Chemicals (15101020)

EnergyCoal & Consumable Fuels (10102050)
Oil & Gas Refining & Marketing (10102030)

Consumer discretionary

Automobile Manufacturers (25102010)

Industrials

Industrial Conglomerates (20105010)
Trading Companies & Distributors (20107010)

Materials

Diversified Metals & Mining (15104020)
Steel (15104050)

Autos

Consumer discretionary

Automobile Manufacturers (25102010)

Airlines

Industrials

Airlines (20302010)

Shipping

EnergyOil & Gas Storage & Transportation (10102040)

Industrials

Marine (20303010)

Materials

Aluminum (15104010)

Aluminium

Diversified Metals & Mining (15104020)
Industrials

Trading Companies & Distributors (20107010)

CementMaterials

Construction Materials (15102010)

Pulp & paper

Materials

Paper Packaging (15103020)
Paper Products (15105020)

Steel

Materials

Steel (15104050)

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11.2. Appendix B: High Impact Sectors
TPI Sector

GICS Sector Name

GICS Sub Industry

Chemicals

Materials

Commodity Chemicals (15101010)
Diversified Chemicals (15101020)
Fertilizers & Agricultural Chemicals (15101030)
Industrial Gases (15101040)
Specialty Chemicals (15101050)

Diversified mining

Materials

Diversified Metals & Mining (15104020)
Copper (15104025)
Steel (15104050)

Other industrials

Information technology

Electronic Equipment & Instruments (45203010)
Technology Hardware, Storage & Peripherals(45202030)

Industrials

Aerospace & Defense (20101010)
Construction Machinery & Heavy Trucks(20106010)
Heavy Electrical Equipment (20104020)
Electrical Components & Equipment (20104010)

Consumer discretionary

Consumer Electronics (25201010)

Materials

Construction Materials (15102010)27

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11.

Appendix
11.3. Appendix C: The Paris Aligned
Investment Initiative Net Zero Asset
Owner Commitment
Commitment
As asset owners with millions of beneficiaries
around the world, we reiterate our full support for
the Paris Agreement and strongly urge governments
to implement the actions that are needed to achieve
the goals of the accord, with utmost urgency.
Recognising the need to address the risks
that investors and their beneficiaries face fromclimate change, investors are taking action, but
we acknowledge that there is an urgent need toaccelerate the transition towards global net zero
greenhouse gas emissions and do our part in
helping deliver the goals of the Paris Agreement.
In this context, my institution commits to thefollowing consistent with our fiduciary obligations:
1. Transitioning our investments to achieve net zero
portfolio GHG emissions by 2050, or sooner
2. Implementing this commitment with the aim ofachieving real economy emissions reductions
and undertaking a comprehensive set ofactions available to investors, drawing on the
Paris Aligned Investment Initiative’s Net Zero
Investment Framework
3. S etting objectives and targets, including aninterim target for 2030 or sooner for reducing
Scope 1, 2 and 3 emissions associated with ourportfolios and setting a target for increasing
investment in climate solutions, consistent
with a fair share of the 50% global reduction
in CO2 identified as a requirement in theIntergovernmental Panel on Climate Change
special report on global warming of 1.5°C
4. Where offsets are necessary where there are
no technologically and/or financially viable
alternatives to eliminate emissions, investing in
long-term carbon removals.
5. Ensure any direct and collective policy advocacy
we undertake supports policy and regulation
relevant for achieving global net zero emissions
by 2050 or sooner
6. Implementing a stewardship and engagement
strategy, with clear voting policy that is consistent
with an objective for all assets in the portfolio toachieve net zero emissions by 2050 or sooner
7. E ngaging with asset managers, credit rating
agencies, auditors, stock exchanges, proxyadvisers, investment consultants, and data andservice providers to ensure that funds, products
and services available to investors are consistent
with achieving global net zero emissions by 2050
or sooner.
8. Setting a target and reducing our operational(Scope 1 and 2) emissions in line with achieving
global net zero emissions by 2050, or sooner.
9. Disclosing objectives and targets, and publishinga clear Investor Climate Action Plan for achieving
these goals as soon as possible, no later than one
year from making this commitment, and reviewing
and updating targets every five years or sooner.
10. Reporting annually on the strategy and actions
implemented and progress towards achieving
objectives and targets, and in line with the Task
Force on Climate-related Financial Disclosures(TCFD) recommendations.
Our institution’s commitment recognises thatinvestors across the globe have different
opportunities, constraints and starting points forachieving net zero emissions and there are a rangeof methodologies and approaches available toinvestors to set targets and implement strategies.
In some asset classes or for some investment
strategies, agreed net zero methodologies do not
yet exist. We will, therefore, work to address thesechallenges, including through the Paris Aligned
Investment Initiative.
Our commitment is based on the expectation thatgovernments and policy makers will deliver on theircommitments to achieve the 1.5°C temperature
goal of the Paris Agreement, and in the context of
fulfilling our fiduciary obligations.
Any institutional asset owner may sign the Net
Zero Asset Owner Commitment and use the Net
Zero Investment Framework. To be recognised
and showcased as making a net zero commitment
under the Paris Aligned Investment Initiative anasset owner must complete and submit a signatory
form to one of the four regional investor networks(AIGCC, Ceres, IGCC, IIGCC) indicating their CEO
has approved signing on.
Asset owners that are members of AIGCC, Ceres,
IGCC, IIGCC will have access to activities to support
implementation of the commitment provided by the
networks.
A separate Q&A document is available uponrequest and will be updated as relevant toprovide further explanation and clarificationof the commitment.

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11.

Appendix
11.4. Appendix D: Net Zero AssetManagers Commitment

2. Take account of portfolio Scope 1 & 2 emissions
and, to the extent possible, material portfolio
Scope 3 emissions

In line with the best available science on theimpacts of climate change, we acknowledge that
there is an urgent need to accelerate the transition
towards global net zero emissions and for asset
managers to play our part to help deliver the goalsof the Paris Agreement and ensure a just transition.

3. Prioritise the achievement of real economy
emissions reductions within the sectors andcompanies in which we invest

In this context, my organisation commits to
support the goal of net zero greenhouse gas(‘GHG’) emissions by 2050, in line with global
efforts to limit warming to 1.5°C (‘net zero
emissions by 2050 or sooner’). It also commits to
support investing aligned with net zero emissions
by 2050 or sooner.
Specifically, my organisation commits to:a) Work in partnership with asset owner clientson decarbonisation goals, consistent with anambition to reach net zero emissions by 2050
or sooner across all assets under management(‘AUM’)b) Set an interim target for the proportion of assets
to be managed in line with the attainment of net
zero emissions by 2050 or soonerc) Review our interim target at least every five
years, with a view to ratcheting up the proportionof AUM covered until 100% of assets are included
In order to fulfil these commitments myorganisation will:
For assets committed to be managed in line withthe attainment of net zero emissions by 2050 orsooner (under commitment b)

4. If using offsets, invest in long-term carbon
removal, where there are no technologically
and/or financially viable alternatives toeliminate emissions
5. As required, create investment products alignedwith net zero emissions by 2050 and facilitate
increased investment in climate solutions
Across all assets under management
6. Provide asset owner clients with information andanalytics on net zero investing and climate risk
and opportunity
7. Implement a stewardship and engagement
strategy, with a clear escalation and voting
policy, that is consistent with our ambition for all
assets under management to achieve net zero
emissions by 2050 or sooner
8. Engage with actors key to the investment
system including credit rating agencies, auditors,
stock exchanges, proxy advisers, investment
consultants, and data and service providers toensure that products and services available toinvestors are consistent with the aim of achieving
global net zero emissions by 2050 or sooner
9. Ensure any relevant direct and indirect policy
advocacy we undertake is supportive ofachieving global net zero emissions by 2050
or sooner

1. Set interim targets for 2030, consistent with afair share of the 50% global reduction in CO2
identified as a requirement in the IPCC special
report on global warming of 1.5°C

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11.

Appendix
Accountability
10. Publish TCFD disclosures, including a climate
action plan, annually, and submit them to theInvestor Agenda via its partner organisations forreview to ensure the approach applied is basedon a robust methodology, consistent with the UN
Race to Zero criteria, and action is being taken inline with the commitments made here
We recognise collaborative investor initiatives
including the Investor Agenda and its partnerorganisations (AIGCC, CDP, Ceres, IGCC, IIGCC,
PRI, UNEPFI), Climate Action 100+, Climate League
2030, Paris Aligned Investment Initiative, Science
Based Targets Initiative for Financial Institutions,UN-convened Net-Zero Asset Owner Alliance,
among others, which are developing methodologies
and supporting investors to take action towards
net zero emissions. We will collaborate with eachother and other investors via such initiatives sothat investors have access to best practice, robust
and science based approaches and standardised
methodologies, and improved data, through which
to deliver these commitments.

We also acknowledge that the scope for asset
managers to invest for net zero and to meetthe commitments set forth above depends onthe mandates agreed with clients and clients’and managers’ regulatory environments. These
commitments are made in the expectation thatgovernments will follow through on their own
commitments to ensure the objectives of theParis Agreement are met, including increasing
the ambition of their Nationally Determined
Contributions, and in the context of our legal
duties to clients and unless otherwise prohibitedby applicable law. In some asset classes or forsome investment strategies, agreed net zero
methodologies do not yet exist. Where our ability
to align our approach to investment with the goal of
net zero emissions by 2050 is, today, constrained,
we commit to embark with determination andambition on a journey, and to challenge and seek toovercome the constraints we face.
Learn more about the Net Zero Asset Managers
initiative here: www.netzeroassetmanagers.org

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Investor Participation
The Framework was, and continues to be, developed through discussions and collaborative effortsof the Paris Aligned Investment Initiative Working Groups. Members continue to be generous incontributing reflections from their own experiences in aligning portfolios and strategies with climate
goals and provide insightful comments during working group meetings and on draft reports from theworking groups. We are grateful for the time that continues to be put into this process. The names ofthe organisations involved are below.
Aberdeen Standard Investments

GAM Investments

Aegon Asset Management

Generation Investment Management LLP

AIP Management P/SGoldman Sachs Asset Management International

Allianz Global Investors

Greater Manchester Pension Fund

Allianz Investment Management

Handelsbanken AB Publ

Ambienta Sgr S.p.A.

Hermes GPE LLP

AP2 (Second Swedish National Pension Fund)
APG Asset Management
Arisaig Partners Research Services (UK) Ltd
Atlas Infrastructure
ATP
AustralianSuper
Aviva Investors
Avon Pension FundAXA Investment Managers

HSBC Bank Pension Trust (UK) Ltd.
HSBC Global Asset Management
IFM Investors
Impax Asset Management
Insight Investment
Invesco UK Limited
Janus Henderson Investors
JP Morgan Asset Management

Baillie Gifford & Co

Jupiter Asset Management

Barclays Bank UK Retirement FundKBI Global Investors

BlackRock

Kempen Capital Management

BMO Global Asset Management (EMEA)

La Banque Postale

Brunel Pension PartnershipLærernes Pension

Bundespensionskasse AG

Lazard Asset Management

CCLA Investment Management

Legal & General Investment Management

CDC Group PLC

LGPS Central

Central Finance Board of the Methodist Church

LGT Capital Partners

Church Commissioners for England

Linklaters LLP

Church of England Pensions Board

Lloyds Banking Group Pensions Trustee Limited

DWS
EBRD (European Bank for Reconstruction andDevelopment)
Elo Mutual Pension Insurance Company

Local Pensions Partnership Investments Ltd
Lombard Odier (Bank Lombard Odier & Co. Ltd)M&G Investments

Environment Agency Pension Fund

Macquarie Asset Management

ERAFP

MercerFIL Investments International (Fidelity)

MN

FTSE Russell

Moody’s Investor Service

Fulcrum Asset Management

Moody's Analytics

FullCycle Management LLC

MSCI ESG Research (UK) Limited31

N ET ZE RO INVE ST ME NT F RAME WORK: IMP L E M E NTATI O N G U ID E

Investor Participation
National Trust for Places of Historic Interest or
Natural Beauty

RPMI Railpen

NEST

Santander Asset Management

NextEnergy Capital Ltd

Sarasin & Partners LLP

Ninety One

Scottish Widows, part of Lloyds Banking GroupNN Group

SEB Investment Management AB

NN Investment Partners

Storebrand Asset Management

Nordea Asset Management

Swedbank Robur Fonder AB

OFI Asset Management

T. Rowe Price International Ltd

Ortec Finance

The international business of Federated Hermes

Pension Protection Fund

The Lankelly Chase Foundation

PGGM

TPT Retirement Solutions

Phoenix GroupUBS Asset Management

Pictet Asset Management

Union Investment Institutional GmbHPIMCO LLC

Universities Superannuation Scheme

PKA

University of Cambridge

RAM Active Investments SA

Wellington Management LLC

Rathbone Greenbank Investments

Wermuth Asset Management

Redington LimitedWest Midlands Pension Fund

RobecoWHEB GroupRoyal London Asset Management

Willis Towers Watson

Russell Investments

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Legal Disclaimer
This Report has been prepared by the Institutional Investors Group on Climate Change, the Asian Investor
Group on Climate Change, Ceres, and the Investor Group on Climate Change.
No Financial Advice:
The information contained in this Report is general in nature. It does not comprise, constitute or provide
personal, specific or individual recommendations or advice, of any kind. In particular, it does not comprise,
constitute or provide, nor should it be relied upon as, investment or financial advice, a credit rating, anadvertisement, an invitation, a confirmation, an offer, a solicitation, an inducement or a recommendation, tobuy or sell any security or other financial, credit or lending product, to engage in any investment strategy
or activity, nor an offer of any financial service. While the organisations have obtained information believed
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contained in this document, including but not limited to, lost profits or punitive or consequential damages.
This Report does not purport to quantify, and the networks makes no representation in relation to, theperformance, strategy, prospects, credit worthiness or risk associated with the Framework, strategy, or
any investment therein, nor the achievability of any stated climate targets. The Report is made available
with the understanding and expectation that each user will, with due care and diligence, conduct its own
investigations and evaluations, and seek its own professional advice, in considering investments’ financial
performance, strategies, prospects or risks, and the suitability of any investment therein for purchase, holding
or sale within their portfolio. The information and opinions constitute a judgment as at the date indicatedand are subject to change without notice. The information may therefore not be accurate or current. The
information and opinions contained in this report have been compiled or arrived at from sources believed tobe reliable and in good faith, but no representation or warranty, express or implied, is made by the networks
as to their accuracy, completeness or correctness.
Exclusion of liability:
To the extent permitted by law, we will not be liable to any user for any direct, indirect or consequential loss
or damage, whether in contract, tort (including negligence), breach of statutory duty or otherwise, even if
foreseeable, relating to any information, data, content or opinions stated in this Report, or arising under or inconnection with the use of, or reliance on the Framework or this Report.

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Paris Aligned Investment Initiative:
Implementation Guide

VERSION 1.0 MARCH 2021
Report design by Jory & Co