Wind power is one of the technologies the IIGCC suggest schemes prioritise in their investment decisions
The Institutional Investors Group on Climate Change (IIGCC) has published a report which aims to support investors in understanding the $126trn (£96trn) of investment in climate solutions required to meet the goals of the Paris Agreement.
The report - entitled Climate Investment Roadmap: A tool to help investors accelerate the energy transition through investment and engagement - supports the key themes identified in the membership body's latest report on mitigation of climate change, including the need for policy changes to facilitate greater investment in climate solutions.
The report provides initial guidance to investors on the investment opportunities presented by the green energy transition through a detailed investment roadmap based on the International Energy Agency's net-zero emissions scenario by world region and technology between now and 2050.
For example, the investment trajectories show the Asia Pacific region requires the largest scale up in financing relative to historic levels at $9.1trn in the 2020s and that electricity ($10trn) and transport ($4trn) are the sectors requiring the most globally over the same period.
For investors looking to maximise their contribution towards decarbonising the global economy, the report also provides investors with a technology prioritisation framework.
The framework provides ten suggestions for technologies to prioritise in their investment decisions - including solar photovoltaics; wind; grid-scale electricity storage; new electricity lines and electric vehicle (EV) batteries; and engagement activities such as building retrofits, EV chargers, hydrogen-based electricity generation, forest restoration and green steel.
IIGCC chief executive Stephanie Pfeifer said: "While investors alone do not shoulder the responsibility, we cannot escape the truth that we must see a rapid and significant step change in the amount of investment currently being channelled towards climate solutions if we are to reach net zero by 2050. Using the best available date, this report helps investors understand where their investment would have most impact on mitigating climate change."
Measurement and monitoring
The report also aims to address one of the major practical and strategic challenges for institutional investors seeking to play a part in supporting a Paris-aligned pathway - translating real economy need, as highlighted by the investment trajectories, into portfolio allocation.
To do this, the IIGCC says investors need to understand whether, and how much, assets in a portfolio contribute to closing the climate solutions investment gap.
The report aims to help with this by outlining possible financial metrics for investors to measure and track the contribution of a portfolio and its assets to net zero emissions reductions - including a proposed ‘green investment ratio', which measures the share of a portfolio's total investments that is financing climate solutions, and a ‘priority net zero investment ratio', which measures the share of a portfolio's total investments that is financing technologies that are a priority for achieving net-zero emissions by 2050 or sooner.
Pfeifer explained: "We are all aware of the scale of investment required to meet the goals of the Paris Agreement, but being able to connect the real world need with portfolio construction - and then measuring contributions - is crucial for investors. Failure to do so means investors may not contribute optimally towards meeting the current net-zero pathway investment gap. We now look forward to feedback from investors on the metrics and to developing these further in the next phase of the project."
"The report also highlights the role investors need companies to play in providing relevant climate-related disclosures, for example through metrics such as green capex. Without these, investors fail to have a clear and informed picture of the progress made by underlying companies towards delivery of their transition plans."
Listed equity market
The IIGCC also said it is now working with FTSE Russell to explore methodologies and options for applying the net-zero investment trajectories and investment in climate solutions metrics outlined in the report into the listed equity market.
It said the objective of the next phase of work is to help investors operationalise the report's Paris-aligned investment metrics and trajectories by integrating them into investment processes and the building of Paris-aligned equity portfolios and benchmarks.
IIGCC said its climate solutions working group will assist on the next phase to ensure investor representation and consideration.
This comes after the £35bn Local Government Pension Scheme pool Brunel Pension Partnership - of which IIGCC chair Faith Ward is chief responsible investment officer - adopted a FTSE Paris-aligned benchmark index after working with FTSE Russell to develop a range of indices back in July last year.
