Investor-backed net zero frameworks and initiatives, in conjunction with data providers, should develop tools to integrate the goal of net zero into strategic asset allocation at the portfolio or fund level, the Principles for Responsible Investment (PRI) has recommended in a new report.

It said that ”in principle at least”, strategic asset allocation processes can explicitly incorporate net zero objectives, but that the tools to do so are relatively underdeveloped. While there was a reasonable provision of data covering most requirements stemming from investor-backed climate change initiatives, very few data providers offer strategic asset allocation tools, the PRI said.

“These are important for activities such as developing a decarbonisation strategy, integrating climate change into investment analysis and setting targets relating to climate solutions,” it said. Strategic asset allocation has been hailed as key to plugging the climate finance gap.

The PRI’s report is about the gaps between investors’ data needs and the existing data ecosystem, with the investor organisation making an array of recommendations across three main areas: improving corporate disclosure; improving the coverage and quality of products; and facilitating data comparability.

When it comes to investors’ data needs, the focus in the PRI’s report is on the data they need to support their commitments to reduce the real-world emissions generated by their investments.

Pressing need

Under the heading of portfolio-level metrics and methodologies the PRI also recommended that investor-backed net zero initiatives, together with data providers:

  • assess the overall uncertainty of portfolios’ emissions, in both absolute and relative (intensity) terms;
  • analyse and report on the reasons underpinning changes in portfolio-level emissions and emission intensities, particularly: (i) changes in company enterprise value, including cash; (ii) new or divested positions; (iii) changes in entity weights; and (iv) changes in absolute emissions.

Commenting on the report’s recommendations more broadly, the PRI said the industry needed to reflect on them “as it drives towards net zero”.

“Although this report identifies gaps in the market, it also recognises that some of our recommendations are already being addressed by a number of initiatives, such as the Net Zero Financial Service Providers Alliance,” it said.

“In addition, a number of data providers have started to offer or are designing products that respond to these recommendations.

“While there are clear signs of industry engagement and progress, there remains a pressing need for general agreement, consistent implementation and development of tools and methodologies to meet investors’ data needs to support their net zero commitments.”

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