General Overview
The Net Zero Investment Framework (NZIF) is a comprehensive guide developed by the Institutional Investors Group on Climate Change (IIGCC) to help investors align their investment practices and portfolios with the Paris Agreement’ objective of reaching net zero emissions by 2050. The framework is part of the broader efforts under the Paris Aligned Investment Initiative.
NZIF was initially published in 2020, and an updated version was published in 2024 (NZIF 2.0). It includes specific recommendations depending on the asset classes and investment strategies of investors: private equity, private debt, sovereign bonds, real estate, listed equity, and infrastructure.
Typology of the framework
Date of creation: 2020
Framework type: Target-setting methodology
Targets: Investors (asset owners, asset managers)
Number of users: 180+ investors
AUM : At least $4 trillion
Objectives of the framework
The NZIF has been designed to provide investors with a practical and flexible guide to aligning their portfolios with global Net Zero targets while taking into account the specificities of the assets’ type they invest in. It encourages investors to effectively decarbonize their portfolio while reallocating capital towards sustainable investments and engaging with companies on climate issues.
Key objectives include:
Portfolio decarbonization: setting targets to reduce the GHG emissions of the portfolio in order to reach Net Zero by 2050;
Capital reallocation: encouraging the shift of investments towards climate solutions (renewable energies, low-carbon technologies, sustainable infrastructures, etc.)
Risk management: mitigating climate-related risks across the different asset classes (equity, bonds, real estate, infrastructure, etc.)
Standardization: promoting a unified set of metrics to track and report, between Limited Partners, General Partners and Portfolio Companies. The ultimate ambition is to improve the consistency and comparability across all players on the investment market.
Implications for investors and their portfolios
To date, more than 180 global investors use the NZIF, either fully or partially, to support their Paris-Aligned Asset Owner (PAAO) or Net Zero Asset Managers (NZAM) commitment, two major investors’ Net Zero engagement framework.
However the NZIF’s reach extends beyond these two initiatives and it can be used by any investor willing to align its ambition with the Paris Agreement.
Therefore, on private markets, both General Partners (GPs) and Limited Partners (LPs) use the NZIF, which defines roles and responsibilities between LPs, GPs and their portfolio companies.
For Limited Partners:
LPs using the NZIF to set their Net Zero targets are expected to define a certain portion of their AUM to be “managed in line with Net Zero”. As a consequence, they are expected to factor their Net Zero commitment into capital allocation decisions among their GPs, and thus to ask them to commit to Net Zero in turn (through NZIF or other Net Zero frameworks, like SBTi, NZAM for instance). To ensure alignment with the Paris Agreement through the NZIF, LPs are expected to have 100% of their portfolios managed in line with Net Zero by 2050.
LPs need to track and monitor the climate performance of their investment and the progress of the funds they invest in towards Net Zero alignment. Therefore, they need to compute, at least, their financed emissions at the portfolio level and assess climate risks.
Ultimately, LPs are encouraged to redirect capital toward investments that support the transition to a low-carbon economy, thus prioritizing GPs investing in climate solutions—such as renewable energy, low-carbon technologies, and other sustainable sectors.
For General Partners:
NZIF’s targets for GPs differ depending on the asset class they invest in. However, general principles prevail.
When it comes to their relationship with portfolio companies / underlying assets, GPs must consider their ability to decarbonize in alignment with the Paris Agreement’s ambition. They must assess the transition potential of the company before investing in and the leverage they could bring as investors to support this transition:
Can the company compute its carbon footprint annually?
Is the company able to define a decarbonization plan, aligned with the Paris Agreement (e.g. by using the SBTi framework)?
How likely will the company be able to decarbonize its business effectively, in line with its decarbonization plan?
As a consequence, GPs need to track and monitor the carbon performance of their portfolio, at least through the computation of their financed emissions and by ensuring that their portfolio companies (i) compute their carbon footprint annually and (ii) meet their decarbonization targets on time.
When it comes to GPs’ relationship with their LPs, GPs are expected to monitor and report annually a certain number of indicators, including:
Progress on their Net Zero targets;
Financed emissions by fund, i.e. the GHG emissions of their portfolios;
Capital allocation to climate solution.
Carbometrix’s opinion
The Net Zero Investment Framework (NZIF) represents a significant step forward in guiding institutional investors to decarbonize their portfolios and align with global climate goals. Its pragmatic, investor-friendly approach makes it highly relevant for broad adoption across the financial sector, and it effectively integrates climate risk management into existing investment processes. This explains why it is recommended as a target setting tool by major Net Zero coalitions like Net Zero Asset Managers (NZAM) or the Paris-Aligned Asset Owners (PAAO). For instance, 51% of NZAM members use NZIF as their net zero target setting methodology.
However, critics could argue that the NZIF could do more to push investors beyond incremental change by requiring stronger divestment from high-carbon assets or mandating strict, short-term milestones. It appears somewhat conservative in its ambition and lacks enforceable accountability measures, contrary to SBTi for Financial Institutions for instance (even though SBTi’s methodology for Financial Institutions is currently being fully revamped).
Yet, the NZIF’s comprehensive approach, covering multiple asset classes and promoting active engagement with portfolio companies, provides investors with clear, actionable steps to reduce carbon emissions, and we expect it to become a key reference for investors committing to align with the Paris Agreement.