SBAI Response to IIGCC Discussion Paper on Incorporating Derivatives and Hedge Funds into the Net Zero Investment Framework

The Institutional Investors Group on Climate Change (IIGCC) is a European membership body for investor collaboration on climate change. The IIGCC Discussion Paper seeks to support investors’ commitment to achieve net zero by helping drive emission reduction in the real economy. 

The framework seeks to provide the analytical foundation for incorporating derivatives and short selling in the context of equity and credit markets. At the SBAI, we are supportive of better disclosure of carbon emissions to investors to enable well informed investment decisions. Specifically, we support the disclosure of position weighted gross long, gross short, and net emission metrics for both, risk management and net zero materiality purposes. However, at this stage, we believe that there is no basis for establishing a norm or standard not allowing net emission metrics as a tool, for example for aggregation purposes, under the “Net zero and alignment metrics”. We also propose that the appropriate benchmarks are clarified for alternative investment strategies employing short positions, rather than justifying the exclusion of shorts from the reporting framework on the basis of the concern that asset managers may use their short positions to “offset” their long carbon emissions (and therefore appear to beat certain targets).