GFANZ applauds US Treasury net-zero principles roll-out

Based on best practice seen in finance industry from Alliance members

The Glasgow Financial Alliance for Net Zero (GFANZ) has welcomed the US Treasury’s best practice guidelines for financial institutions on how to reach net zero, saying that a consistent approach to transition finance is “crucial” to accelerate the industry’s efforts to decarbonize.

Earlier this week, the Treasury published the Principles for Net-Zero Financing & Investment, which sets out nine principles including that firms’ net-zero commitments should be in line with 1.5C and include portfolio alignment, that they should create transition plans and have credible metrics, that their engagement strategies should be in line with their commitments, and other related practices.

Announcing the principles, secretary of the Treasury Janet Yellen (pictured) said: “Our goal is to affirm the importance of credible net-zero commitments and to encourage financial institutions that make them to take consistent approaches to implementation. Our work will also help institutions that have not yet made commitments see what doing so might entail.”

In a statement, GFANZ said: “This consistent approach to transition finance and transition planning is crucial to reducing market fragmentation to support the many US institutions seeking to seize opportunities and mitigate risks in the transition.”

GFANZ launches consultation

GFANZ has developed a common voluntary framework for net-zero transition plans, which the Treasury has drawn on as “best practice” for its principles.

Part of this is the setting out of four strategies it deemed necessary for financing a whole economy transition to net zero. These included developing and scaling climate solutions, financing assets that are already aligned to a 1.5C pathway, financing transitioning assets and phasing out high-emitting assets.

GFANZ recently launched a consultation asking for feedback on these strategies, in an attempt to apply “more rigor” to how the transition is financed and how investments are decarbonized.

“We must apply more rigor to how we finance the transition and how that investment is truly driving decarbonization over time, but we must do this thoughtfully and in broad consultation,” said GFANZ vice-chair Mary Schapiro.

The consultation also sets out some approaches that could be used by firms to measure the decarbonization contribution of these activities. It introduces the concept of ‘expected emissions reduction’, for example, which can be applied differently across each of the four strategies, allowing financial institutions to quantify the ‘emissions return’ of their transition finance activities more effectively.

Michael Bloomberg, GFANZ co-chair and UN special envoy on climate ambition and solutions to the group was working to make financial institutions’ transition plans a reality.

“But more needs to be done to ensure that their impact is measured accurately, and [the] consultation aims to do that,” he said.

Mark Carney, GFANZ co-chair and UN special envoy on climate action and finance, added: “We need to be able to track impact by measuring the expected decarbonization contribution of financing. This consultation links decarbonization contribution methodologies to the GFANZ financing strategies as a proposed approach to measuring the impact of transition finance over time.”

The consultation will run for six-weeks until Nov. 2, 2023. Feedback from all stakeholders will be considered and can be provided here. The final report will be published by COP28.