GFANZ: ‘We must apply more rigor to how we finance the transition’

Alliance launches consultation on the four strategies it set out last year

The Glasgow Financial Alliance for Net Zero (GFANZ) is asking for feedback on its transition strategies for financial institutions, in an attempt to apply “more rigour” to how the transition is financed and how investments are decarbonised.

Last year, GFANZ set out 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.

This week the group published a consultation seeking market feedback on a voluntary principles-based approach to segment portfolios by these four strategies.

“We must apply more rigour to how we finance the transition and how that investment is truly driving decarbonisation 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 decarbonisation 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 today’s consultation aims to do that,” he said.

Mark Carney (pictured), 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 decarbonisation contribution of financing. This consultation links decarbonisation 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 2 November 2023. Feedback from all stakeholders will be considered and can be provided here. The final report will be published by COP28.