Treasury Releases Principles for Net-Zero Financing & Investment, Applauds $340 Million Philanthropic Commitment and Other Pledges

On September 19, 2023, the U.S. Department of the Treasury issued a press release to inform of the release of the first Principles for Net-Zero Financing & Investment, a set of best practices or guidelines aimed at private sector financial institutions committed to achieving net-zero emissions. These principles encourage consistency and credibility in implementing net-zero commitments and aim to ensure that financial institutions allocate capital and expertise to support the growth of clean energy industries. The principles – which are voluntary in nature and do not impose legal requirements on institutions – thereby emphasize that net-zero commitments should align with limiting global temperature increases to 1.5 degrees Celsius in accordance with the Paris agreement and should include clear transition plans, practices, targets, and metrics for financial institutions and their clients. The key principles are briefly listed below – as quoted from the document; a detailed description is provided in the paper:
PRINCIPLE 1: A financial institution’s net-zero commitment (commitment) is a declaration of intent to work toward the reduction of greenhouse gas emissions. Treasury recommends that commitments be in line with limiting the increase in the global average temperature to 1.5°C. To be credible, this declaration should be accompanied or followed by the development and execution of a net-zero transition plan.
PRINCIPLE 2: Financial institutions should consider transition finance, managed phaseout, and climate solutions practices when deciding how to realize their commitments.
PRINCIPLE 3: Financial institutions should establish credible metrics and targets and endeavor, over time, for all relevant financing, investment, and advisory services to have associated metrics and targets.
PRINCIPLE 4: Financial institutions should assess client and portfolio company alignment to their (i.e., financial institutions’) targets and to limiting the increase in the global average temperature to 1.5°C.
PRINCIPLE 5: Financial institutions should align engagement practices — with clients, portfolio companies, and other stakeholders — to their commitments.
PRINCIPLE 6: Financial institutions should develop and execute an implementation strategy that integrates the goals of their commitments into relevant aspects of their businesses and operating procedures.
PRINCIPLE 7: Financial institutions should establish robust governance processes to provide oversight of the implementation of their commitments.
PRINCIPLE 8: Financial institutions should, in the context of activities associated with their net-zero transition plans, account for environmental justice and environmental impacts, where applicable.
PRINCIPLE 9: Financial institutions should be transparent about their commitments and progress towards them.
—
Furthermore, the Treasury informs of ongoing activities and recent developments in the context of promoting sustainable and transition finance. These include the following:
– Leading philanthropic organizations, including Bezos Earth Fund, Bloomberg Philanthropies, Climate Arc, ClimateWorks Foundation, Hewlett Foundation, and Sequoia Climate Foundation, have pledged $340 million over three years to support research, data availability, and technical resources for financial institutions working on net-zero commitments.
– The Glasgow Financial Alliance for Net Zero (GFANZ) announced that over 50 U.S. financial institutions (and more globally) will publish net-zero transition plans in the coming year using common frameworks developed by GFANZ and financial sector alliances.
– The Rocky Mountain Institute (RMI) Center for Climate-Aligned Finance (CCAF) will launch frameworks for the aluminum and aviation sectors to help lenders measure and disclose emissions related to their lending portfolios involving those industry sectors. Additionally, RMI will establish a Transition Finance Resource Hub in 2024 to assist banks in mobilizing transition capital.
– The Partnership for Carbon Accounting Financials (PCAF) will provide training and support to up to 2,500 financial professionals in greenhouse gas accounting methodologies. PCAF plans to publish a standard for facilitated emissions measurement for capital markets transactions.
– The Center for Climate and Energy Solutions (C2ES) will collaborate with large, publicly traded companies to develop and communicate their net-zero transition plans over the next three years. This effort will support businesses in creating these plans and identify interdependencies between sectors‘ decarbonization efforts.
– Ceres has committed to working with over 250 investors and companies on their net-zero transition plans in the coming year, offering resources, advice, and workshops to aid in the preparation of such plans.