The U.S. Treasury has released a set of voluntary guidelines called the “Principles for Net-Zero Financing & Investment” and stated that “net-zero” financial commitments made by banks and asset managers must be in line with the goal of limiting the global temperature rise to 1.5 degrees Celsius and should have solid metrics and targets in place.
This announcement came as leaders, celebrities, and influential business figures gathered in Manhattan during the U.N. General Assembly week to address the pressing issue of climate change.
The Treasury nine voluntary principles are aimed at ensuring consistency, credibility, and transparency in net-zero commitments from financial institutions.
The Principles draw on the emerging best practices that the US Treasury has seen in the financial sector. They establish that financial institution net-zero commitments should be in line with limiting the increase in the global average temperature to 1.5 degrees Celsius.
At NY Climate Week, U.S. Department of the Treasury Sec. Janet Yellen announced nine principles for net-zero financing and investment.
These voluntary principles:
- Underscore the importance and value of financial institutions’ net-zero commitments
- Promote consistency and credibility in financial institutions’ approaches to these commitments
- Highlight and encourage greater adoption of emerging best practices pertaining to these commitments
Among these principles, the Treasury recommends that financial institutions engage in “transition finance” to support the reduction of emissions in high-polluting sectors that are challenging to transform. This entails providing financial backing, investments, or advisory services to facilitate a transition from high-emission to low or zero-emission assets. For example, this could involve phasing out coal-fired power plants and replacing them with renewable energy sources like wind or solar power.
Financial institutions are also encouraged to align their clients’ and portfolio company investments with temperature limits. U.S. Treasury officials have emphasized that this aligns with the institutions’ fiduciary responsibilities to their clients.
In addition to these principles, the Treasury has announced that several philanthropic groups have pledged $340 million to support research, data, and technical resources to assist financial institutions in developing and implementing robust, voluntary net-zero commitments.
This funding will also support transition planning efforts in non-financial sectors of the economy. Notable groups involved in these commitments include the Bezos Earth Fund, Bloomberg Philanthropies, Climate Arc, ClimateWorks, Hewlett Foundation, and Sequoia Climate Foundation.
U.S. Treasury Secretary Janet Yellen discussed these principles with top finance CEOs, including BlackRock’s Larry Fink and HSBC’s Noel Quinn. While adherence to the principles is voluntary, Yellen stressed their usefulness in providing guidance to those considering net-zero commitments.
Yellen also highlighted the significant global investment opportunities associated with transitioning to a net-zero economy, estimating an annual potential of $3 trillion until 2050.
Mark Carney, the U.N.’s Special Envoy for Climate Action, endorsed these principles as aligning with the planning framework of the Glasgow Financial Alliance for Net Zero. He noted that encouraging financial institutions to explore climate-friendly solutions to reduce emissions from existing businesses will help direct investments towards achieving a net-zero economy. This, in turn, can strengthen economic growth, create jobs, lower energy costs, and reduce emissions.
View the full report: “Principles for Net-Zero Financing & Investment”
Date: September 19, 2023
Source: US Treasury Press Release
