U.S. Department of the Treasury published the principles for Net-Zero Financing

U.S. Department of the Treasury published the Principles for Net-Zero Financing & Investment (the Principles). The voluntary Principles highlight emerging best practices for private sector financial institutions that have made net-zero commitments and promote consistency and credibility in approaches to implementing them. With the Principles, the Treasury Department is supporting the mobilization of more private sector capital to address the physical and economic impacts of climate change and to seize on the historic economic opportunity presented by the green transition.

Secretary Yellen will deliver remarks at the Bloomberg Transition Finance Action Forum in New York City this afternoon to discuss the Principles and will also meet with financial institutions, civil society organizations, and philanthropic leaders to discuss the importance of climate-related action by the private financial sector and how to accelerate and support related efforts. 

Accompanying the release of the Principles are a number of announcements from civil society including a $340 million commitment by leading philanthropic organizations to support the continued development of research, data availability, and technical resources intended to help financial institutions develop and execute robust, voluntary net-zero commitments. This funding will also support work to facilitate the transition planning efforts of non-financial sectors of the economy. Further, additional organizations announced plans to generate tools and technical work needed to facilitate the execution of net-zero commitments.

The climate crisis is propelling a massive economic shift and is hitting the most vulnerable countries and communities first and hardest. There’s increasing demand for technologies, products, and services that will reduce greenhouse gas emissions, support a clean energy future, and help adapt to a changing climate across all sectors. This demand is fueling growth in new industries and business models. In the United States, government support is playing a role in accelerating this transition. But successfully building these new industries will in part require a private financial system that allocates increasing amounts of capital and expertise to the companies and people building this new clean energy economy. The Principles that Treasury is unveiling are intended to support this growth.  

Key announcements alongside the release of the Principles include:  

• Philanthropic organizations including Bezos Earth Fund, Bloomberg Philanthropies, Climate Arc, ClimateWorks Foundation, Hewlett Foundation, and Sequoia Climate Foundation, announced a $340 million commitment over the next three years to support the continued development of research, data availability, and technical resources intended to help financial institutions develop and execute robust, voluntary net-zero commitments. This funding will also support work to facilitate the transition planning efforts of non-financial sectors of the economy.
• The Glasgow Financial Alliance for Net Zero (GFANZ) announced that more than 50 U.S. financial institutions – and more globally – will independently publish net-zero transition plans over the next year using the voluntary common frameworks developed by GFANZ and financial sector alliances. In addition, the GFANZ Secretariat launched a 45-day consultation on its work to further refine the definitions of its transition finance strategies and support financial institutions in forecasting the impact of these strategies on reducing emissions, with a final report to be released at COP28.
• 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 their lending-related portfolio emissions for these sectors, which each account for 2 percent of global emissions per year. The frameworks will launch in December 2023 for aluminum and January 2024 for aviation. In addition, RMI will launch a new Transition Finance Resource Hub in 2024 which will include a series of how-to guides to help banks overcome barriers to mobilizing transition capital.
• The Partnership for Carbon Accounting Financials (PCAF) will train and support up to 2,500 financial industry professionals on greenhouse gas accounting methodologies and reporting through its new PCAF Academy. PCAF also plans to publish the first-ever standard for facilitated emissions later this year. The standard will cover capital markets transactions and provide the finance sector with a harmonized method to measure the climate impact of those transactions and a metric that enables them to set science-based targets and inform strategies for transition finance.
• The Center for Climate and Energy Solutions (C2ES) announced it will work with over a dozen large, publicly traded companies across sectors to develop insights on how they are developing and communicating their net-zero transition plans to their investors, policymakers, and the public. Over the next three years, this effort will support the development of businesses’ net zero transition plans, identify interdependencies between industry sectors’ decarbonization efforts, and will inform the efforts of financial institutions as they engage with clients and portfolio companies.
• Ceres has committed to working with over 250 investors and companies on their net-zero transition plans over the next year, including by helping firms develop specific milestones for progress and providing resources, one-on-one advice, and workshops to support plan development.

Over the past year, Treasury engaged with financial market participants, research organizations, civil society organizations, and Tribes, to understand how financial institutions are setting and meeting their net-zero commitments. These stakeholders noted varied research, guidelines, and voluntary standards about net-zero financing, investment, and advisory services. They also expressed the need for further clarity on where emerging consensus exists and where gaps in best practices remain. Treasury is proud to launch the Principles to address this need.

The Principles 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. They affirm that financial institutions that have made these commitments should develop transition plans with clear practices, targets, and metrics. And that they should support their clients and portfolio companies in adopting their own transition plans.

A link to the full Principles can be found here.