U.S. Treasury Releases Principles for “Net-Zero” Financing Commitments

Introduction

The U.S. Treasury has released new voluntary principles for “net-zero” financing commitments from banks and asset managers. These principles aim to align with the goal of limiting the global average temperature increase to 1.5 degrees Celsius and should be supported by credible metrics and targets. The release of these principles coincides with the U.N. General Assembly week, where world leaders, celebrities, and business moguls are focusing attention on the climate crisis.

Promoting Consistency, Credibility, and Transparency

The nine principles released by the Treasury aim to promote consistency, credibility, and transparency across net-zero pledges by financial institutions. Some key points include:

• Financial institutions should practice “transition finance” to support decarbonization in high-emitting sectors.
• Examples of transition finance include phasing out coal-fired power plants and replacing them with wind or solar power.
• Institutions should align their clients’ and portfolio company investments with temperature limits.
• These principles can fit in with institutions’ fiduciary responsibilities to clients.

Funding for Research and Transition Planning

The Treasury also announced that several philanthropic groups have pledged $340 million to develop research, data, and technical resources to help financial institutions develop robust net-zero commitments. The funding will also support the transition planning efforts of non-financial sectors of the economy. Some of the groups involved in these commitments include the Bezos Earth Fund, Bloomberg Philanthropies, Climate Arc, ClimateWorks, Hewlett Foundation, and Sequoia Climate Foundation.

Shared Expectations for Net-Zero Commitments

U.S. Treasury Secretary Janet Yellen addressed a group of top finance CEOs, including BlackRock’s Larry Fink and HSBC’s Noel Quinn, stating that the principles help set shared expectations for net-zero commitments. Yellen emphasized that following these principles is voluntary but can be useful in clarifying what to consider. She also highlighted that there will be $3 trillion in global investment opportunities associated with the transition to net zero each year between now and 2050.

Endorsement from Mark Carney

Mark Carney, the U.N.’s Special Envoy for Climate Action, endorsed the principles, stating that they align with the Glasgow Financial Alliance for Net Zero’s planning framework. He believes that encouraging financial institutions to consider climate solutions will help decarbonize existing businesses and strengthen growth, create jobs, reduce energy prices, and lower emissions.

Reporting by David Lawder; Editing by Chizu Nomiyama, Sharon Singleton, and Nick Zieminski

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