During New York City Climate Week, Secretary of the Treasury Janet Yellen announced the US Treasury’s Principles for Net Zero Financing and Investment. Designed to underscore the value of Net Zero commitments, promote consistency, and encourage greater adoption of best practices, the nine Principles provide a roadmap for financial services firms to produce credible net zero commitments and ensure alignment across their clients and the firms’ overall commitment. The principles can be summarized as follows:
Net Zero Commitments should be credible & 1.5°C-aligned
Consider transition finance, managed phaseout, and climate solutions to realize commitments
Metrics & targets should be credible and integrated in business activities
Assess client and portfolio company alignment to Net Zero commitment
Align engagement practices to Net Zero commitments
Integrate Net Zero goals into business and operating procedures
Establish robust governance processes to provide oversight on implementation of commitments
Account for environmental justice and environmental impacts in Net Zero transition plans
Be transparent in commitments and progress towards them
The announcement came as something of a surprise, as the regulatory community is still awaiting the SEC’s final climate disclosure rules, which are expected to introduce significant mandatory reporting requirements for all listed US firms.
The Treasury Principles are more narrowly focused on financial services firms and net zero investing, but they provide a broad overarching framework that aligns and overlaps with existing disclosure and transition plan frameworks, including the UK’s Transition Plan Taskforce (TPT) and the IFRS’ ISSB disclosure standards, making it a valuable reference for firms looking to align their net zero investing strategy with international requirements.
Under Principle 4 of the Treasury’s recommendations, financial institutions should assess client and portfolio company alignment to net zero targets, including forward-looking metrics, Scope 1-3 emissions footprint, and governance mechanisms.
Similarly, TPT requires companies to develop internal policies to support transition plans and build a culture aligned to it. Both frameworks also stress the importance of engagement strategies to build alignment with transition plan across counterparties and customers.
There are also significant overlaps to ISSB disclosure standards, including the establishment of roles and responsibilities for sustainability matters, and consideration of impacts on nature and stakeholders of a company’s commitments. This increasing consolidation across the sustainability landscape means that the opportunity to turn targets into action has never been better.
Across all three frameworks, we see four main actions that financial services firms can take to incorporate into their reporting and planning for net zero investing:
- Produce a credible plan for implementing their climate strategy
- Establish an engagement strategy across counterparties and link this to the transition plan
- Report on the use of carbon credits and offsets
- Identify interdependencies and interactions across counterparties, risks, and opportunities
At Baringa we’ve helped clients across the financial services industry undertake these actions, including credible transition planning, engagement strategies, carbon offset reviews, counterparty assessment, and opportunity identification. We continue to assist our clients in navigating these challenges and help them seize the resulting opportunities as we dive into more sustainable future while meeting ongoing regulatory requirements.
Please contact a member of our team if you'd like to learn more.
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