U.S. Treasury Unveils Guidelines for Net-Zero Funding & Investment, Commends $340 Million Philanthropic Pledge and Additional Commitments

22 Sep, 2023

U.S. Treasury Unveils Guidelines for Net-Zero Funding & Investment, Commends $340 Million Philanthropic Pledge and Additional Commitments

Today, the U.S. Department of the Treasury has introduced the "Principles for Net-Zero Financing & Investment." These voluntary guidelines are aimed at highlighting emerging best practices for private-sector financial institutions that have committed to achieving net-zero emissions. They are intended to promote consistency and credibility in the approaches taken to implement these commitments. The Treasury Department's objective with these Principles is to encourage greater mobilization of private sector capital to address the physical and economic impacts of climate change while seizing the economic opportunities presented by transitioning to a green economy.

Secretary Yellen is scheduled to speak at the Bloomberg Transition Finance Action Forum in New York City today to discuss these Principles. She will also hold meetings with financial institutions, civil society organizations, and philanthropic leaders to emphasize the importance of climate-related action within the private financial sector and explore ways to accelerate and support such efforts.

In conjunction with the release of these Principles, various civil society organizations have made significant announcements. Leading philanthropic organizations, including the Bezos Earth Fund, Bloomberg Philanthropies, Climate Arc, ClimateWorks Foundation, Hewlett Foundation, and Sequoia Climate Foundation, have collectively committed $340 million over the next three years. This funding is earmarked to support ongoing research, enhance data availability, and provide technical resources to assist financial institutions in developing and executing robust, voluntary net-zero commitments. Additionally, it will support efforts to facilitate transition planning in non-financial sectors of the economy.

The urgency of the climate crisis is driving a significant economic transformation, with the most vulnerable countries and communities being impacted most severely. There is a growing demand for technologies, products, and services that reduce greenhouse gas emissions, promote a clean energy future, and help communities adapt to a changing climate across all sectors. This demand is fostering the growth of new industries and business models. Government support in the United States is contributing to the acceleration of this transition. However, successfully establishing these new industries will also rely on a private financial system that allocates increasing capital and expertise to those building the clean energy economy. The Principles unveiled by the Treasury are designed to support this growth.

Key announcements alongside the release of these Principles include

GFANZ, the Glasgow Financial Alliance for Net Zero, has revealed that over 50 financial institutions in the United States, along with numerous others worldwide, are set to release their individual net-zero transition plans over the next year. These plans will be formulated using the voluntary common frameworks established by GFANZ and various financial sector alliances. Furthermore, GFANZ is planning to gather feedback through a 45-day consultation process aimed at fine-tuning the definitions of its transition finance strategies. This initiative will also assist financial institutions in projecting the potential impact of these strategies on reducing emissions. A final report on these efforts is slated for release during COP28.
The Rocky Mountain Institute (RMI) Center for Climate-Aligned Finance (CCAF) will introduce frameworks for the aluminum and aviation sectors in December 2023 and January 2024, respectively. These frameworks will help lenders measure and disclose their lending-related portfolio emissions for these sectors, which together account for 2 percent of global emissions annually. RMI also plans to launch a Transition Finance Resource Hub in 2024, including how-to guides to assist banks in overcoming obstacles to mobilizing transition capital.
The Partnership for Carbon Accounting Financials (PCAF) will provide training and support to up to 2,500 financial industry professionals through its new PCAF Academy. PCAF intends to publish the first-ever standard for facilitated emissions, covering capital markets transactions. This standard will offer the finance sector a uniform method for measuring the climate impact of transactions, enabling science-based targets and informing strategies for transition finance.
The Center for Climate and Energy Solutions (C2ES) will collaborate with over a dozen large, publicly traded companies across sectors to develop insights into how they are creating and communicating their net-zero transition plans to investors, policymakers, and the public. This multi-year effort will support the development of businesses' net-zero transition plans, identify interdependencies between industry sectors' decarbonization efforts, and inform the actions 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 in the next year. This includes helping firms establish specific progress milestones and providing resources, personalized advice, and workshops to support plan development.

Over the past year, the Treasury engaged with various stakeholders, including financial market participants, research organizations, civil society organizations, and Tribes, to gain insights into how financial institutions are setting and meeting their net-zero commitments. These stakeholders highlighted the existence of diverse research, guidelines, and voluntary standards related to net-zero financing, investment, and advisory services. They also expressed the need for greater clarity on areas of emerging consensus and gaps in best practices. The Principles released today address this need.

These Principles establish that financial institutions' net-zero commitments should align with limiting the global average temperature increase to 1.5 degrees Celsius. They affirm that institutions making these commitments should develop clear transition plans with defined practices, targets, and metrics, and should support their clients and portfolio companies in adopting their own transition plans.