The US Department of the Treasury has today published a set of principles for net zero financing and investment, a major move promptly welcomed by the Glasgow Financial Alliance for Net Zero (GFANZ).

Speaking at the Bloomberg Transition Finance Action Forum as part of Climate Week NYC, secretary of the Treasury Janet Yellen said the department’s goal was “to affirm the importance of credible net-zero commitments and to encourage financial institutions that make them to take consistent approaches to implementation”.

“Our work will also help institutions that have not yet made commitments see what doing so might entail,” she added.

The co-chairs and vice chair of GFANZ today welcomed the release of the Treasury’s principles, adding that they “salute secretary Yellen’s outstanding leadership on climate”.

“These Principles reinforce both the strategic imperative for financial institutions to independently align their financing with transition to net zero and the importance of credible, comprehensive, and comparable transition plans, in line with the best practice framework developed by GFANZ in 2022,” they added.

More than 650 financial institutions – including more than 100 US firms – have already made voluntary net zero commitments through the alliances supported by GFANZ. The Treasury’s principles come after a difficult spell for GFANZ and some of its subgroups amid challenges to ESG investing and net-zero commitments from some political corners in the US.

Transition plans go

According to climate think tank E3G, the principles signal to investors and financial institutions that climate transition plans are becoming a new norm.

“Adding the voice of the US Treasury Secretary to calls already made by the G7, G20, the UN Secretary General and IMF for such plans demonstrates that this is not a mere aspiration, but the new reality for firms,” said Kate Levick, associate director, sustainable finance at the think tank. 

The US Treasury’s principles are based in large part on the existing body of work developed by private sector and non-governmental organisations and initiatives, with the department also noting that they reflect an in-depth review of existing literature and research as well as input from over a year of stakeholder engagement.

According to the GFANZ officials, US financial institutions are encouraged to make use of leading common frameworks when developing their transition plans, with the principles aligning with and building upon the GFANZ transition plan framework.

In addition to identifying the same overarching components of a credible net-zero transition plan, the principles recognise the same four key financing strategies for supporting global decarbonisation that GFANZ has previously outlined.

GFANZ consultation on transition finance strategies, emissions impact

These four strategies are the subject of a consultation launched by GFANZ today, which is seeking feedback on an approach to segmenting portfolios by the four key strategies.

The consultation paper also highlights potential approaches to estimate associated decarbonisation contribution impact, drawing on existing methodologies and concepts and introducing the concept of Expected Emissions Reductions (EER).

Initially identified in 2022, the four key transition financing strategies are defined as financing or enabling:

  • the development and scaling of climate solutions; 
  • assets or companies already aligned to a 1.5°C pathway; 
  • assets or companies committed to transitioning in line with 1.5°C-aligned pathways; and
  • the accelerated managed phaseout of high-emitting physical assets.

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