US Treasury releases principles for net-zero financing

The US Treasury has released a set of principles for net-zero financing and investment, which states that financial institutions should have a net-zero transition plan and commitments in line with limiting the global average temperature to no more than an increase of 1.5ºC.

The nine voluntary principles were released on 19 September as world leaders and celebrities converged in New York City to focus on climate change during the UN General Assembly week. While the focus of the assembly this year was the crisis facing the globe, no other major announcements were made. Instead, the event was plagued by tensions among members and beset by numerous climate activist protests, including at the New York Federal Reserve Bank.

“Our goal is to affirm the importance of credible net-zero commitments and to encourage financial institutions that make them to take consistent approaches to implementation,” said US Treasury Secretary  Janet Yellen in a speech about the new principles.

The impact of climate change is “impossible to ignore,” she said. It’s both a threat and an opportunity for growth, she added, citing research that estimates the transition to a net-zero economy will create US$3tn in annual global investment between now and 2050.

The nine principles are meant to promote consistency, credibility and transparency across the finance industry. Some of the principles include considering transition finance, establishing credible metrics and targets, assessing how well client and company portfolios align with financial institution targets, and accounting for environmental justice and impacts where applicable.

In addition, the Treasury announced that several groups had pledged US$340mn to help develop research, data, and tech to help financial institutions develop their net-zero commitments. Some of the groups that have made commitments include Bloomberg Philanthropies, ClimateWorks, Hewlett Foundation, Bezos Earth Fund and others.

‘Cut emissions, don’t buy offsets,’ say critics

While the Treasury’s announcement was overall positively received, some climate advocate groups thought the principles were not detailed enough.

“Though these principles are a key step forward, the Treasury unfortunately has not provided detailed recommendations that will improve the efficacy, comparability, and transparency of financial sector net-zero plans, leaving the sector mostly to its own devices to determine best practices,” said Ben Cushing, campaign director at the Sierra Club.

David Arkush, director of Public Citizen’s climate programme, said the principles leave one major loophole that could allow most carbon pollution to go through by allowing financial institutions to use offsetting.

“Offset markets are riddled with fraud and integrity issues, and there’s no fix in sight. The principles should follow leading authorities and state that firms need to meet their commitments by cutting emissions, not buying offsets,” he said.

Alex Martin, policy director for climate finance at Americans for Financial Reform Education Fund, agreed that the Treasury should address the carbon offsetting gap and that other regulators should take note.

“Other regulators like the Federal Reserve should take note and use this as an initial blueprint to scrutinise the big banks that are using “net zero” commitments as little more than a PR tool,” he said.