New pan-sector framework for financial institution transition planning supports actionable strategies and unprecedented accountability on net-zero commitments.

GFANZ urges G20 policymakers to close the policy gap through economy-wide transition planning, given finance can amplify government action but not substitute for it.

GFANZ identifies where the international financial architecture must be reformed fundamentally to support a just global transition.

November 1, 2022 – Today, for delivery to the Egyptian COP27 Summit, the Glasgow Financial Alliance for Net Zero (GFANZ), the world’s largest coalition of financial institutions working to support the transition to net-zero greenhouse gas (GHG) emissions by 2050, released its recommended pan-sector framework for Financial Institution Net-Zero Transition Planning, and guidance on measuring portfolio alignment. GFANZ updates on work to mobilize capital to emerging markets and developing economies (EMDEs) to support their net-zero transitions, make clear that global efforts must be considerably strengthened including by developing new blended finance instruments and high-integrity carbon markets. Finally, GFANZ issues a Call to Action to G20 governments to close the gap between their climate commitments and policies through their own transition planning and reform of the international financial architecture.

As outlined in our recent Progress Report, since global private finance pledged to advance climate action at COP26, GFANZ members have been individually implementing their commitments by setting strategies and targets, and beginning the difficult technical work to deliver on them. To support these efforts, GFANZ’s net-zero work program provides financial institutions with voluntary guidance and tools, so that each financial institution can drive real-economy emissions reductions. These GFANZ tools are also critical for public accountability by providing a basis for all stakeholders to measure progress against pledges made.

To build a globally consistent pan-sector approach, GFANZ members have developed voluntary guidance to support all financial institutions in their net-zero transition planning. The Financial Institution Net-zero Transition Plan outlines how to develop a transition plan as a set of strategic goals, implementing actions and accountability mechanisms, that turn net-zero commitments into action. The framework was developed with input from a wide range of practitioners, technical experts, and stakeholders, building on emerging best practices and incorporating feedback from a broad public consultation. The framework addresses the investments, financing, insurance, and the related products and services necessary to support real-economy net-zero transition. The framework focuses on enabling four aspects of transition finance namely:

• The climate solutions – i.e., the technologies and products – that will enable the economy to decarbonize;
• Business models already aligned with a science-based pathway to achieve net zero;
• Companies with credible transition plans who are in the process of aligning with a science-based decarbonization pathway; and
• Managed phaseout of high-emitting assets that will be stranded in the transition to net zero.

Measuring and reporting on progress is critical, and portfolio alignment metrics are important tools that financial institutions can use to capture how well-aligned their investment, lending and underwriting activities are with their net-zero goals. To support these efforts, GFANZ is publishing today Measuring Portfolio Alignment: Driving Enhancement, Convergence, and Adoption, which builds on a multi-year work program and recent public consultation.

To promote unprecedented transparency on the net-zero transition, and address data gaps, inconsistencies, and inaccessibility, GFANZ is also supporting the efforts of the Climate Data Steering Committee to make recommendations on the design of an open-data utility, the Net-Zero Data Public Utility (NZDPU), announced earlier this year, a beta pilot of which is anticipated to be up and running in the second half of 2023.

GFANZ recognizes that achieving net zero requires a truly global, whole-economy transition. A sevenfold increase from current financial flows – an additional US $1 trillion per year by 2030 – will be required for clean energy investment in EMDEs alone for the world to be on track to reach net zero by 2050. GFANZ’s holistic work program is designed to help ensure private finance can play its part in rapidly scaling transition finance in EMDEs. Key initiatives include supporting the development of Just Energy Transition Partnerships (JETPs) and Country Platforms and launching Regional Networks for Africa, Asia-Pacific, and, in the new year, Latin America. The report released today, GFANZ Actions to Mobilize Capital to Emerging Markets and Developing Economies, details progress in 2022 as well as the work that public and private stakeholders must continue to create the right conditions to crowd in private finance.

While finance plays an essential role, it cannot substitute for government policy, and certain responsibilities cannot be shifted to the financial sector. GFANZ’s Call to Action – One Year On outlines the policy levers G20 governments need to deliver on their climate commitments, including economy-wide transition plans, underpinned by sectoral pathways and policies. GFANZ also calls on the G20 to upgrade the international financial architecture. G20 standard setters should accelerate work to build frameworks for transition finance, drawing on market-based approaches including GFANZ’s Net-Zero Transition Planning framework, and ensure finance can flow to support real economy transition and thus reduce economic and financial sector risks. The GFANZ Call to Action also stresses the need for reforms to support the managed phaseout of high-emitting assets; to ensure that carbon markets can play a meaningful role this decade under a high-ambition path; and to address longstanding barriers to the flow of climate finance to EMDEs.

The GFANZ recommendations and guidance for financial institutions are voluntary and complementary to related efforts by the seven sector-specific net-zero alliances. By helping to fill the current absence of a holistic policy approach to transition planning, GFANZ hopes that its work will assist policymakers, regulators, and standard-setters as they produce rules and guidance around net-zero transition plans, and align financial architecture to enable delivery of net-zero across the globe.

Michael R. Bloomberg, Co-Chair, GFANZ and UN Special Envoy for Climate Ambition and Solutions, said, “The financial firms that have signed on to this coalition have all committed to achieving a goal that – without a blueprint or roadmap – will be very difficult to reach. These resources will give firms the guidance and direction they need to turn their commitments into action, speed up global progress on climate change, and reach their destination.”

Mark Carney, Co-Chair, GFANZ and UN Special Envoy on Climate Action and Finance, said, “One year after COP26, GFANZ members are following through on their high-ambition net-zero commitments by creating a holistic framework for net zero transition strategies, setting interim targets, taking action to support real world decarbonization, and improving accountability. That accountability extends to governments and international financial institutions who—based on the real-world experience of GFANZ members—must now deepen their efforts to address climate change. The finance is there if the world truly wants to meet its climate goals. With today’s transition planning framework, we can accelerate the speed and scope with which these enormous financial resources are put to work to achieve the world’s goals.”

Mary Schapiro, Vice Chair, GFANZ, said, “To achieve a net-zero global economy, we need the financial sector to honor their net-zero commitments and rapidly scale transition finance. With the GFANZ Net-zero Transition Plan framework and supporting resources, financial institutions now have common tools to operationalize their net-zero commitments and track progress, driving transparency, accountability, and concrete action to support the net-zero transition.”

Nili Gilbert, Chair, GFANZ Advisory Panel, and Vice Chairwoman, Carbon Direct, said, “Since COP26, GFANZ has prioritized equipping financial institutions with the resources to make progress toward their net-zero pledges and turn commitments into action. As part of this, today’s guidance sets a clear path for implementation. Moving forward, if we are to make our net-zero future a reality, the global community must accelerate both its efforts and ambition.”

Amanda Blanc, CEO, Aviva Plc, and Co-Chair, UK Transition Plan Taskforce, said, “Transparent transition plans are the way to translate long-term climate goals into real action. GFANZ’s common global framework for financial institutions’ transition plans will bring credibility to private sector net-zero commitments. But we need governments to act and produce their own transition plans, to provide the clarity necessary to unlock long-term investment in the transition.”

David Blood, Founding Partner and Senior Partner, Generation Investment Management, said, “The Portfolio Alignment Report will equip practitioners with the resources required to align portfolios to net zero. This valuable framework will help financial institutions track net-zero progress of their portfolio companies and inform their own net-zero transition plans.”

Ana Botín, Executive Chair, Banco Santander, said, “Across the world, many nations face the challenge of rising prices and low growth – often fuelled by the energy crisis and food insecurity. Meanwhile, the climate change emergency remains. Against that backdrop, if governments are to accelerate the green transition, they need to set out clear national transition plans and sector pathways to encourage investment, and ensure more energy is renewable, reliable, and affordable.”

Shemara Wikramanayake, CEO, Macquarie Group, said, “We know Emerging Market and Developing Economies face specific transition challenges and that current climate finance flows are insufficient to meet the ambitions of these countries. We are committed to working together as a finance community, and in partnership with governments and policy makers, to create the conditions required to deliver the urgent step change in public and private finance flows that we need to see.”

Bill Winters, Group CEO, Standard Chartered, said, “Many emerging markets have the potential to leapfrog to low carbon technology adoption where legacy infrastructure doesn’t exist, whereas others need to follow a transition path of retiring brown assets in favour of greener alternatives. In both cases, we are pleased to see developing markets showing mobilisation and ambition. This new guidance is designed to drive greater transparency and specificity on the road to net zero, and to help put in place credible decarbonisation plans that can go hand in hand with economic progress.”