GFANZ unveils new voluntary guidelines on reaching net-zero

The GFANZ was established ahead of COP26 last year in what was regarded as the global financial sector’s biggest collaboration on the net-zero transition. Ever since its foundation, it has faced calls to clarify how it plans to get members to reduce their financed emissions in a science-based manner.

This week, the Alliance has released a “pan-sector framework” for Financial Institution Net-Zero Transition Planning, and guidance on measuring portfolio alignment.

GFANZ members have developed voluntary guidance to support all financial institutions in their net-zero transition planning. The Financial Institution Net-zero Transition Plan focused on four key aspects to drive net-zero actions seven sector-specific alliances including asset managers and owners, bankers, insurers, consultants, financial service providers and consultants.

The framework focuses on enabling four aspects of transition finance, including scaling investment in climate solutions, aligning business models with a science-based pathway to net-zero, supporting companies with “credible” transition plans or “who are in the process” of aligning with a science-based target.

The framework also claims that investors should manage the phase-out of high emitting assets that would likely become stranded under a net-zero transition, but GFANZ stopped short of cancelling support for fossil fuel firms as a whole.

GFANZ co-chair and UN Special Envoy on Climate Action and Finance, Mark Carney, 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.”

While launching the new voluntary framework, GFANZ also called on G20 nations to close a financing gap between current climate pledges and actual recorded levels of decarbonisation, with a focus on raising capital for emerging and developing economies.

GFANZ also noted that it would require a seven-fold increase – totalling an additional $1trn annually by 2030 – in investments into clean tech in emerging markets to reach net-zero by 2050.

Last month it was revealed that GFANZ had cut its ties with the UN-backed Race to Zero campaign and changed its minimum requirements for participation.

GFANZ’s first annual progress report revealed that there are now more than 550 organisations participating in GFANZ, up from 160 when it was first founded. These organisations collectively manage some $153trn of assets.

The report also stipulates that GFANZ has dropped a requirement for its members to sign up to the UN-backed Race to Zero campaign. The campaign announced earlier this year its plans for increasing its minimum participation requirements, raising questions about whether financial sector participants would be able to increase the level of detail and ambition in their climate plans accordingly. Concerns were raised by organisations including ShareAction, Global Witness, Sierra Club and 350.org over the continued support for fossil fuels of many major players in the finance sector, out of alignment with the new Race to Zero requirements.

GFANZ has stated that, going forward, members will be “encouraged, but not required, to partner with the Race to Zero”. Its progress report emphasises that it wishes to continue working closely with the UN. The UN climate body, UNFCCC, has seen its chief Simon Steill added to its ‘Principals Group’. The Group’s purpose is to set and oversee the strategic direction of GFANZ. It also assists with work to push for net-zero-aligned policymaking in the 55 nations and states where the Alliance operates and to facilitate targeted collaboration.

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 pilot of which is expected to be up and running in the second half of 2023.