Principles announced by Treasury Secretary Janet Yellen put emphasis on Scope 3 reporting from financial institutions and measurable targets.
New Principles from the US Department of the Treasury will make net zero investment the “expectation for all financial sector actors”, US-based investor network Ceres has told ESG Investor.
As part of New York Climate Week in September, US Treasury Secretary Janet Yellen launched the ‘Principles for Net-Zero Financing & Investment’. The nine principles include net zero commitments being aligned with 1.5°C, financial institutions considering transition finance, managed fossil fuel phaseout, and accounting for environmental justice and impacts as part of commitments, where applicable.
Rev. Kirsten Snow Spalding, VP at Investor Network Ceres, said the Treasury’s Principles were a sound approach to climate risks and opportunities and an acknowledgement that financial market actors must work together with companies and policy makers to align with science-based targets for global warming or face a “tumultuous market response” to crises such as sea level rise or biodiversity loss.
She added that the Principles supported similar frameworks such as the Glasgow Financial Alliance for Net Zero (GFANZ).
All [frameworks such as GFANZ] have developed “robust commitment language,” she said. “But the Treasury’s Principles emphasise the need to move from commitments to targets, to measurable, implementable plans.”
Spalding also noted that the Treasury’s Principles made net zero commitments, target, and plans “the norm” and an expectation for all financial sector actors.
“Net zero is no longer a club for leaders,” she said. “It is the mainstream expectations for how investors, banks, and insurance companies will manage climate risks and look for investment opportunities in climate solutions.”
The Treasury Principles are voluntary, and it is not clear if there will be a published list of organisations following them at this stage. The Treasury did not respond to enquiries on whether it would track who was following the Principles, and whether any organisation had signed up so far.
Scope 3 focus
John Cochrane, Senior Manager, Policy & Programmes at the US Impact Investing Alliance, said the Treasury’s Principles showed that Secretary Yellen and the entire department were continuing to play a leading role on the global stage in terms of leveraging financial policy “to ensure that we’re really addressing the risks of climate change”.
He added that it was good that it aligned with the GFANZ framework as it helped create a global standard.
“This is the kind of action that we need to really get clarity on things like Scope 3 emissions so that investors can get the kind of information they need from corporations to invest with impact or to address ESG risk and opportunity”.
In the Principles official document, the Treasury highlights its focus on financial institutions’ Scope 3 financed and facilitated greenhouse gas emissions, which are typically the largest type for financial institutions.
Expectation of reporting, from all companies, on Scope 3 is growing with the new passage of California’s climate disclosure law, alongside the US Securities and Exchange Commission’s (SEC) anticipated climate disclosure rule . The EU’s Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board’s (ISSB) inaugural sustainability standards also require Scope 3 reporting.
On whether, the Treasury ‘s Principles were anticipating regulation in the area of net zero, Cochrane said: “The [US] banking regulators have been looking hard to include things like audit risks assessment and stress testing. It is always careful to measure the appropriateness given the importance of getting it right. But I think we have seen the sort of steady cadence actions from across the US government under this Administration, and expect that to continue from regulators, as well as the Treasury, SEC and Federal Reserve as well.”
Spalding said: “We anticipate robust climate disclosure with the SEC’s final rule coming in the next few months. The Treasury’s Principles support these disclosures, but also put emphasis on the need for forward-looking disclosures of plans and metrics in addition to the backward-looking disclosures of emissions and the risks associated with climate change.”