- The U.S. Treasury Department today released a set of “Principles for Net-Zero Financing and Investment” (the Principles).
- The Principles signal to investors and financial institutions that climate transition plans are becoming a new norm, and offer guidelines to encourage financial sector participants’ use of this critical tool to align forward-looking strategies, investments, and activities with the climate imperative.
- They follow calls made by the G7, G20, United Nations Secretary General, and the IMF for the private sector to develop robust alignment strategies, especially through reliance on transition planning processes and disclosure. Ambitious and credible net-zero transition plans for the private sector will be core to discussions during New York Climate Week.
- The Principles are welcome. Together with the State of California’s recently enacted rigorous climate disclosure regime, they represent positive momentum in U.S. efforts to address climate risk.
- However, the U.S. still has a lot of ground to cover to more closely align with ambition levels showcased by other jurisdictions, such as the UK or the EU, who are headed towards regulating and mandating use of transition plans across the private sector.
Story
In a speech by U.S. Treasury Secretary Janet Yellen on Tuesday, September 19, 2023 during New York Climate Week, the U.S. Treasury Department issued the Principles to support the U.S. financial sector’s ability to better manage the risks and opportunities associated with the net zero transition.
This initiative also reflects the Biden Administration’s desire to have the finance sector and the real economy more closely aligned on the path to limiting global average temperatures to 1.5 degrees. Meanwhile, the financial sector’s reticence to develop and disclose transition plans exposes it to heightened litigation risk and future liabilities.
These steps by the U.S. Treasury should absolutely be taken into context along with developments in California. Governor Newsom, whose state represents the world’s fourth largest economy, announced earlier this week that he intended to sign into law mandates approved by the California Assembly for mandatory Scope 1, 2, and 3 greenhouse gas disclosures, without requiring a materiality assessment. This will sit alongside another new law mandating financial climate risk disclosures consistent with international norms. Going forward, entities doing business in California will be providing enhanced disclosures that even go beyond current European requirements.
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Clarence Edwards, Director, E3G’s Washington, D.C. Office said:
“The Principles’ transition plan focus illustrates the importance of the U.S. Treasury Secretary’s direct support for mobilizing use of transition plans for investors and financial institutions. Providing the world’s largest and deepest capital markets with strong political encouragement aligns with U.S. efforts to see through reforms of the World Bank and International Monetary Fund to more comprehensively address global climate risks.”
Kate Levick, Associate Director, Sustainable Finance, E3G (also Co-Head, Secretariat, UK Transition Plan Taskforce) said:
“The U.S. Treasury Department’s New York Climate Week announcement of the Principles demonstrate the increasing importance internationally of climate transition plans. Adding the voice of the U.S. 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.”
Elizabeth Jacobs, Senior Specialist, Sustainable Finance, E3G’s Washington, D.C. Office said:
“There is a simple message underlying the U.S. Treasury’s new Principles for Net Zero Financing and Investment: we’ll have a better, more resilient, and fairer, U.S. economy over time if the financial sector effectively uses transition plans now. This message should travel well, and further, given California’s tail winds. U.S. investors and financial institutions’ internalization of Treasury’s guidance will shape the foreign markets they operate in, and California’s climate disclosure requirements will undoubtedly impact foreign subsidiaries and affiliates doing business there.”
Available for comment
Kate Levick, (EN) Associate Director, Sustainable Finance
m:+44 (0) 7860 861225 | kate.levick@e3g.org
Elizabeth Jacobs, (EN), Senior Specialist, Sustainable Finance
m: 202-921-8187 | elizabeth.jacobs@e3g.org
Notes to Editors
- E3G is an independent climate change think tank with a global outlook. We work on the frontier of the climate landscape, tackling the barriers and advancing the solutions to a safe climate. Our goal is to translate climate politics, economics and policies into action. About – E3G
- For further enquiries email press@e3g.org or phone +44 (0)7783 787 863
