US Treasury: Financiers' 'net zero' pledges must align with temperature limits

© Reuters. FILE PHOTO: U.S. Treasury Secretary Janet Yellen speaks during an interview in New York City, U.S., September 18, 2023. REUTERS/Shannon Stapleton/File Photo

By David Lawder

NEW YORK (Reuters) - "Net-zero" financing commitments from banks and asset managers should align with goals to limit the global average temperature increase to 1.5 degrees Celsius and be backed by "credible" metrics and targets, the U.S. Treasury said on Tuesday.

The Treasury released the new, voluntary principles as world leaders, celebrities and business moguls, converged on Manhattan to focus attention on the climate crisis during the U.N. General Assembly week.

The nine principles aim to promote consistency, credibility and transparency across net-zero pledges by financial institutions.

Among them, the Treasury prescribed that financial institutions should practice "transition finance" that can support decarbonization in high-emitting sectors that are difficult to abate. This includes providing financing, investment, or advisory services to support "a managed and accelerated transition from high-emitting to zero- or near-zero-emissions assets."

Examples of this would be to phase out coal-fired power plants before the end of their useful lives, to be replaced with wind or solar power, the Treasury said.

Institutions also should bring their clients' and portfolio company investments into line with temperature limits. U.S. Treasury officials told reporters that this goal can fit in with institutions' fiduciary responsibilities to clients.

DATA RESEARCH FUNDING

The Treasury also announced that several philanthropic groups have pledged $340 million to help develop research, data and technical resources intended to help financial institutions develop and execute "robust, voluntary net-zero commitments."

The funding will also support work to facilitate the transition planning efforts of non-financial sectors of the economy, the Treasury said.

Groups included in these commitments include the Bezos Earth Fund, Bloomberg Philanthropies, Climate Arc, ClimateWorks, Hewlett Foundation, and Sequoia Climate Foundation.

U.S. Treasury Secretary Janet Yellen told a group of top finance CEOs, including BlackRock (NYSE:BLK)'s Larry Fink and HSBC's Noel Quinn that They help set "shared expectations for net-zero commitments."

"Following the principles is, of course, voluntary, but many of those in this room are taking or have already taken actions consistent with some of the best practices they

highlight," Yellen said. "And for those that haven’t, we think they can be useful in clarifying what to consider."

She said in excerpts of remarks to be delivered later on Tuesday that there would be $3 trillion in global investment opportunities associated with the transition to net zero each year between now and 2050.

Mark Carney, the U.N.'s Special Envoy for Climate Action, endorsed the principles as aligning with the Glasgow Financial Alliance for Net Zero's own planning framework.

He said in a statement that encouraging financial institutions to consider climate solutions to decarbonize existing businesses, "will help investment flow where it needs to get the entire economy to net zero,"

"This will strengthen growth, create jobs, and reduce energy prices – all while lowering emissions," Carney added.