Treasury releases principles for net-zero carbon emissions targets for finance firms

The Treasury Department has released a new set of guidelines for financial institutions working to reduce their carbon footprint in the latest climate change push by the Biden administration.

The principles, which are voluntary guidelines for firms with commitments to net-zero carbon emissions, were announced by Treasury Secretary Janet Yellen on Tuesday during a speech in New York at the Bloomberg Transition Finance Action Forum. A net-zero commitment means reducing carbon emissions to zero, or removing as much carbon from the atmosphere as is added.

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The goal is to encourage the mobilization of more private sector capital to mitigate the effects of climate change. Many firms have made individual net-zero commitments, and the principles seek to help provide guidance and best practices.

“There is extensive evidence showing that the changing climate has significant financial impacts,” Yellen said in her remarks. “Without considering these factors, financial institutions risk being left behind with stranded assets, outdated business models, and missed opportunities to invest in the growing clean energy economy.”

“We are proud to launch the Net-Zero Principles in response,” she continued. “Our goal is to affirm the importance of credible net-zero commitments and to encourage financial institutions that make them to take consistent approaches to implementation.”

The treasury secretary said the principles would also help financial institutions that haven’t yet made net-zero commitments to see what doing so might entail.

This latest initiative is another elevation of so-called environmental, social, and governance investment principles by the Biden administration. ESG investing has become increasingly widespread. It is a corporate model that doesn’t solely look at maximizing profit but also incorporates other elements into financial decisions — for instance, how an investment might affect fossil fuel use.

The ESG movement is closely tied to the idea of transitioning away from shareholder capitalism to “stakeholder capitalism,” which bucks the notion that the sole purpose of a corporation is to serve its shareholders and rather focuses on the company’s value for customers, employees, suppliers, and communities.

During a Monday call with reporters, a Treasury Department official stressed that the principles are voluntary and said that they were flexible given that a one-size-fits-all approach doesn’t work because of the differences, for instance, in size, between financial institutions.

The Treasury official acknowledged that while the principles don’t include any resources, materials, or guidance that doesn’t already exist, the department is attempting to make a form of unifying guidance given the proliferation of tools, resources, and approaches to net zero that has been floating around. The official said it is an attempt to distill all of that down into a road map based on existing best practices for firms.

The Treasury Department framework includes nine guiding principles for financial institutions adopting a net-zero commitment, the first one being a push to limit the increase in the global average temperature to 1.5 degrees Celsius.

“To be credible, this declaration should be accompanied or followed by the development and execution of a net-zero transition plan,” the report reads.

Yellen on Tuesday also announced a major $340 million commitment by major philanthropic groups to support research, data availability, and technical resources intended to assist financial institutions with carrying out successful net-zero commitments.

Some of the organizations behind the multimillion-dollar philanthropic commitment include the Bezos Earth Fund, Bloomberg Philanthropies, Climate Arc, ClimateWorks, Hewlett Foundation, and Sequoia Climate Foundation, according to a press release provided to the Washington Examiner ahead of Yellen’s remarks.

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It is key to note that the funds from the philanthropic will not be flowing directly to financial institutions, according to a Treasury official. Rather, the money is going toward a broad ecosystem of technical nongovernmental organizations, modelers, and researchers that create the tools and resources that institutions, individuals, and others use to further net-zero commitments.

“As Treasury Secretary, I and my colleagues at the Treasury Department are charged with the task of identifying risks to our economy and opportunities for building our economic strength,” Yellen said in her speech. “Climate change creates both. And as the impacts on our lives and our economies mount, the risks and opportunities increase.”