GFANZ consults industry on net-zero alignment gaps
Global coalition highlights the importance of credible, forward-looking metrics for measuring impact.
The Glasgow Financial Alliance for Net Zero (GFANZ) is consulting the financial industry on the portfolio alignment metrics used to evaluate whether companies are on target to achieve their net-zero transition.
The consultation from GFANZ – a global coalition of financial institutions promoting decarbonisation – aims to address existing gaps in portfolio alignment metrics.
The coalition said the finance industry will need credible, forward-looking metrics to help it measure their progress on net-zero commitments and to reallocate capital to support the transition.
As such, it has proposed new guidance on measuring the alignment of financial institutions’ investment, lending, and underwriting activities with net-zero commitments.
According to GFANZ, financial practitioners should consider ranking the quality of their emissions data sources to incentivise company disclosures while ensuring data gaps do not block the development of portfolio alignment methodologies.
The new guidance states that determining which method of estimating is most appropriate will depend on the sector and activities.
If financial institutions are to deploy the capital required to usher in the net-zero transition, they need a way to measure whether their financing activities align to their ambition.
Urgent need for business action on climate
The new guidance sets out a credibility framework to assess emissions-reduction targets and corporate net zero-aligned transition plans to project future greenhouse gas emissions of portfolio companies.
GFANZ also aims to drive greater levels of convergence on methodological best practice approaches and increase transparency on the underlying assumptions utilised in those evaluations.
Mary Schapiro, vice chair of GFANZ, said: “Growing global scrutiny of transition plans makes the need for business action on climate ever more urgent.
“If financial institutions are to deploy the capital required to usher in the net-zero transition, they need a way to measure whether their financing activities align to their ambition.”
She added: “Building upon the implementation of sound financial sector and real-economy transition plans as well as science-based net-zero pathways, GFANZ’s Portfolio Alignment Measurement Report will help financial institutions use metrics to assess whether their portfolio companies are 1.5°C-aligned or need resources to transition.”
David Blood, senior partner of GFANZ-member Generation Investment Management, added: “Measuring portfolio alignment is essential for financial institutions to understand their progress in reaching net-zero and allocating capital to transition finance opportunities for the real-economy.”
GFANZ is seeking feedback on the guidance and enhancements to critical inputs for measuring portfolio alignment by 12 September. Following the public comment period, GFANZ will release a final report prior to COP27 in Egypt’s Sharm el-Sheikh this autumn.
