On September 19, 2023, the United States Department of the Treasury announced the release of new “Net Zero Finance and Investment Principles” aimed at establishing best practices and encouraging consistency and reliability in private sector financial institutions meeting and sustaining their net-zero commitments.

These newly introduced principles, presented as voluntary commitments, primarily focus on Scope 3 greenhouse gas (GHG) emissions, which are typically a significant portion of the carbon footprint of financial firms.

According to the Treasury statement on the Net Zero Finance and Investment Principles, the release of these principles occurred as a “significant economic transformation” driven by the climate crisis unfolds. This transformation is leading to increased demand for technologies, products, and services that reduce greenhouse gas emissions, transition to clean energy, and provide climate adaptation solutions, with this demand growing across various sectors.

The Treasury acknowledges that this shift will require a private financial system that allocates increasing amounts of capital and expertise to build the new clean energy economy.

In summary, the Net Zero Finance and Investment Principles include:

Under Principle 1, a financial institution’s net-zero commitment is an expression of intent to reduce greenhouse gas emissions. The Treasury suggests that these commitments should aim to limit the global average temperature increase to 1.5°C. To make this declaration credible, a net-zero transition plan must be developed and implemented.

Under Principle 2, financial institutions should consider transition finance, controlled phasedown, and implementation of climate solutions when determining how to fulfill their commitments.

Under Principle 3, financial institutions should set credible metrics and targets and aim to align all relevant financing, investments, and advisory services with these metrics and targets over time.

Under Principle 4, financial institutions should assess the alignment of their customers and portfolio companies with their own (the financial institution’s) commitments and the goal of limiting global average temperature increase to 1.5°C.

Under Principle 5, financial institutions should align their relationship practices with their commitments to net zero, including relationships with customers, portfolio companies, and other stakeholders.

Under Principle 6, financial institutions should develop and implement a practice strategy that integrates their commitments and targets into relevant aspects of their operations and business procedures

Under Principle 7, financial institutions should establish a robust governance process for monitoring the implementation of their commitments.

Under Principle 8, financial institutions should consider environmental justice and environmental impacts within the context of activities associated with their net-zero transition plans.

Under Principle 9, financial institutions should maintain transparency about their commitments and progress towards those commitments.

The 9 Principles outlined in the publication emphasize that financial institutions’ net-zero goals should be consistent with the objective of limiting the global average temperature increase to 1.5°C and that these goals should come with a net-zero transition plan. Financial institutions are also guided to set credible metrics and targets for all relevant financing, investments, and advisory services, align their relationship practices with net-zero commitments, and maintain transparency regarding their commitments and progress.