The Glasgow Financial Alliance for Net Zero (GFANZ), proposed new and enhanced guidance on measuring the alignment of financial institutions’ investment, lending, and underwriting activities with net-zero commitments.
This consultation report outlines how portfolio alignment metrics are used today and seeks feedback on guidance and enhancements to critical inputs for measuring portfolio alignment.
To measure progress against their net-zero commitments and reallocate capital to support the transition to a net-zero economy, financial institutions need credible, forward-looking metrics to help them determine the climate alignment of the companies within their portfolios.
One central enhancement this report provides is an illustrative credibility framework to assess emissions reduction targets and corporate net zero-aligned transition plans in order to project future GHG emissions of portfolio companies.
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The report’s proposed enhancements seek to address current gaps in portfolio alignment metrics and accelerate progress toward the wider adoption of portfolio alignment metrics among financial institutions that are committed to supporting a science-aligned net-zero transition by 2050.
Alongside the development and implementation of their own net-zero transition plans, financial institutions require resources to measure their portfolio companies net-zero progress.
Clear guidance can help to advance best practices on portfolio alignment methods and the range of portfolio alignment metrics used.
As a result, this guidance enables financial institutions to better measure how aligned a portfolio or lending book is with net-zero objectives. The report features seven practitioner use cases and highlights the need for a diverse range of portfolio alignment metrics.
The report acknowledges that the suitability of metrics will depend on the distinct activities of financial institutions.
“Growing global scrutiny of transition plans makes the need for business action on climate ever more urgent,” said Mary Schapiro, Vice Chair of GFANZ.
“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."
"GFANZ’s Portfolio Alignment Measurement Report will help financial institutions use metrics to assess whether their portfolio companies are 1.5 degrees C-aligned or need resources to transition.”
GFANZ’s practitioner-led guidance has been developed based on input from net-zero stakeholders, including financial institutions, financial data providers, and civil society.
It builds on the 2020 and 2021 work of the Portfolio Alignment Team (PAT) and aims to drive greater levels of convergence on methodological best practice approaches, increase transparency on the underlying assumptions utilized in those evaluations, and foster agreement on best practices.
“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,” said David Blood, Senior Partner of Generation Investment Management.
“Our work on portfolio alignment benefits from the previous Portfolio Alignment Team reports and significant input from stakeholders."
"The proposed enhancements in today’s report should help provide financial institutions with the guidance they need to implement credible and easy-to-use tools to navigate the net-zero transition and make more informed business decisions.”
To participate in the consultation, which closes on September 12, please use this link. Following the public comment period, GFANZ will release a final report prior to COP27 in Egypt.
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