By Liam Edwards

The Glasgow Financial Alliance for Net Zero (“GFANZ”) published its final report on recommendations for financial institution net zero transition plans (“NZTPs”) on 1 November 2022. The report is available in full here.

The report sets out GFANZ’s views on transition finance, and outlines financing strategies that it considers central to facilitating the transition to a net zero economy. The report also provides guidance on developing transition plans with reference to strategic goals, accountability mechanisms, and implementation actions. The report makes ten recommendations for developing credible NZTPs, categorised across five themes. These recommendations are summarised below.

Foundations

• Objectives and priorities – define your organisational objectives to reach net zero by 2050 (or earlier), with clearly defined and measurable interim and longer-term targets.

Implementation Strategy

• Products and services – use existing and new products / services to support clients’ and portfolio companies’ efforts to transition in line with your net -zero ambitions.
• Activities and decision-making – embed net zero objectives into your core evaluation and decision-making procedures and tools.
• Policies and conditions – institute policies on priority sectors and activities (e.g. coal, oil and gas, deforestation). Define business boundaries in line with your net zero objectives.

Engagement Strategy

• Engagement with clients and portfolio companies – provide constructive feedback to clients and portfolio companies to encourage net zero strategy alignment.
• Engagement with industry – proactively engage in peer-to-peer discussions to exchange expertise and work collectively on shared challenges.
• Engagement with government and public sector – participate in direct and indirect lobbying in a consistent manner to support an orderly net zero transition. Where appropriate, encourage the same from clients and portfolio companies.

Metrics and Targets

• Metrics and targets – develop a suite of metrics and targets to monitor and deliver execution of the NZTP. Metrics should be created for near-, medium-, and long-term monitoring.

Governance

• Roles, responsibilities, and remuneration – define roles for the Board (or other strategic oversight body / senior management group) to ensure that there is appropriate oversight, ownership, and expertise in relation to net zero targets.
• Skills and culture – facilitate personal development and provide training to support teams and employees who are designing, implementing, and overseeing the NZTP. Foster an environment of open communication and embed the NZTP into your organisation’s culture.

This report forms part of a thematic suite of recent reports from GFANZ, including a report on measuring portfolio alignment against net zero objectives (available here) and a report outlining possible actions to facilitate the movement of capital to developing economies and emerging markets (available here).

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