GFANZ issues draft framework for net zero portfolios

The Glasgow Financial Alliance for Net Zero (GFANZ) has opened for consultation a draft framework for financial institutions to use to measure the extent to which their investment, lending and underwriting activities are aligned with a net zero emissions goal.

GFANZ aims to drive uptake of a common standard of metrics for financial institutions, to help them allocate capital to support decarbonisation. It is seeking views on the draft, which provides guidance on portfolio alignment methods — including how to assess companies which are in line with a 1.5°C pathway and those which must transition. It also requests feedback on assessing forward-looking emissions and the credibility of emissions reduction targets.

GFANZ has used several case studies to illustrate real-economy use of metrics and climate disclosures.

Some barriers remain, including the difficulty of incorporating scope 3 emissions, due to a lack of high-quality disclosures, GFANZ said. It recommends any company using its guidelines should include this emissions category in its portfolio analysis.

GFANZ developed the framework with its portfolio alignment measurement team, financial institutions, metrics providers and non-governmental organisations. The consultation closes on 12 September and GFANZ will release a final report ahead of the UN Cop 27 meeting, which is scheduled for November in Sharm el-Sheikh, Egypt.

GFANZ is made up of seven sector-specific alliances — including the Net Zero Banking Alliance and Net Zero Asset Managers (NZAM) initiative — organised under the UN's Race to Zero campaign. It has more than 500 members, representing more than $130 trillion in assets under management or advice. Members must commit to a net zero by 2050 goal, provide interim targets for 2030 and deliver transparent reporting in line with UN criteria.

In line with updated UN Race to Zero criteria, members of the net zero financial alliances "must identify and end any financing and investing in support of new coal activities," GFANZ said. Compliance with this will be assessed by June 2023, it said.

Several asset managers under the NZAM initiative still invest in coal, a report from the initiative in May showed. NZAM members must commit to work with asset owner clients to reach net zero by 2050 across their portfolios within a year of signing up.

The alliance called for public feedback on a separate draft framework in June-July. The voluntary guidelines, which it hopes to finalise before Cop 27, were designed for financial institutions to use to gauge the credibility of their net zero plans.

By Georgia Gratton