GFANZ members given a year to develop fossil fuel phase out strategies

Climate finance initiative seeks feedback on guidance for transition plans that it hopes will form the basis of regulation.

Investors have been told they must phase out unabated fossil fuel assets if they are to remain members of UN-backed net-zero initiatives.

Race to Zero, the umbrella organisation for climate initiatives including the Glasgow Financial Alliance for Net Zero (GFANZ), updated its criteria for members Wednesday. As a baseline, GFANZ’s 500 signatories must now set Scope 3 emissions targets, publish a transition plan and align their lobbying activities with their climate ambitions.

In addition, Race to Zero said it was “naming the implicit requirement to phase down and out unabated fossil fuels as part of a global just transition”.

“In practice, this means corporations and investors must restrict the development, financing and facilitation of new fossil fuel assets, which includes no new coal projects,” it explained in a statement. “The exact pathways and timelines naturally differ across regions and sectors.”

The announcement comes as GFANZ, which was launched last year to coordinate net-zero pledges in the financial sector, published a slew of guidance for members Wednesday. The new reports include recommendations on how financial institutions can develop “credible” asset-level phase out plans and “a preliminary and high-level approach to support the identification of assets where Managed Phaseout could be appropriate”.

GFANZ vice-chair Mary Schapiro told RI that this work “brings into sharper focus that high-emitting assets unable to align to net zero should be retired early”.

The latest guidelines focus on how GFANZ members, who between them are responsible for managing more than $130 trillion of assets, can develop net-zero transition plans. They identify 10 components required for credible transition plans and provide recommendations on each.

Speaking at a briefing on Monday, Schapiro said: “The components represent a common framework for financial institutions to detail the real actions they will take and the metrics and accountability mechanisms they will establish to turn their commitments into action.”

The recommendations for transition plans are out for consultation until 27 July 2022.

Schapiro, who previously chaired the US Securities and Exchange Commission, said “it is critical that regulators around the world mandate the development and disclosure of transition plans”.

She added that her experience as head of the secretariat for the Task Force on Climate-related Financial Disclosures – whose recommendations have been integrated into regulation around the world – had taught her “that a voluntary framework that has been globally accepted has the best chance of becoming the basis for mandatory requirements”.

GFANZ last week launched an Asian network. Schapiro said similar regional hubs would be unveiled later this year in Africa and Latin America.

Earlier this month, the initiative partnered with French president Emmanuel Macron to launch a Climate Data Steering Committee comprising data and service providers, UN bodies, the Financial Stability Board and other stakeholders. As part of its mission to build an open-source platform for climate transition data, the group will in September deliver recommendations on what data should be covered by the platform. Speaking on Monday, Schapiro said that data could include entity-level emissions data, emissions reductions targets, progress against those targets and capital allocation data.