Net-zero guidance launched for financial institutions and pension providers

The guidance papers were launched ahead of COP26

The UNEP FI’s Recommendations for credible Net-Zero commitments from financial institutions input paper has been launched prior to the G20 meeting in Rome this weekend. The recommendations set out how financial institutions can set “credible, transparent and comparable” targets and commitments aligned with the 1.5C pathway of the Paris Agreement.

With climate commitments and plans from national governments currently aligned with a 2.7C temperature increase, the new input paper seeks to offer guidance for the finance sector to shift money into low-carbon markets and future proof portfolios against future climate-related risks.

“The purpose of these recommendations is not only to support financial institutions to credibly achieve net-zero, but to catalyse change in the real economy,” UNEP FI’s head Eric Usher said.

“In the absence of a globally agreed framework, the voluntary leaders are making progress. However, we would like to see all banks, insurers and investors adopt the recommendations with support from members of the G20. The guidance, which is underpinned by the best available science, can be applied across all sectors of the global economy.”

The UNEP FI is calling on financial institutions to align with science-based targets and the 1.5C transition pathway while also establishing near-term decarbonisation targets. On the financing front, the paper calls for a cease of new fossil fuel developments and for institutions to transparently report on emissions and their allocation to real economy inventories. The paper also suggests that Scope 3 emissions should be accounted for and that organisations should highlight which emerging technologies can help accelerate the low-carbon transition.

Overall, financial institutions should ensure that that all accumulated emissions over the next 30 years remain within the emissions budget required by 2050 as set out by the Intergovernmental Panel on Climate Change – essentially meaning the sector reaches net-zero in that time period.

Reviewing and contributing to the recommendations were the Science Based Targets initiative (SBTi), the UN Global Compact and the Worldwide Fund for Nature (WWF) among others.

Pension funds

In related news, a new roadmap has been created to help pension providers transition to net-zero.

Launched by the Scotland-based Global Ethical Finance Initiative (GEFI), the transition roadmap outlines steps that pension providers can take to de-risk their offerings.

The roadmap outlines decarbonisation as the primary focus, with a divestment strategy alone not enough to combat the climate crisis. GEFI argues that divestment as a primary strategy merely moves the problem elsewhere. Offsetting should also be used “as a last resort”.

GEFI’s executive manager Natalie Jackson said: “The eyes of the world being on Glasgow at COP26 presents a great opportunity for Scottish pension providers to demonstrate leadership in taking action on climate change to ensure net zero is delivered by 2050.

“Our net-zero pension workstream is a direct call to pension providers to increase emissions transparency and develop a tangible strategy to set and/or deliver on net-zero commitments, and the roadmap provides a credible set of actions to enable them to do this. Pension providers need to start taking action to combat climate change now, before it’s too late.”

Matt Mace