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US Treasury secretary Janet Yellen will announce a series of new financing “principles” on Tuesday aimed at spurring more private sector cash into climate and clean energy projects and combat greenwashing, in response to what she describes as the “significant economic costs” from global warming.
In a speech to be delivered in New York during climate week, taking place alongside the UN general assembly, Yellen will warn that record heatwaves and unprecedented wildfires threaten to impose a major drag on its economy.
The principles are voluntary, however, and only set out best practices for financial institutions with net zero emission commitments, and promote “consistency and credibility”.
Yellen will say that climate change presents an investment opportunity for US companies, citing research estimating more than $3tn in global investment opportunities associated with the transition to net zero each year between now and 2050, including in the US.
That is the bare minimum amount estimated to be needed to shift the global energy system from its reliance on fossil fuels to green energy to curb the rise in temperatures.
“Without considering these factors, financial institutions risk being left behind with stranded assets, outdated business models and missed opportunities to invest in the growing clean energy economy,” Yellen will say.
The principles include recommendations that financial institutions use credible metrics, develop an implementation strategy, be transparent about their commitments and progress and account for environmental justice and progress.
The Treasury also recommends that any financial institutions’ net zero emissions commitments should be in line with limiting the increase in the global average temperature to 1.5C since pre-industrial times. The world has already warmed by at least 1.1C and endured its hottest season on record.
Alongside the US Treasury announcement, the coalition of financial institutions aimed at reducing emissions, known as Glasgow Financial Alliance for Net Zero, will launch a consultation on finance strategies for financial institutions.
The paper by Gfanz, which is co-chaired by former Bank of England governor Mark Carney, seeks to develop ways to measure reductions of emissions achieved through technologies, speeding up the phaseout of major polluting assets such as coal plants, or funding companies that have plans to shift their business in line with a goal to limit global warming to 1.5C. However, the plan allows for absolute emissions to continue to rise temporarily.
“These frameworks support financing companies with high emissions that have credible plans to get them down,” said Carney. “It is a viable strategy to see your portfolio emissions go up while you are financing to get emissions in the businesses you’re investing in down.”
The world’s 60 largest banks by asset size have invested $5.5tn in the fossil fuel industry since the Paris accord in 2015 to limit global warming was signed by almost 200 countries, data from the RAN campaign group has shown.