F I N A L

R E P O R T

Financial Institution
Net-zero Transition Plans
Fundamentals, Recommendations, and Guidance
NOVEMBER 2022

FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEThis Fundamentals, Recommendations, and Guidance document presents voluntary, pan-sector, globallyapplicable recommendations of the elements of a net-zero transition plan with accompanying guidance,
examples, and case studies. Also contained herein are details on the core concepts that GFANZ
believes underlie the elements of a net-zero transition plan. It is one of three documents that comprisethe report Financial Institution Net-zero Transition Plans. Readers are referred to the first document,
Executive Summary, for a high-level overview of the key concepts in the report. Readers are further
directed to the third document, Supplemental Information, for additional examples for components
Policies and conditions and Metrics and targets, discussion on closely related topics where further workand refinement would be beneficial, and appendices with reference material.

iFINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Acknowledgments
This report was developed by the GFANZ workstream on Financial Institution Net-zero Transition Plans,and consensus-endorsed by the GFANZ Principals Group and Steering Group, with input from theAdvisory Panel, as outlined in the GFANZ Terms of Reference. This does not imply that every finding
included herein is endorsed by every GFANZ sector-specific alliance member firm, including the firms
represented on the Principals Group. The workstream was supported by the GFANZ Secretariat.
Oliver Wyman provided knowledge and advisory support.
Members of the workstream include representatives from:
Aviva (Workstream co-chair)

Legal & General Investment Management

Bloomberg

Macquarie

Banco Bradesco S.A.

Mitsubishi UFJ Financial Group, Inc.

CDP (Advisor)

Moody's

Ceres (Advisor)

MSCI

Commercial International Bank Egypt

Nationwide Building Society

Dai-ichi Life International Limited

RobecoHSBC (Workstream co-chair)UBS

ICEA Lion

United Nations Environment
Programme Finance Initiative (Advisor)

Institutional Investors Groupon Climate Change (IIGCC) (Advisor)
Impax Asset Management

Wells Fargo
WTW

Intesa Sanpaolo
GFANZ would like to thank all those who have contributed to our work and development of this reportin support of a net-zero climate transition.

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FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Important noticeThis report was produced by a workstream of the Glasgow Financial Alliance for Net Zero (“GFANZ”). This report aims
to provide voluntary guidance regarding the development of net-zero transition plans by financial institutions. For the
avoidance of doubt, nothing expressed or implied in the report is intended to prescribe a specific course of action. This
report does not create legal relations or legally enforceable obligations of any kind. Each GFANZ sector-specific alliancemember unilaterally determines whether, and the extent to which, it will adopt any of the potential courses of action
described in this report.
The information in this report does not purport to be comprehensive and does not render any form of legal, tax,
investment, accounting, financial, or other advice. This report is made available by a workstream of GFANZ and has
not been independently verified by any person. Nothing in this report constitutes an offer or a solicitation of an offer
to buy or sell any securities or financial instruments and does not constitute investment advice or a recommendation
by any person of an investment or divestment strategy or whether or not to “buy,” “sell” or “hold” any security or otherfinancial instrument.
The report is for informational purposes only and the information contained herein was prepared as of the dateof publication.
No representation, warranty, assurance, or undertaking (express or implied) is or will be made, and no responsibility
or liability is or will be accepted by any member of GFANZ, its secretariat or by any of their respective affiliates or anyof their respective officers, employees, agents, or advisors including without limitation in relation to the adequacy,
accuracy, completeness, or reasonableness of this report, or of any other information (whether written or oral), notice,or document supplied or otherwise made available to any interested party or its advisors in connection with this report.
Members of the seven financial sector-specific net-zero alliances comprising GFANZ have signed up to the ambitious
commitments of their respective alliances and are not automatically expected to adopt the principles and frameworks
communicated within this report, although we expect all members to increase their ambition over time, so long as it
is consistent with members’ fiduciary and contractual duties and applicable laws and regulations, including securities,banking and antitrust laws.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

How to Read This Report
This document is a report produced by the

For the purposes of this report, the term “GFANZ”

Glasgow Financial Alliance for Net Zero (“GFANZ”),

refers to the GFANZ Principals Group.

which aims to provide financial institutions withbackground on potential avenues for meeting net-

Voluntary guidance: This report presents a voluntary

zero commitments intended to address the financial

framework for financial institutions to apply whenand economic risks and opportunities posed bydeveloping and implementing net-zero transition

climate change and the transitions that would beplans. Financial institutions are encouraged to use

necessary to mitigate those risks. In particular, thisall five themes in the recommendations, but mayreport sets out a framework for transition finance,choose to focus on a subset of the themes that

identifying four financing strategies that could

they determine appropriate for their organization.

facilitate real-economy transitions. The report

Financial institutions are encouraged to use theseincludes components, arranged under themes, ofrecommendations wherever possible, but notpotential net-zero transition plans. Each component

superseding jurisdictional requirements on transition

includes recommendations, case studies, andplanning or climate-related financial disclosure

examples. The report does not prescribe a specificwhere such requirements exist, or contractual

course of action but offers information and options

requirements, including mandates with clients.

to help those financial institutions preparing net-

Some types of financial institutions may also havezero transition plans.

unique legal or regulatory constraints that may differ
by jurisdiction and that may impact the extent toSector-specific alliance member firms include

which individual elements of this guidance should

many different types of financial institution,

be considered.

including banks, insurers, asset owners, asset
managers, financial service providers, andPan-sector approach: These recommendations

investment consultants. The report recognizes

and guidance present a pan-sector approach tothat financial institutions operate in different

transition planning. The principle behind eachcontractual and regulatory environments thatrecommendation or piece of guidance aims to

may impact their approaches to the net-zero

be applicable to institutions across the financialtransition recommendations and voluntary/

sector and to act as a reference for regulators andnon-binding, guidance outlined in this report.

policymakers. Specific methodological approaches

GFANZ acknowledges that net-zero transition

or considerations for individual components

plans will vary by institution and jurisdiction andmay differ by type of financial institution, andwill depend on the individual characteristics ofthe relevance may vary for different types offinancial institutions, including size, businessinstitutions. The report is principles-based so thatmodel, sector coverage, fiduciary duty toward

it can be interpreted and applied at the discretion

their clients, and other factors. The purpose of thisof individual financial institutions’ own processes

report is to provide information that may informand policies. Financial institutions are encouraged

financial institutions’ independent investment

to use these recommendations and guidance

decision-making process in accordance with theiralongside the guidance produced by sector-specificcontractual duties and the regulatory environment

net-zero alliances and other organizations.

in which they operate.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Unique roles for different financial institutions:transition plan, consistent with the requirements

Because this guidance is pan-sector, it does notof their respective sector-specific alliances,reflect the different roles financial institution

business confidentiality, and jurisdictional

types play within the industry. Thus, as theyrequirements, if any. When preparing disclosures,develop their transition plans, financial institutions

institutions should consider the TCFD’s Principles

are encouraged to consider these types offor Effective Disclosures. 20

relationships, focusing where they can on theareas where they are likely to be able to support

Institution-wide approach to transition planning:client and portfolio company net-zero strategies

This guidance focuses on addressing transition

and manage climate-related financial risk whileplanning from the perspective of the whole ofconsidering all elements in this framework. Eacha financial institution. In other words, the focus

financial institution is encouraged to implement

is on aligning the financial institution’s overall

the guidance based on considerations suchbusiness strategy with the net-zero transition using

as its business model and the contractual andthe ten components. The guidance details how

regulatory environment within which it operates.

this strategy can be implemented throughout an

The recommendations and guidance herein shouldorganization but does not go into significant depth

be considered by financial institutions as resources

for individual business areas, product lines, or asset

and considerations that may be consulted as partclasses. Financial institutions should look to theirof their transition planning efforts, not as a specificnet-zero alliance and other guidance providers forcourse of action.

greater detail on how net-zero strategies can be
developed and implemented at the level of specificFocus on development and implementation:

products, services, and transactions.

This framework aims to provide an approach fordeveloping and implementing transition plans,

Living guidance: GFANZ acknowledges thatrather than specific guidance on disclosing

supporting pathways, tools, and methodologies

transition plans. While GFANZ encourages

may not yet be available for all situations andtransparent disclosure of transition plans, thispolicy, regulation, technology, and science arereport does not intend to provide detailed

evolving, often at a rapid pace. As financial

guidance on disclosure. Each financial institution

institutions develop and execute net-zero transition

should determine specific content, location, andplans more widely, we expect the necessary tools,

frequency for disclosing the components of its

methodologies, and datasets to further develop.

20 TCFD. Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, October 2021.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Foreword from the co-chairs
and vice-chair of GFANZ

Mike Bloomberg

Mark Carney

Mary Schapiro

Co-Chair, GFANZ and UN
Special Envoy on Climate
Ambition and Solutions

Co-Chair, GFANZ and UN
Special Envoy for Climate
Action and Finance

Vice Chair, GFANZ and
Head, GFANZ Secretariat

Since it was launched in April 2021, the Glasgow

challenges in the global energy market, significantly

Financial Alliance for Net Zero (GFANZ) has been

exacerbated by the Russian invasion of Ukraine,developing tools and methodologies to support

have highlighted the complexity and imperative offinancial institutions’ efforts to turn net-zerosecuring an orderly transition, including the need tocommitments into real action. With this report,

rapidly scale climate solutions to provide cleaner,

we are pleased to provide a framework that

more affordable, and more reliable replacements

offers resources and considerations for financial

for unabated fossil fuels.

institution net-zero transition plans, in supportof the financial sector’s efforts turning net-zeroThis transition to net zero requires companies

commitment into financial decision-making

across the whole economy to change behaviors

and support the orderly transition of the global

through application of innovative technologies

economy to net zero.

and new ways of doing business. At the same time,
the transition should be a just one, accounting for

By now, the financial and economic risks posed

impacts on cost of living, communities and workers.

by climate change and the measures necessary

It should also protect nature and biodiversity given

to mitigate it are readily apparent. The science

their close connection to climate. All corners of theis clear: To have a 50% chance of keeping global

financial sector will play a pivotal role in enabling

warming to 1.5 degrees C and avoiding the worst

such a whole-economy transition — from firms that

impacts of climate change, we must achieve about

oversee global capital allocation, financing, anda 50% reduction in emissions by 2030. Current

risk management to those that supply them withservices, advice, and systems.

viCONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEThe 550+ members of the sector-specific alliances

to their commitments. GFANZ believes thisthat comprise GFANZ have all committed to

pan-financial sector framework will provide

addressing the financial and economic risks andpolicymakers and regulators with the necessary

opportunities involved in achieving net zero.

insights to better understand efforts to mitigate

Translating these long-term commitments into

climate-related risk, and to assess progressaction requires clear, detailed plans to help ensure

toward realizing national climate commitments.

the steps taken by the financial sector result in

The framework also provides governments andreal-economy emissions reductions. The voluntarystandard-setters with a common global approach

recommendations, to be implemented by eachto inform disclosure guidance to further improvefinancial institution according to its role andtransparency and accountability.

business model, and guidance in this frameworkprovide a set of resources and considerations

We would like to acknowledge and express ourfor financial institutions for the financing andgratitude to the numerous organizations whichenablement of climate solutions, firms that are

produced the resources highlighted throughout thistransitioning, and the managed phaseout ofreport and especially thank the many individuals

high-emitting physical assets.

and institutions who have volunteered their timein developing this framework. In particular, we

By establishing a pan-financial sector approach toare grateful to Aviva and HSBC, which co-led thetransition planning, to the extent possible, taking

workstream that developed this report.

into consideration each financial institution's
specific function in the financial sector, GFANZ

We trust that financial institutions will find thisaims to help financial institutions tackle joint

report helpful in developing their transition plans,challenges in a consistent way. This also enables

and encourage policymakers and regulators tocomparability across the sector as stakeholders

reference this report as they consider policy

work to hold financial institutions accountable

regarding transition plans for the financial sector.

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FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Contents
PART A: INTRODUCTION

1

Background and rationale

2This report

4PART B: NET-ZERO TRANSITION FOR THE FINANCIAL SECTOR

7

Defining transition finance8

Net-zero transition plans

14

Related topics

16

Working with our partners

21

Summary of recommendations

22

PART C: RECOMMENDATIONS AND GUIDANCE

27

Use of the FI NZTP Framework

28

Theme: Foundations

29– Component: Objectives and priorities

29

Theme: Implementation Strategy

39– Component: Products and services

39– Component: Activities and decision-making46– Component: Policies and conditions

52

Theme: Engagement Strategy

61– Component: Clients and portfolio companies

61– Component: Industry

70– Component: Government and public sector

74

Theme: Metrics and Targets

77– Component: Metrics and targets

77

Theme: Governance87– Component: Roles, responsibilities, and remuneration

87– Component: Skills and culture

93

PART D: LOOK AHEAD

97

The way forward

98
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Introduction

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Background and rationale
Governments and private-sector firms aroundNet zero: This term refers to a state when

the world have committed to achieving net zero

anthropogenic emissions of greenhousewith the goal of limiting global warming togases to the atmosphere are balanced by

1.5 degrees C. Nearly 200 countries signed theanthropogenic removals. Organizations are

Glasgow Climate Pact 2021, through which they

considered to have reached a state of net zero

resolved to “pursue efforts to limit the temperaturewhen they reduce their GHG emissions following

increase to [1.5 degrees C].” At the time of writing,science-based pathways, with any remaining

137 countries, representing 91% of global GDP, have

GHG emissions attributable to that organization

made a net-zero commitment commitment along

being fully neutralized by like-for-like removals

with thousands of companies, cities, regions, andexclusively claimed by that organization, either

other organizations.

within the value chain or through purchase of21

22

valid offset credits. 25
These efforts are driven by the growing
understanding of climate impacts. The latest

1.5 degrees C-aligned pathway: A pathway

assessment report from the IPCC highlights that,of emissions of greenhouse gases and otherto date, climate change “has caused widespreadclimate forcers that provides an approximately

adverse impacts and related losses and damages

one-in-two to two-in-three chance, given current

to nature and people,” and that projected “mid- andknowledge of the climate response, of global

long-term impacts are up to multiple times higher

warming either remaining below 1.5 degrees C

than currently observed.”23 This includes substantial

or returning to 1.5 degrees C by around 2100

risks to human health, cities, infrastructure,

following an overshoot. 26 Pathways giving at least

ecosystems, food production, and water availability,

50% probability based on current knowledge

and is projected to cause significant increases inof limiting global warming to below 1.5 degrees

displacement and premature deaths, in addition

C are classified as “no overshoot,” while thoseto significant economic damages. The IPCC

limiting warming to below 1.6 degrees C andreport states that “near-term actions that limit

returning to 1.5 degrees C by 2100 are classified

global warming to close to 1.5 degrees C would

as 1.5 degrees C “low overshoot.”27

substantially reduce projected losses and damages
related to climate change in human systems andecosystems, compared to higher warming levels.”24

21

UNFCCC. Glasgow Climate Pact 2021, 2021, p. 3.

22 Illustrative, not exhaustive sources include: Net Zero Tracker Beta Also see individual campaigns including: We Mean BusinessCoalition. Net Zero Futures.
23 IPCC. Climate Change 2022: Impacts, Adaptation, and Vulnerability: Summary for Policymakers, March 2022, p. 9 and p. 14.
24 Ibid., p. 13.
25 SBTi. SBTi Corporate Net-Zero Standard, 2022.
26 IPCC. Annex 1: Glossary, 2018.
27 IPCC. Summary for Policymakers, 2018, p. 24.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCETCFD has stated “transitioning to a lower-carbon

this decade to around $4 trillion by 2030 to limit

economy may entail extensive policy, legal,

warming to 1.5 degrees C. 32 In addition, othertechnology, and market changes” and further thatstudies estimate cumulative global investment

the nature and speed of the transition may pose

requirements of US$109–$275 trillion to reachvarying levels of financial risk to organizations”. 28

net-zero emissions by 2050. 33 GFANZ was founded

In its April 2022 report, the IPCC indicated that

because investment of this scale requires thelimiting global warming to around 1.5 degrees C

mobilization of the entire financial system. 34

requires greenhouse gas emissions to peak before
2025 at the latest and be reduced by 43% by 2030,

The private financial sector has the scale toreaching net zero by 2050.

mobilize the necessary capital and financing with29

more than 500 financial institutions, representing
In order to achieve these commitments andaround 40% of global financial assets, committed to

drastically reduce GHG emissions, real-economy

the goal of net zero by 2050 through membershipfirms, supported by clear policy signals fromin one of the financial sector-specific alliances

government and finance, and related services fromcomprising GFANZ. With deliberate and ambitious

the financial sector, would have to decarbonize

action, alongside government and real-economy

their business activities and scale climate solutions

efforts, the financial sector can help enable a global

to replace GHG-emitting assets, products, andtransition to net zero that helps avoid the worst

services. 30 According to a recent analysis by

impacts of climate change, minimizes firm-specificBloombergNEF (BNEF), this will require antransition risks and stranded assets as well as

unprecedented increase in financing, such thatbroader risks to financial stability, and is just andby the end of this decade, we need to scale cleanorderly35 across countries and communities.

energy investment such that for every dollar
maintaining fossil fuel energy capacity, at least

In addition, governments and regulators of some offour are invested in clean energy infrastructure. 31

the world’s largest economies are requiring financial

The IEA also projects that the economy will needinstitutions and real-economy firms to disclose

to more than triple annual clean energy investment

climate-related risks and opportunities, including

28 TCFD. Final report: Recommendations of the Task Force on Climate-related Financial Disclosures, 2017.
29 IPCC. Climate Change 2022: Mitigation of Climate Change: Working Group III Contribution to the IPCC Sixth Assessment Report,
April 4, 2022, p. 21. Note that the report also states that global CO2 emissions would fall to 48% below 2019 levels by 2030 for thesame outcomes.
30 In this report, terms such as “financing,” “capital,” “finance,” “related services,” and variations thereof are meant to encompass thefinancial activities and decision-making of all financial institution types including equity, debt, insurance, and services to secure
the above.
31

BNEF. Investment Requirements of a Low-Carbon World: Energy Supply Investment Ratios, October 2022.

32 IEA. World Energy Outlook, 2021.
33 FTSE Russell. Green equity exposure in a 1.5°C scenario, September 2022. The upper estimate is from McKinsey & Company. The
net zero transition: what it would cost, what it could bring, January 2022 and Network for Greening the Financial System. Climate
Scenarios Database Technical Documentation using the REMIND-MagPIE (Phase 2) model, June 2021.
34 GFANZ. The Glasgow Financial Alliance for Net Zero, November 2021.
35 GFANZ uses the term “orderly transition” to refer to a net-zero transition in which both private-sector action and public-policychanges are early and ambitious, thereby limiting economic disruption related to the transition (e.g., mismatch between renewableenergy supply and energy demand). For reference, the Network for Greening the Financial System (NGFS), which develops
climate scenarios used by regulators and others, defines “orderly scenarios” as those with “early, ambitious action to a net zeroCO2 emissions economy,” as opposed to disorderly scenarios (with “action that is late, disruptive, sudden and/or unanticipated”).
In an orderly transition, both physical climate risks and transition risks are minimized relative to disorderly transitions or scenarios
where planned emissions reductions are not achieved. (NGFS. NGFS Climate Scenarios for Central Banks and Supervisors, 2020.)
The Paris Agreement, Article 4.1, highlighted that achievement should be “on the basis of equity, and in the context of sustainable
development and efforts to eradicate poverty,” and the agreement acknowledged that “human rights, the right to health, the rights
of indigenous peoples, local communities, migrants, children, persons with disabilities and people in vulnerable situations and theright to development, as well as gender equality, empowerment of women and intergenerational equity” are equally important.
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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

forward-looking disclosures on climate strategy. 36transition plans, and to the public sector to inform

This includes specific reference to transition plans

policies on transition planning. We have soughtthat articulate how firms expect to achieve transition

to develop recommendations and guidance with

objectives, whether stemming from national policy

global, cross-sectoral applicability to reduce theor their own commitments. 37 Currently, there isfrictions that could otherwise impede the financial

limited financial sector-wide resources to support

sector from playing its full part in delivering on ourfirms in developing and implementing credible,

collective climate goals.

science-aligned transition plans. This report isdesigned to provide voluntary recommendations

Real economy: This refers to economic activity

and guidance to financial institutions to support

outside of the financial sector.

their efforts to develop and implement net-zeroThis report
Transition plans translate an institution’s net-

GFANZ aims to accelerate adoption of current

zero commitment into specific objectives andbest practices (recognizing that these will

actions that are aimed at reducing real-economy

inevitably change) and promote consistency in the

GHG emissions, and providing credibility anddevelopment and use of transition plans acrossaccountability to net-zero commitments.

the financial sector. We have included illustrative
examples from individual institutions representing

This report sets out GFANZ’s view on transition

efforts to address one or more elements of thefinance, identifying four key financing strategies

guidance for specific components. These are notthat GFANZ believes are essential to driving

intended to represent “best practice” nor represent

the real-economy transition. In order to deliver

the entirety of guidance for a component. 38 Instead,transition finance with rigor and accountability,

the examples are included because they may help

GFANZ introduces ten components, arranged

financial institutions interpret individual elements ofunder five themes, of credible net-zero

the guidance for their own practices.

transition plans. Each component comprises a
recommendation, guidance, case studies, andGFANZ is grateful to our partners, the sector-

examples. The report also identifies possible areas

specific net-zero alliances, and to the wide range

for further work that financial market participantsof organizations that have developed detailed

should consider as the sector advances its

guidance and other resources in the area oftransition planning efforts.

transition planning and on which this report is based.

36 TCFD. 2021 Status Report, October 2021, p. 5–6.
37 For example, the UK government has formed a Transition Planning Taskforce to develop a “gold standard” for disclosure oftransition plans, and the EU’s EFRAG has issued draft European Sustainability Reporting Standards for consultation that include
aspects of transition planning for disclosure.
38 The mention of specific financial institutions or example net-zero transition-related activities does not imply that they are endorsed
by GFANZ or its members in preference to others of similar nature that are not mentioned.
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BOX 1. BACKGROUND ON GFANZ WORK PROGRAMGFANZ is a global coalition of leading financial institutions that is committed to accelerating andmainstreaming the decarbonization of the world economy and reaching net-zero emissions by 2050.
GFANZ brings together seven financial sector-specific net-zero alliances, representing more than 500
members, into a global strategic alliance to address common challenges and elevate best practices
across the sector. GFANZ core areas of work are practitioner-led and advised by leading technical civilsociety organizations. 39
Figure 1. GFANZ 2022 work program
Financial Institution Net-zero Transition Plans
To finance or enable climate solutions, the net-zerotransition of firms, the managed phaseout of high-emitting
assets, and firms already aligned to net zeroManagedPhaseout of
High-emitting
Assets

Real-economy
Transition Plans
Sectoral
Pathways

Mobilizing Capital
Accelerating capital allocation in support of
the net-zero transition in Emerging Markets
and Developing Economies (EM&DEs)• Enhancing data and transparency

Portfolio
Alignment
Measurement• Providing support for EM&DE transition• Mobilizing finance and investment toaccelerate transition

Net-zero Public Policy
Communicating the wider reforms needed to align the financial system to net-zero while ensuring an orderly* andjust transition, and embedding GFANZ and relevant partner deliverables within financial and regulatory systems
Key:

Each box above represents a workstream. The arrow Indicates that one is a reference for or input into the other.

Climate Transition-related Data — Climate Data Steering Commitee
GFANZ is supporting efforts to enhance transparency to monitor climate actions and commitments, andarm financial institutions with the information they need to develop and execute on their transition plans
Energy Transition
The GFANZ Secretariat is working with other organizations to assess challenges andissues particular to the energy sector transition and the role of the financial sector*GFANZ uses the term “energy transition” to refer to a net-zero transition in which both private sector and public policy changes
are early and ambitious, thereby limiting economic disruption related to the transition (e.g. mismatch between renewable energy
supply and energy demand). For reference, the Network for Greening the Financial System (NGFS), which develops climate
scenarios used by regulators and others, defines “orderly scenarios” as those with “early, ambitious action to a net-zero GHG
emissions economy,” as opposed to disorderly scenarios (with “action that is late, disruptive, sudden and/or unanticipated”). In
an orderly transition, both physical climate risks and transition risks are minimized relative to disorderly transitions or scenarios
where planned emissions reductions are not achieved. This explanation applies to all mentions of the term “orderly transition” inthis document.

39 The alliances are the Net Zero Asset Managers initiative (NZAM), the Net-Zero Asset Owner Alliance (NZAOA), the Net-Zero
Banking Alliance (NZBA), the Net Zero Financial Service Providers Alliance (NZFSPA), the Net-Zero Insurance Alliance (NZIA), theNet Zero Investment Consultants Initiative (NZICI), and the Paris Aligned Asset Owners (PAAO).

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

As part of the 2022 work program, GFANZ developed a series of related tools, frameworks, andother resources to support transition planning across the financial sector, with the goal of financing
and enabling the real-economy transition to net zero. Collectively, this work provides a framework
to ensure that financial institutions’ net-zero transition plans are grounded in science and provide
appropriate accountability.
In addition to this report on net-zero transition plans for financial institutions, this work includes:
Guidance on Use of Sectoral Pathways for Financial Institutions, which provides a framework forcomparing and assessing sectoral pathways, to help financial institutions and other pathway users
understand how pathways differ and evaluate their suitability for their transition planning processes.
Expectations for Real-economy Transition Plans, which presents the expectations of net zerocommitted financial institutions for real-economy companies’ transition plans, provides clarity
regarding the landscape of existing guidance and methodologies, and outlines the componentsof real-economy transition plans and progress reporting most useful for financial institutions intheir decision-making.
Also anticipated are Net-zero Pathways Analysis and Expectations for Transition Plans on specificsectors that will supplement the sectoral pathway and real-economy transition plan guidance. Eachreport will take a deeper dive into the scenarios, modeling, assumptions, and decarbonization levers of
pathways for these sectors; key implications for financial institutions; and transition plan components
and guidance specific to these high-emitting sectors.
Managed Phaseout of High-emitting Assets, which sets out managed phaseout as a net zero-aligned
strategy for an asset, or as part of a company’s strategy, in support of an orderly and just transition.
The report provides a high-level approach to support the identification of assets where managed
phaseout could be appropriate, offers an overview of potential financial mechanisms that could
support managed phaseout, and includes initial guidance on the features of a credible asset-level
phaseout plan.
Measuring Portfolio Alignment: Driving Enhancement, Convergence, and Adoption builds on the workof the Portfolio Alignment Team to provide a practitioner perspective for measuring the alignment offinancial institution business activities with the goals of the Paris Agreement and net-zero objectives.
The report outlines enhanced guidance for designing, selecting, and implementing forward-looking
portfolio alignment metrics, in addition to illustrative quantitative and practitioner use cases.

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B

Net-zero transition
for the financial sector

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Defining transition finance
ALIGNING THE FINANCIAL SECTOR WITH
THE NET-ZERO TRANSITION

Actions taken by financial institutions todecarbonize their portfolios and businesses
may not drive real-world decarbonization; forFinancial institutions have a vital role in supporting

example, reducing financed emissions by selling

the real economy by facilitating the allocation of

the high-emitting assets in a portfolio 41 or ending

capital and providing related services. GFANZ isexisting business with high-emitting firms does

providing recommendations and guidance in thisnot necessarily decrease global GHG emissions,framework for financial institutions to assess theiras buyers or new providers of capital may not be

existing business activities with a lens of climate

committed to net-zero goals. 42 Financial institutions

and emissions reduction as a significant driver.

should consider the potential for real-economy

Activities include all aspects of the financial sector,

emissions reduction in their activities, recognizing

including redirecting capital, providing net zero-that the greatest emissions reduction may bealigned financial products and services, working

achieved by directing financing and related services

with real-economy firms as they develop andto — rather than divesting from — firms and assets

implement ambitious and credible strategies andthat need to transition. In other words, financial

activities for the transition, and engaging withinstitutions should focus not only on reducing

policymakers to create an enabling environment for

their financed emissions, but also on financing

these changes.

emissions reduction. GFANZ believes that such an
approach to transition finance is essential to driving

Climate solutions: Technologies, services,

the real-economy transition.

tools, or social and behavioral changes that
directly contribute to the elimination, removal,

GFANZ has identified four key financing strategies

or reduction of real-economy GHG emissions

that define transition finance. These strategies

or that directly support the expansion of these(shown on the next page) are inclusive of financing,solutions. These solutions include scaling up

investment, insurance, and related products andzero-carbon alternatives to high-emitting

services that are critical to delivering real-economy

activities — a prerequisite to phasing out high-emissions reduction in support of an orderly, net-emitting assets — as well as nature-based

zero transition of the global economy:

solutions and carbon removal technologies. 40

40 In this report, “climate solutions” is used to refer to solutions that support mitigation of climate change and emissions reduction.
GFANZ acknowledges that a broader use of the term may include solutions that are aimed at developing adaptation.
41 In this report, unless specified, “assets” can refer to physical or financial assets or both depending on the application to various
financial products, services, and business models. Physical assets are also known as tangible assets. For most businesses, physicalassets usually refer to properties, equipment, and inventory. A financial asset is an asset that derives its value from a contractual
right or ownership claim. Cash, stocks, bonds, mutual funds, and bank deposits are all examples of financial assets.
42 Bank of England Executive Director Sarah Breeden highlighted this risk in a speech.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

1. Climate solutions: Financing or enabling entities

4. Managed phaseout: Financing or enabling theand activities that develop and scale climate

accelerated managed phaseout (e.g., via early

solutions. This strategy encourages the expansion

retirement) of high-emitting physical assets. 46

of low-emitting technologies and services, includingThis strategy facilitates significant emissions

nature-based solutions, to replace high-emitting

reduction by the identification and planned earlytechnologies or services, remove greenhouse gases

retirement of assets while managing critical issues

from the atmosphere, or otherwise accelerate theof service continuity and community interests.

net-zero transition in a just manner. An example may

GFANZ believes this activity is essential to reducing

be a company that produces green hydrogen or a

global emissions and supporting a smooth andproject on regenerative agriculture.

just economic transition. An example may be an
identified fossil fuel power plant with a plan in

2. Aligned: Financing or enabling entities that areplace for early decommissioning on a timeframe

already aligned to a 1.5 degrees C pathway. Thisconsistent with the broader net-zero trajectory.

strategy supports climate leaders and signals thatthe financial sector is seeking transition alignment

Managed phaseout projects: Targeted efforts

behavior from the real-economy companies withto reduce GHG emissions through accelerated

which it does business. 43 An example may be aretirement of high-emitting physical assets

company with an SBTi-validated target and whose(shortening their operating life). Financial

progress reports demonstrate achievement against

institutions can finance or enable strategies

the target or a company whose climate transition

for managed phaseout of these assets within aplan and performance is assessed by the Worlddefined science-aligned time horizon, thereby

Benchmarking Alliance.

limiting the likelihood that these assets will
be stranded in a low-carbon future. 47 These

3. Aligning: Financing or enabling entities

projects require appropriate scrutiny andcommitted to transitioning in line with 1.5 degrees

governance to ensure that emissions reduction

C-aligned pathways. This strategy supports both

occurs as planned. Further information canhigh-emitting and low-emitting firms that havebe found in the Managed Phaseout of High-robust net-zero transition plans,

44

set targets

emitting Assets report, which outlines thealigned to sectoral pathways, 45 and implement

challenges and opportunities for financial

changes in their business to deliver on their net-

institutions in these transactions, as well aszero targets. An example may be a manufacturer

details on how financial institutions can develop

who is implementing energy efficiency andstrategies for managed phaseout projects.

clean energy projects to reduce its Scope 1
and 2 emissions or a retailer engaging with its
supply chain to invest in Scope 3 emissions
reduction projects.

43 Financial institutions could use emissions disclosures, portfolio alignment metrics, and transition plans for assessing alignment,
as well as third-party verification programs where available. Financial institutions should be transparent about the methodologies
and data they are using to determine alignment while industry standards are still maturing. Note that while the pool of alreadyaligned companies is currently small, it is expected to grow as the transition progresses.
44 GFANZ. Expectations for Real-economy Transition Plans, 2022.
45 GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, 2022.
46 Please see The Managed Phaseout of High-emitting Assets, 2022, by GFANZ for a discussion on the need for an identification
framework for eligible assets.
47 IPCC’s AR6 cites the “combined global discounted value of the unburned fossil fuels and stranded fossil fuel infrastructure has
been projected to be around 1-4 trillion dollars from 2015 to 2050 to limit global warming to approximately 2 degree C, and it will
be higher if global warming is limited to approximately 1.5 degrees C.” p. 36–37.
9

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCETransition finance: Investment, financing,and noneconomic considerations. They provide aninsurance, and related products and services

approach to net-zero financing that recognizes thatthat are necessary to support an orderly, real-climate-related risks — transition and physical —economy transition to net zero as described byshould be integrated into financial decision-making.

the four key financing strategies that financeor enable 1) entities and activities that develop

The above financing strategies may not be mutuallyand scale climate solutions; 2) entities that are

exclusive, and some transactions or activities

already aligned to a 1.5 degrees C pathway;

might support multiple strategies. For example,3) entities committed to transitioning in line

firms developing climate solutions may be alreadywith 1.5 degrees C-aligned pathways; or 4) thealigned to net zero or in the process of aligning.

accelerated managed phaseout of high-emitting
Financial activity across all four key financing

physical assets.

strategies may also intersect with areas of justScenario: Projections of what can happen

transition and biodiversity and nature. These areby creating plausible, coherent, and internallyareas of active work by various initiatives as laid out

consistent descriptions of possible climate

in the Financial Institution Net-zero Transition Plans

change futures. Scenarios are not predictions— Supplemental Information report. Considerationsof the future.

for financial institutions in these areas could range

48

from avoiding unintended negative effects on social
Pathway: A goal-oriented scenario orgroups or nature to seeking societal and nature co-combination of scenarios answering thebenefits alongside transition activities while pan-question “What needs to happen?” tosector standards are built.

accomplish a specific objective (e.g., what are
the steps needed to reach net zero by 2050,

A high level of rigor and accountability in thelimit global warming to 1.5 degrees C, with low

application of the four key financing strategies

or no overshoot?).

is critical to ensure that financial institutions are49

supporting a whole-economy transition while
While the financing strategies are not intended

achieving emissions reduction in the needed

to serve as a formal taxonomy, they can provide

timeframes. The transition plan framework in thisa lens for understanding whether and howreport — consisting of five themes comprising ten

particular assets, activities, or clients may becomponents, detailed in Part C — provide resourcesaligned to the transition. In the early stages ofand considerations for financial institutions on

the transition, opportunities to finance or enablefinancing, investment, and financial services;companies, projects, real assets, and sovereigns

measuring progress; and structuring governanceunder these financing strategies may be limited.

of ambitious and credible transition plans. The

As the global community progresses toward

framework structure of the five themes supports

net zero, GFANZ expects the availability of suchthe provision of finance and related services toopportunities to increase and the allocation ofreal-economy activities that advance the net-

portfolios to these four key financing strategies

zero transition. These activities may not result into grow correspondingly.

immediate reductions in financed (or equivalent)
GHG emissions for a financial institution but are

These financing strategies should inform businessnecessary actions to support an orderly whole-strategy and support decision-making across the

economy transition to net zero by 2050.

organization, along with other key financial, risk,

48 Definition taken from GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, 2022.
49 Definition taken from GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, 2022.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Figure2. financing
Four key net-zero
Four keystrategiesfinancing
to enablestrategies
the net-zero transition

1

2

3

4

Climatesolutions

AlignedAligning

Managedphaseout

Technologies, services,and tools that mitigate,
eliminate or remove
GHG emissions

Entities that are alreadyaligned to a 1.5 degrees C
pathway

Entities committed toaligning to a 1.5 degrees C
pathway

High-emitting physicalassets that can be phasedout before end-of-life

To expand economywide emissions reductions
through the deploymentof climate solutions

To support climate
leaders and signal thatthe finance sector isseeking transitionalignment behavior

To encourage
and support theimplementationof net-zerotransition plans

To accelerate
emissions reductions in
support of an orderly
and just transition

BOX 2. SECTORAL PATHWAYS FOR FINANCIAL INSTITUTIONS50
An orderly transition to net zero entails the continued availability of essential goods and services
to the global economy while replacing high-emitting technologies with low-emitting or carbon-freealternatives. This requires reimagining the technologies and sometimes business models of certain
sectors such that the carbon intensity and absolute emissions of those sectors decline over time. The
nature of that shift, including its pace and related economic activities, is referred to as a “pathway.”
Sectoral pathways provide the link between the science of the remaining carbon budget and thedetailed steps that a specific sector could take to reduce GHG emissions to a particular level in a
specified timeframe.
GFANZ’s report Guidance on Use of Sectoral Pathways for Financial Institutions is intended as a
guide to support financial institutions’ use of sectoral pathways in creating net-zero transition plans;in aligning of their portfolios; and in engaging with real-economy firms. By providing a framework
for comparing pathways by commonly referenced providers (e.g., IPCC, IEA, OECM, MPP), financial
institutions can understand the assumptions and outputs of the different pathways and choose thepathways most appropriate for their net-zero objectives. The framework ensures they understandthe types, timeframes, and scale of investments they may need to make or discontinue. GFANZ will
supplement this report with sector-specific reports that will include analyses of net-zero, 1.5 degrees
C-aligned pathways.
Pathway developers can also use the insights provided in the report to improve the usability of
their pathways.

50 GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, 2022.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEGFANZ’s program of work will help further

national plans to transition specific sectors

adoption and clarify what financing is in

to net zero (the GFANZ Policy Call to Action

furtherance of the net-zero transition, including

outlines the areas where government action

resources and considerations on transition plans foris needed to accelerate the transition 57);

real-economy firms, 51 sectoral pathways, 52 managed• higher-ambition action by real-economy

phaseout, 53 and portfolio alignment measurement;54
promoting more ambitious climate policy fromgovernments;55 and increasing the accessibility ofclimate transition data, including better information
on transition-related capital allocation, throughsupport of a new open data public utility. 56
GFANZ recognizes that financial institutions

companies (e.g., accelerated uptake of emerging
technologies, adoption of robust transition
plans); and• the development of relevant methodologies
and accounting practices for businesses andasset classes where they do not currently
exist (e.g., methodologies for insured andfacilitated emissions).

implementing the recommendations and guidancecontained in this report will face challenges. The

The current challenges in global energy markets,

private financial sector’s actions will influencesignificantly exacerbated by the Russian invasion

the pace and shape of the transition but will beof Ukraine, have highlighted the complexity andmore effective with ambitious policy action fromthe imperative of securing an orderly transition.

governments in line with the net-zero pledges theyThis requires rapid scaling of climate solutions tohave made. Additional action may be needed from

replace fossil fuels and the accelerated phaseout

government and other actors in the ecosystem,of fossil fuel energy sources in an orderly andparticularly relating to business with or investment

just manner. At the same time, any financing toin high-emitting sectors and emerging markets andfossil fuel companies — to ensure continuity ofdeveloping economies. Progress is needed in theseenergy supply in the interim — should consider theareas, among others:

timelines in a science-based 1.5 degrees C pathway• more granular and fit-for-purpose regionalto ensure the energy sector continues alongand sectoral pathways, to identify priorities for
public policy and investment opportunities inclimate solutions and to better inform net-zeroalignment for specific real-economy companies
and activities;

a net-zero transition and is not supporting thedevelopment of assets that will be stranded.
GFANZ urges financial institutions to be aggressive
when developing their net-zero strategies, as thenext few years are crucial for the state of climate• higher-ambition public policy to accelerate the51change. Without deep emissions reduction by 2030

transition e.g., climate disclosure that includes

across all sectors, the IPCC warns that it will betransition plans, taxonomies, and clarity on

impossible to limit global warming to 1.5 degrees C. 58

GFANZ. Expectations for Real-economy Transition Plans, 2022.

52 GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, 2022.
53 GFANZ. Managed Phaseout of High-emitting Assets, 2022.
54 GFANZ. Measuring Portfolio Alignment: Driving Enhancement, Convergence, and Adoption, 2022.
55 GFANZ. Call to Action: One Year On. 2022.
56 Announcement of the Net Zero Data Public Utility, 2022.
57 Please see Appendix 5 for details in the Financial Institution Net-zero Transition Plans — Supplemental Information report.
58 IPCC. The evidence is clear: the time for action is now. We can halve emissions by 2030, April 4, 2022.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Figure 3. How the financial sector supports the global real economy in reaching net zero
How the financial sector supports the global real economy in reaching net zero
FINANCIAL INSTITUTIONS WITH NET-ZERO COMMITMENTS

BANK

BANKS

ASSET
OWNERSASSETMANAGERS

INSURERSINVESTMENTCONSULTANTS

FINANCIALSERVICEPROVIDERSDESIGN AND IMPLEMENT NET-ZERO TRANSITION PLANS

FOUNDATIONS
An articulation of theorganization's overall
approach to net zero,including specificobjectives andtimelines.

IMPLEMENTATIONSTRATEGYENGAGEMENTSTRATEGYMETRICS
AND TARGETS

A strategy to alignbusiness activities,
products, services,and policies with the
net-zero objectives.

A strategy to engage
with external
stakeholders insupport of the
net-zero objectives.

A suite of metrics andtargets to assess andmonitor progress
towards the net-zero
objectives.

GOVERNANCE
A set of structures
to oversee, incentivize,
and support theimplementation of
the plan.

TO FINANCE AND ENABLE THE TRANSITION IN THE REAL ECONOMY

12

CLIMATE SOLUTIONS

3

ALIGNED

4

ALIGNING

MANAGED PHASEOUT

IN TURN, DELIVERING REDUCTIONS OF GHG EMISSIONS IN THE REAL ECONOMY

Financial institutions

Real economy

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Net-zero transition plans
GFANZ defines a net-zero transition plan as follows:

The breadth of a net-zero transition plan requires
revisiting strategies, governance, incentives, andA net-zero transition plan is a set of goals,

other fundamental business considerations. The

actions, and accountability mechanisms to alignfour key financing strategies provide a lens throughan organization’s business activities with awhich an institution can review its entire business.

pathway to net-zero GHG emissions that delivers

The review should assess how the allocation ofreal­- economy emissions reduction in line withcapital and provision of related services can enableachieving global net zero. For GFANZ members,

real-economy GHG emissions reduction and thus

a transition plan should be consistent withform the basis of a transition strategy that canachieving net zero by 2050, at the latest, in line

be embedded throughout the organization. The

with commitments and global efforts to limit

details of a transition plan should articulate how thewarming to 1.5 degrees C, above pre-industrial

strategy will be executed and how the institution

levels, with low or no overshoot.

will measure and govern its effectiveness. Details

59, 60, 61

differ depending on an institution’s business model,
Net-zero transition plans are foundational tooperating environment (economic and geographic),

operationalizing commitments and demonstrating

sphere of influence, and portfolio composition.

the credibility of a financial institution’s net-zeropledge. A transition plan is both a strategic planning

Executing on a transition plan requires action acrosstool and a practical action plan. It translates anvarious areas within a financial institution, but also

institution’s net-zero commitment into specificfrom a financial institution’s clients or portfolio

objectives and actions that are aimed at reducing

companies. Financial institutions should work withreal-economy GHG emissions. A transition plan

all relevant clients and portfolio companies tosupports accountability and signals to both internal

understand their targets and plans, to supportand external audiences that an institution’s steps

not only expanding climate solutions, but also

toward net zero are deliberate, transparent, anddelivering near-term, real-world GHG emissions

can be monitored. It also illustrates to stakeholders

reduction in line with the need for substantialthat a financial institution is taking the transition

reductions by 2030. This includes identifying

risks it faces seriously, working to mitigate them

their most significant sources of emissions andas the transition to a net-zero economy progresses.

developing strategies to finance their reduction.

59 Pathways giving at least 50% probability based on current knowledge of limiting global warming to below 1.5 degrees C areclassified as “no overshoot,” while those limiting warming to below 1.6 degrees C and returning to 1.5 degrees C by 2100 areclassified as “1.5 degrees C limited overshoot.”
60 These requirements reflect sector-specific alliance member commitments.
61 Through their net-zero alliances, members have all committed to setting an interim target for 2030 or sooner.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIn developing this guidance, we have taken a

This includes:

comprehensive approach to identifying the core

• providing microprudential and macroprudential

common elements that a credible transition planshould contain if it is to be practically useful toa financial institution and enable the financial
institution to fulfill its commitment. While the focus
is on providing guidance for financial institutions’implementation of transition strategies, therecommendations and guidance also highlightthe clear, consistent, and decision-useful types of
information needed by other stakeholders including
regulators and governments. The recommendations
and guidance have global applicability toencourage consistency in financing strategies
across the sector, although implementation will
depend on each institution's specific role andbusiness model.
Transition planning is not a one-time exercise.
As the global net-zero transition progresses andfinancial institutions assess their strategies withimproved and new climate-related scenarios andsectoral pathways, it is important that transition
plans are regularly reviewed and updated,
especially in light of the rapid pace of change.
At the same time, our understanding of what
constitutes best practice will evolve, and we willcontinue efforts to refine the recommendations andguidance in years to come in collaboration with our

supervisors and regulators with insight into howfinancial institutions’ transitions, individuallyand collectively, may impact firm-specific andsector-wide financial stability risks, includingtransparency on the efforts individual firms aretaking to mitigate their transition risks;• providing governments and policymakers
with insight into how the financial system,
through its capital allocation, is able to support
the transition to net zero, and to identify
challenges requiring policy intervention, suchthat governments can deliver on their own
commitments to net zero;• providing securities regulators and otherstakeholders with insight into the actions being
taken by financial institutions and companies todeliver on their stated commitments;• providing real-economy companies with aview to the transition-related information that
financial institutions need for their own net-zerotransition plan and therefore expect from realeconomy companies; and• providing civil society with the consistent
information to form a global, pan-sector viewof net-zero transition planning for financial
institutions that will allow monitoring andmeasurement of progress across the sector.

net-zero partners across the financial sector.
An economy-wide net-zero transition requires
effort from multiple stakeholders. GFANZ iscommitted to engaging with wider stakeholders
including financial regulators, supervisors, industry
initiatives, real-economy representatives, and civilsociety organizations to ensure that application ofthese recommendations and guidance will produce
the information they need to evaluate transition
planning efforts and the associated climate risk
mitigation, and better inform them of progress.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Related topics
The purpose of this report is to set out globallyacting as fiduciaries to their beneficiaries, the scope

applicable, voluntary recommendations andof financing services and products may be reliant

guidance for transition planning by financial

on financial risks associated with transition to net

institutions, GFANZ’s view on the key components

zero. This framework can be helpful to develop

of a credible net-zero transition plan, and to provide

and implement net-zero transition plans in line withcase studies and examples to accelerate adoption.

these timelines and commitments. Other financial

A “credible” plan refers to one that is actionable,

institutions may find this report useful whether

measurable, with long-term targets but focused

they have yet to publicly commit to net zero oron near-term action, based on climate science,

if they have net-zero targets beyond 2050. Theseand against which there is accountability andtransparency on underlying strategy and progress.

institutions are encouraged to prioritize near-term
62

action and ground their transition planning
process in climate science and pathways aligned

Members of the sector-specific alliances comprising

to 1.5 degrees C.

GFANZ have each committed to support the goalof net-zero greenhouse gas emissions by 2050 or

The recommendations in this report build on thesooner, in line with global efforts under the Pariswork of the Task Force on Climate-related Financial

Agreement. Each sector alliance establishes theDisclosures 63 (TCFD); guidance and insights

commitment criteria for membership. Commitments

developed by the sector-specific net-zero alliances;include achieving net zero by 2050 at the latest

research from non-government organizations

and setting interim targets for 2030 reflecting(NGOs), scientists, academics, industry, and othermaximum effort toward a fair share of the 50%

technical experts; and learnings from financial

global reduction in GHG emissions needed by 2030.

institutions that have already developed transition

Commitment criteria are understood differently

plans. 64 GFANZ is grateful to the wide range ofby each sectoral alliance comprising GFANZ, asorganizations referenced in this report that haveeach sector has different functions and roles in thedeveloped guidance and other resources tofinancial system. In particular, for institutions

support the critical work of transition planning.

62 This report focuses on implementation of net-zero transition plans, rather than disclosure. Please see Table 1 for high-levelguidance on suggested disclosure of transition plan components.
63 The TCFD was established by the Financial Stability Board to provide recommendations for more effective disclosure of climaterelated financial information. The TCFD recommendations have seen widespread adoption by private-sector companies, andmore than 4,000 organizations from over 100 jurisdictions publicly support the TCFD. Supporters include over 1,500 financial
institutions responsible for $220 trillion in assets. In addition, several jurisdictions have finalized or proposed climate-related
financial disclosure requirements in line with the TCFD recommendations. TCFD. 2022 TCFD Status Report, 2022.
64 Please see Appendix 3 for a mapping of select industry frameworks to the GFANZ FI NZTP framework in the Financial Institution
Net-zero Transition Plans — Supplemental Information report.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

BOX 3. BUILDING ON TCFD: CLIMATE-RELATED FINANCIAL DISCLOSURE, AND NET-ZERO PLANS
The TCFD provides important, widely-accepted recommendations and implementing guidelines fordisclosing climate-related financial information. The TCFD recommends companies, including financial
institutions, describe how resilient their strategies are to climate-related risks and opportunities —including those related to physical climate impacts and impacts of the transition to a lower-carbon
economy — by leveraging a set of climate-related scenarios. Scenario analysis can help companies
frame and assess the potential range of plausible business, strategic, and financial impacts fromclimate change and the associated management actions that may need to be considered in strategic
and financial plans. Net-zero transition planning describes how strategies will support 1.5 degrees Calignment, accelerating the transition to a net-zero global economy and thereby minimizing the
likelihood of increasing climate impacts.
In October 2021, the TCFD published additional guidance on disclosing climate-related metrics andtargets and key information from transition plans for all sectors, noting that “organizations’ transition
plans are of particular interest to users (e.g., investors, lenders, and insurance underwriters), especiallywhen they are seeking to verify the credibility of organizations’ commitments related to climatechange.”65, 66 The Task Force’s guidance — intended to cover a wide range of organizations — provides
high-level information on considerations for transition plans and key information to disclose. As such,the guidance does not provide transition plan guidance specific to the financial sector or address how
firms can develop and implement these plans.
This report complements the TCFD guidance on transition plans by presenting recommendations
and guidance for financial institutions to develop and execute on net-zero transition plans. A net-zerotransition plan has a specific, forward-looking objective: to support global efforts to limit temperature
increases to 1.5 degrees C and reach net-zero emissions by 2050. In doing so, it also serves toprovide details on how an organization is working to mitigate the transition risk it faces. For financial
institutions, a net-zero transition plan should build on its TCFD-related or other climate-related
disclosure work. The plan should use findings from its scenario analysis to detail the business levers
the institution will use to achieve goals around both emissions reduction and transition risk mitigation
and, therefore, ultimately contribute to addressing systemic climate risk.
GFANZ recognizes that transition plan disclosure provides transparency and enhances the credibilityof financial institutions’ net-zero transition efforts and, collectively, those of the financial sector.
GFANZ has provided suggestions on what this disclosure might include but recognizes thatdeveloping detailed recommendations for disclosure requires a separate effort to properly consider
more detailed disclosure guidance than what is covered in this report.

65 TCFD. 2021 Status Report, October 2021.
66 TCFD. Guidance on Metrics, Targets, and Transition Plans, October 2021.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEDISCLOSURE

DEFINING THE SCOPE OF EMISSIONSCOVERED BY THESE RECOMMENDATIONS

While the focus of this framework is on developing
and implementing transition plans, an important

This report covers financial institutions’ Scope 3

part of the commitment that financial institutions

financed emissions 67 consistent with the sector-

have made through their sector-specific alliances

specific net-zero alliance commitments. Scope 3

is disclosure. Financial institutions themselves

methodologies are still evolving, including in theare beginning to make such disclosures on afinancial sectors where the same real-economy

voluntary basis and should continue to do soemissions can be counted multiple times infollowing guidance and requirements from various

the investment chain. The concept of financed

domestic and international bodies. This guidance

emissions, especially relevant for banks andis not focused on disclosure, but GFANZ believes

asset owners, is complemented by other evolving

financial institutions should be transparent

approaches appropriate to asset managers,

about key elements of their transition plan in a

insurers, service providers, and other financial

clear, consistent, and comparable way. GFANZ

services actors.

recommends that financial institutions disclose
their net-zero transition plans, including interim

Financial institutions will have a much greatertargets, to stakeholders and disclose progress

impact on global GHG emissions by targeting

against their plans with their climate disclosures

the reduction of their financed GHG emissions,at least annually.

which are significantly larger than their operationalemissions.68 These emissions include those

Each financial institution should determine specificassociated with a financial institution’s investment,

content, location, and frequency for disclosing

lending, and underwriting portfolios, or fromthe components of its transition plan, consistentclients of investment consultants or financial

with the requirements of their respective sector-

service providers. 69, 70, 71

specific alliances and jurisdictional requirements,
if any. When preparing disclosure, institutions

As shown in Figure 4, financial institutions’ net-zeroshould consider the TCFD’s Principles for Effective

commitments should cover at least the Scope 1

Disclosures. An organization should indicate how

and Scope 2 emissions associated with clients or

its transition plan forms part of its response toportfolio companies. They should also cover Scopeclimate-related risks and opportunities previously

3 emissions associated with clients or portfolio

identified through TCFD reporting, and the residualcompanies in sectors that are significant climate

risk to the organization from incorporating thechange contributors or where company Scope 3

actions outlined in the transition plan.

emissions are material and can be incorporated

67 For the purposes of this report, “financed emissions” or “portfolio emissions” include those associated with a financial institution’s
investment, lending, and underwriting portfolios, or from clients of investment consultants or financial service providers.
68 CDP found that financed emissions could be 700 times greater than a financial institution’s own operational emissions.
69 PCAF. GHG Protocol Chapter 15. Also, The Global GHG Accounting and Reporting Standard for the Financial Industry.
70 This report uses “financed emissions” and “portfolio emissions” interchangeably.
71

GFANZ encourages the use of the PCAF Standards, built on and accepted by the GHG Inventory Protocol, Category 15, andacknowledges their ongoing work to further develop and refine methodological guidance to measure and disclose GHG emissions
associated with different asset classes and categories of financial activity and for financial institutions to utilize these standards,
as appropriate, as they are released (e.g., at the time of writing, PCAF is working on insured emissions and capital market
instruments methodologies).

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

based on data availability.72 While this report does

travel, GFANZ recommends that all scopes of

not cover emissions from a financial institution’s

GHG emissions should be actively managed

own operations, such as supply chains or employee

and disclosed.

Figure 4. Overview of GHG emissions scope for financial institutions
Financial Institutions’ emissions
Scope 1 & 2
Operations
Scope 1

Scope 2
(upstream)

E.g. Company facilities,
vehiclesE.g. Electricity, heating

Scope 3Operations
Upstream
E.g. Business travel, supply chain

Clients and portfolio companies
Focus of the report
GHG emissions associated with a financial institution’s
investment, lending and underwriting portfolios or from clientsof investment consultants or financial service providers

Downstream
Scope 1

Scope 2 Scope 3

THE RELATIONSHIP BETWEEN NET-ZERO
TRANSITION PLANNING, FINANCIALRISK MANAGEMENT, AND ADAPTATIONFINANCEzero transition plan should represent the strategicalignment of a financial institution’s core businessand build upon, but look beyond, an institution’s
own risk profile to support the net-zero transitionin the real economy.

The recommendations and guidance in thisreport are focused on a forward-looking plan of

As seen in Figure 5, net-zero transition planning

action toward a net-zero commitment that can bewill be informed by firms’ efforts to identify

implemented by a financial institution.

climate-related risks and opportunities, in particulartransition risks. Transition risks include a broad

While there is significant overlap between

range of risks, including the possibility that high-climate-related risk management and transition

emitting assets or activities will lose value orplanning, each activity has different objectives.

be stranded in a low-carbon future, as well as

Climate-related risk management focuses on the

new risks stemming from the scaling of climate

integration of climate-related financial risks into risk

solution technologies and processes. Moreover,

governance, processes, and strategies. The net-transition planning and climate risk management

72 Greenhouse gases, including carbon dioxide, methane, and nitrous oxide, should be considered within GHG metrics and targets(see Appendix 2 in the Financial Institution Net-zero Transition Plans — Supplemental Information report).

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

use common metrics and targets (such as GHG

institutions and real-economy firms. At the sameemissions) and are mutually supportive: Effective

time, transition planning addresses an institution’s

pricing and understanding of climate-related risks

transition risk and, when efforts are aggregatedcan support transition planning efforts and canacross the financial sector, aims to help mitigate

drive changes in the behavior of both financial

physical climate risk.

Figure 5. The relationship between risk and transition planning

Risk management practices(including scenario analysis) identify
the need for transition plans, andhelp achieve net-zero goals

Climate-related risk management
Integration ofclimate-related
financial risks intorisk governance,
processes, andstrategies

Implementation of a NZTP
can contribute to themitigation of both physicaland transition risks

Both activities use
common data, metrics,
and pathways, andinvolve engagementwith clients andportfolio companies

Net-zerotransition planning

Operationalization of net-zero commitmentsin the institution’s core business activities

Adaptation and finance to build resilience are

While adaptation financing is not designed tostill nascent and evolving.73 Aligning financedecarbonize the real economy, financial institutions

with climate resilience aims to strengthen theshould consider pursuing opportunities whereability of a region or community to withstandmitigation and adaptation efforts are closely

physical impacts of climate change, including

linked and support both sets of objectives. At arisks to which financial institutions may be exposed.

minimum, mitigation efforts should be reviewed

Net-zero transition plans are focused on climate

for unintended consequences that impede

change mitigation. Carried out globally, actions

adaptation efforts.

aligned with the net-zero transition aim to mitigate
future physical impacts from climate change bylimiting projected warming.

73 Please see “Adaptation and resilience” as an area for future work in the Financial Institution Net-zero Transition Plans —Supplemental Information report.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Working with our partners
The recommendations and guidance in this report

For financial institutions in alliances that have notare pan-sector and aim to be broadly applicable toyet developed an overarching transition planning

all types of financial institutions. This report is built

framework, this report provides such a framework,on the invaluable industry-specific knowledge andalongside more targeted guidance on specificexpertise of the financial sector-specific net-zerocomponents from the net-zero alliance(s). For

alliances that comprise GFANZ. The alliances havefinancial institutions that have already developed

produced resources and guidance on the net-zerotransition plans based on alliance guidance, thistransition targeted to their members’ specificreport provides additional details or examples on

business models and regulatory constraints. The

individual components.

alliances’ guidance — covering target setting,transition planning, and related efforts — though

GFANZ encourages financial institutions to use

tailored to their specific industries, contributes

the recommendations, guidance, and case studies

immeasurably to the creation of a clear pathin this report alongside the guidance produced

forward that is vital to mobilizing the entire

by their relevant net-zero alliance(s). Financial

financial sector and reducing fragmentation.

institutions should look to their net-zero alliancewhen considering how this framework can be

This report is intended to be complementary

applied to support implementation of their net-

to, rather than supersede, industry-specificzero commitment.

resources already in use by alliance members.
The recommendations and guidance herein aim
to encourage greater consistency, ambition, andcomparability across the financial sector. The
guidance in this report can be used in many ways,
depending on the financial institution type andmaturity of its net-zero transition.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Summary of recommendations
The recommendations of this report are organized into five themes and ten components: Figure 6 shows
the framework that has guided the thinking for this work.

Figure 6. GFANZ financial institution net-zero transition plan framework

GOVERNANCE
A set of structures
to oversee, incentivize, andsupport the implementationof the plan.

IMPLEMENTATIONSTRATEGY
A strategy to alignbusiness activities,
products, services,and policies with the
net-zero objectives.

FOUNDATIONS
An articulation of theorganization's overall approachto net zero across the four key
financing strategies.

ENGAGEMENTSTRATEGY
A strategy to engage
with external
stakeholders insupport of the
net-zero objectives.

METRICS
AND TARGETS
A suite of metrics and targets toassess and monitor progress towards
the net-zero objectives.

Table 1 and Figure 7 present a summary of

If disclosing a transition plan within the framework

recommendations that financial institutions shouldof the TCFD, Foundations, Implementation Strategy,

implement as they develop their net-zero transition

and Engagement Strategy themes may fit with theplans. Further guidance for each recommendation

TCFD Strategy disclosure because they discuss how

can be found in Part C of this report, along

a financial institution may approach its strategy towith examples.

align with the net-zero transition. Further, the Metrics
and Targets theme aligns with the TCFD Metrics and

GFANZ provides suggestions on possible disclosure

Targets disclosure recommendations. Lastly, thecontent in Table 1. The suggestions aim to be

Governance theme aligns with the TCFD Governancecomplementary to any requirements in line withdisclosure recommendations.

regulatory disclosures or chosen disclosure
platforms, but it is not an exhaustive list.
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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Figure 7. Summary of recommendations

Recommendations by theme and components

Implementation
StrategyFoundations

Engagement
Strategy

Metrics andTargets

Governance

1

1

1

1

1

Objectives and priorities

Products and services

Metrics and targets

Define the organization’s objectives
to reach net zero by 2050 or sooner,in line with science-based pathways tolimit warming to 1.5 degrees C, statingclearly defined and measurable interim
and long-term targets and strategic
timelines, and identify the priority
financing strategies of net-zerotransition action to enable realeconomy emissions reduction.

Use existing and new products andservices to support and increaseclients' and portfolio companies'
efforts to transition in line with
1.5 degrees C net-zero pathways.
Include accelerating and scaling
the net-zero transition in the real
economy, providing transitionrelated education and advice, andsupporting portfolio decarbonizationin accordance with the institution's
net-zero transition strategy.

Engagement with clients andportfolio companies

Roles, responsibilities,
and remuneration

2

Activities and decision-making
Embed the financial institution's
net-zero objectives and priorities
in its core evaluation and decisionmaking tools and processes tosupport its net-zero commitment.
This applies to both top-down/
oversight structures and bottomup tools and actions.
3

Policies and conditions
Establish and apply policies andconditions on priority sectors andactivities, such as thermal coal, oiland gas, and deforestation. Include
other sectors and activities that are
high-emitting, or otherwise harmful
to the climate, to define businessboundaries in line with theinstitution’s net-zero objectives
and priorities.

Proactively and constructively provide
feedback and support to clients andportfolio companies to encourage net
zero-aligned transition strategies,
plans, and progress with an escalation
framework with consequences whenengagement is ineffective.
2

Engagement with industry
Proactively engage with peersin the industry to 1) as appropriate,exchange transition expertise andcollectively work on common
challenges and 2) represent thefinancial sector’s views cohesively
to external stakeholders, such as
clients and governments.
3

Engagement with government
and public sector
Direct and indirect lobbying andpublic-sector engagement should,
in a consistent manner, support anorderly transition to net zero, and as
appropriate, encourage consistencyof clients’ and portfolio companies’
lobbying and advocacy efforts with theinstitution’s own net-zero objectives.

Establish a suite of metrics andtargets to drive execution of the
net-zero transition plan and monitor
progress of results in the near,medium, and long term. Include
metrics and targets focused onaligning financial activity in supportof the real-economy net-zerotransition; on executing the transition
plan; and on measuring changes inclient and portfolio GHG emissions.

Define roles for the Board or
strategy oversight body and senior
management ensuring they haveownership, oversight, and responsibility
for the net-zero targets. Assign
appropriate individuals and teams to
all aspects of both design and deliveryof the transition plan. Use remuneration
incentives for all roles, where possible.
Review the transition plan regularly toensure material updates/developments
are incorporated; challenges arereviewed as an opportunity to correctcourse; and implementation risks areproperly managed.
2

Skills and culture
Provide training and development
support to the teams and individuals
designing, implementing, andoverseeing the plan so that they havesufficient skills and knowledge toperform their roles (including at theBoard and senior management level).
Implement a change management
program and foster open
communications to embed thenet-zero transition plan into theorganization’s culture and practices.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Table 1. Summary of GFANZ recommendations
COMPONENTRECOMMENDATIONSOPTIONAL DISCLOSURE

Define the organization’s objectives
to reach net zero by 2050 orsooner, in line with science-based
pathways to limit warming to 1.5
degrees C, stating clearly definedand measurable interim and longterm targets and strategic timelines,
and identify the priority financing
strategies of net-zero transition
action to enable real-economy
emissions reduction.

• interim and long-term ambition, commitments, andstrategy to achieve net zero by 2050

FOUNDATIONS
1) Objectives
and priorities• relevant activities and portfolios related to the netzero ambition• prioritized key financing strategies to climate solutions,aligned and aligning entities, and managed phaseoutand how these fit within the broader firm climate andcorporate strategies• assumptions, scope, uncertainties, and key
methodologies associated with the transition plan
• supporting financial plans, budgets, and related
financial targets• risks, opportunities, and impacts expectedfrom implementation• how the concepts of just transition and nature will befactored into the net-zero transition plan
• the plan for use of carbon credits during progress toward
interim and final targets and after the net-zero target isreachedIMPLEMENTATION STRATEGY
1) Products
and services

Use existing and new products
and services to support andincrease clients’ and portfolio
companies’ efforts to transitionin line with 1.5 degrees C net-zero
pathways. Include accelerating
and scaling the net-zero transitionin the real economy, providing
transition-related education andadvice, and supporting portfolio
decarbonization in accordancewith the institution's net-zerotransition strategy.

• description of how transition strategy will be embedded
within the design of products and services tomaximize opportunities• summary of any transition-aligned products and services• summary of any changes to key products and services2) Activities anddecision-making

Embed the financial institution’s• description of how transition strategy will be embedded
net-zero objectives and priorities
within decision-making processes, tools, and policies
in its core evaluation and decision• summary of changes to core decision-making processes
making tools and processes to• significant choices or decisions that provide context into
support its net-zero commitment.
the changes to decision-making processes
This applies to both top-down/
oversight structures and bottom-up
tools and actions.

3) Policies andconditions

Establish and apply policies andconditions on priority sectors andactivities, such as thermal coal, oiland gas, and deforestation. Include
other sectors and activities thatare high-emitting, or otherwise
harmful to the climate, to definebusiness boundaries in line with
the institution’s net-zero objectives
and priorities.

• conditions the institution will use to manage business withsectors or activities that significantly contribute to global
climate change• net-zero policies developed/in use and their portfolio
scope and coverage and areas for further work
• methodology used within policy, metrics used todemonstrate compliance and/or progress, and theassociated governance and review processes• if relevant, articulate the key milestones and actions of amanaged phaseout plan, such as phaseout timing, andany key assumptions or uncertainties with the plan24

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCECOMPONENTRECOMMENDATIONSOPTIONAL DISCLOSURE

ENGAGEMENT STRATEGY
1) Clients andportfolio
companies

Proactively and constructively• summary of engagement objectives and approach,provide feedback and support toincluding prioritization of clients and portfolio companies,
clients and portfolio companies
and escalation process and timelines
to encourage net zero-aligned• details on progress of engagement activities
transition strategies, plans, and• if relevant, describe engagement with companies aboutprogress with an escalation
framework with consequences when the design of their managed phaseout plan and progressagainst it, and the key metrics agreed
engagement is ineffective.

2) Industry

Proactively engage with peers in
the industry to 1) as appropriate,exchange transition expertiseand collectively work on common
challenges and 2) represent thefinancial sector’s views cohesively
to external stakeholders, such as
clients and governments.

3) Government
and public sector• summary of engagement objectives and approach,including prioritization of clients and portfolio companies,
and escalation process and timelines• details on progress of engagement activities• if relevant, describe engagement with companies about
the design of their managed phaseout plan and progressagainst it, and the key metrics agreed

Direct and indirect lobbying and• summary of engagement activities, including topics andpublic-sector engagement should,
audiences (including efforts to align indirect lobbying
in a consistent manner, support
activities, if relevant)an orderly transition to net zero,• overview of how engagement activities are assessed andand as appropriate, encouragealigned with the net-zero transition
consistency of clients’ and portfolio•
details on progress of engagement activities
companies’ lobbying and advocacy
efforts with the institution’s own netzero objectives.

METRICS AND TARGETS
1) Metrics
and targets

Establish a suite of metrics andtargets to drive execution of the
net-zero transition plan and monitor
progress of results in the near,medium, and long term. Include
metrics and targets focusedon aligning financial activity insupport of the real-economy netzero transition; on executing thetransition plan; and on measuringchanges in client and portfolio
GHG emissions.

• clear definition of metrics that will be tracked across
categories: real-economy transition (through the four
key financing strategies), plan execution, and financed
emissions, including scope and coverage of each• quantitative and qualitative interim and final targets• baseline, current, and projected financed emissions
GHG footprint as Scope 1 & 2 and Scope 3, and theemissions neutralization milestones, stating how you plan
to ultimately neutralize any residual emissions by 2050
through high-quality, permanent removals• methodology and scope of assumptions, outlining therelevant science on which targets are based• significant choices or decisions that provide context on
targets• progress against a clearly identified portfolioalignment metric• metrics monitored on the use and quality ofcarbon credits• frequency of review and updates of metrics and targets,and log of previous updates• use of sectoral pathways in setting targets in realeconomy transition and financed emissions

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCECOMPONENTRECOMMENDATIONSOPTIONAL DISCLOSURE

GOVERNANCE
1) Roles,Define roles for the Board or
responsibilities,
strategy oversight body andand remuneration senior management ensuring
they have ownership, oversight,
and responsibility for the netzero targets. Assign appropriate
individuals and teams to all
aspects of both design anddelivery of the transition plan. Use
remuneration incentives for all
roles, where possible. Review thetransition plan regularly to ensurematerial updates/developments
are incorporated; challenges arereviewed as an opportunity tocorrect course; and implementation
risks are properly managed.
2) Skills
and culture• governance structure and reporting processes forapproval, oversight, and reporting associated with the
net-zero transition plan
• policies that outline responsibility and accountability
for the execution of the transition plan, and therelevant authority• resources required to implement or revise policies,
products, and services• approach to incentives and remuneration, linked to
net-zero transition plan objectives, priorities, strategy,
and targets• outcome and results of any independent review or thirdparty assurance

Provide training and development• summary of existing and required capacity, capabilities,
support to the teams and individuals skills and knowledge, and method of assessment
designing, implementing, and• summary of resource requirements and change
overseeing the plan so that they
management program to embed transition plan elements
have sufficient skills and knowledge
into culture and practice
to perform their roles (including at• summary of access to climate-related resources
the Board and senior managementlevel). Implement a change
management program and foster
open communications to embed
the net-zero transition plan into theorganization’s culture and practices.

26

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEP A R TC

Recommendations
and guidance

27

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

Use of the FI NZTP Framework
This section provides recommendations andbe available for all situations, but expects that

guidance on the components GFANZ believes

implementation of specific components will

are essential for a credible net-zero transition planmature and change over time as financialfrom a financial institution. GFANZ acknowledges

institutions develop and execute net-zero transition

that the act of developing net-zero transition plans

plans more widely, and as the circumstances —will vary by jurisdiction and will depend on the

including risks, opportunities, and regulatory

individual characteristics of each financial institution,

considerations — evolve.

including size, business model, sector coverage,
and other factors. The following recommendations

Please refer to the “How to read this report” at

and guidance use a principles-based approach tothe beginning of this report for the overarchingallow for such flexibility, but GFANZ encourages

considerations the reader should keep in mind

financial institutions to address all components

when reading the following recommendations

where possible. We have included examples andand guidance. These include the voluntary naturecase studies to illustrate specific elements of theof the recommendations and guidance, the needguidance in practice at the time of writing.

to interpret this guidance within the financial
institution’s individual business characteristics and

GFANZ also acknowledges that supporting

jurisdictions within which it operates, and from anpathways, tools, and methodologies may not

implementation rather than disclosure point of view.

Figure 8. GFANZ financial institution net-zero transition plan framework
Foundations• Objectives and priorities

GOVERNANCE
A set of structures to oversee,
incentivize, and support theimplementation of the plan.

IMPLEMENTATIONSTRATEGY
A strategy to alignbusiness activities,
products, services,and policies with
the net-zero
objectives.

FOUNDATIONS
An articulation of theorganization's overall
approach to net zero acrossthe four key financing
strategies.

Implementation Strategy• Products and services• Activities anddecision-making• Policies and conditions

ENGAGEMENTSTRATEGY
A strategy to engage
with external
stakeholders insupport of the
net-zero objectives.

Engagement Strategy• Clients and portfolio
companies• Industry• Government andpublic sector
Metrics and Targets• Metrics and targets

METRICS AND TARGETS
A suite of metrics and targets toassess and monitor progress
towards the net-zero objectives.

Governance• Roles, responsibilities,
and remuneration• Skills and culture

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCETHEMEFoundations
Clear net-zero objectives and priorities underpin a detailed, credible transition plan.74
Once a financial institution has committed to achieving net-zero GHG emissions by 2050 or sooner,it should articulate its objectives and priorities, along with specifics such as targets, the timeline forachieving objectives, and how they will be achieved. Joining one of the net-zero sector-specific alliances
adds credibility, as does a statement from a senior executive communicating the institution’s net-zero
objective and priority areas. Many ambition statements will be defined by the commitments of the sectorspecific alliance the financial institution joined. However, there is some flexibility in defining the specificobjectives, scope, and approaches to achieving the targets, including allowance for more ambitious goals.
Financial institutions will take different approaches to achieving net-zero targets and prioritize areas of
their business depending on factors including the size of the organization, their business model, influence,
operating environment, portfolio and client characteristics, and geographic coverage. As detailed in the“Defining transition finance” section, the key financing strategies that financial institutions may choose
to prioritize are focused on financing climate solutions, supporting already aligned firms, supporting realeconomy firms committed to aligning, and financing managed phaseout projects. Defining these priorities
allows an institution to develop a detailed and strategic net-zero transition plan. The plan, guided by theobjectives and priorities, will include decisions such as resourcing, incentives, which analytical processes
to modify, and how to adapt priority business units, products and services, engagement plans, and othercore business levers.7576

1) COMPONENT: OBJECTIVES AND PRIORITIESRecommendation

Overview and relevance: Clear net-zero objectives
along with priority key financing strategies provide

Define the organization’s objectives to reachclarity to internal stakeholders; allow external

net zero by 2050 or sooner, in line with science-stakeholders to assess the appropriateness of thebased pathways to limit warming to 1.5 degrees

proposed actions against the stated ambition; andC, stating clearly defined and measurable

allow one financial institution’s transition objectives

interim and long-term targets74 and strategic

to be compared to its peers.

timelines, and identify the priority financing
strategies75 of net-zero transition action to
enable real-economy emissions reduction.

Guidance: A financial institution should articulate
its transition objectives and how they will beembedded within the wider organization andcorporate strategy.

74 A “credible” plan in this report refers to one that is actionable, focused on the near term, and aligned with a 1.5 degrees C carbon
budget with low or no overshoot, according to the latest findings of the IPCC.
75 Through their net-zero alliances, members have all committed to setting an interim target for 2030 or sooner.
76 Four key financing strategies to support the net-zero transition for financial institutions were outlined in Part B.
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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEFOUNDATIONSThis articulation of objectives and strategy should• Timelines: Financial institutions should

guide the overall transition plan, providing a bridge

articulate how net-zero transition plan actions

from high-level commitments the financial institution

will be staged, for example over the immediate

has made to the specific changes they will make to(1 year), short (2–3 years), and medium (by 2030)

their business and operations (as discussed in thetimeframes. Net-zero transition plans should“Implementation Strategy,” “Engagement Strategy,”

consider defining how they expect their longer-“Metrics and Targets,” and “Governance” sections).

term (by 2050) strategy to evolve from current

As such, a financial institution’s objectives andapproaches to meet their net-zero target date.

priorities should include its interim and long-term

Plans should include both interim GHG emissions

targets (for which guidance is provided in thetargets (2030 or earlier) 77 and net-zero targets“Metrics and Targets” section) and should detail(2050 or earlier targets).

the institution’s high-level approach for how it isplanning to achieve them.
A financial institution’s Objectives and priorities
should reflect its overarching net-zero commitment.
For members of the financial sector-specificalliances comprising GFANZ, this includes, at aminimum, their alliance commitment. Objectives
should include the following elements:• Coverage: Net-zero sector-specific alliances may
allow for staged implementation to net zero or
options for the extent of activities covered byinterim targets (e.g., focusing interim targets
on specific high-emitting sectors). Financial
institutions should provide the rationale forthe decisions they have made in these regards.
Institutions should consider specifying what
was included in and what was excluded fromtheir objectives to facilitate comparisons.
Given the rapid development of data, tools, andmethodologies in this space, financial institutions
should regularly revisit sectors, activities, orother elements not included in their current
transition plans.

• Key climate topics: While the transition to
net zero involves the whole economy, certain
sectors and activities are central to aligningwith a low- or no-overshoot 1.5 degrees
C-aligned pathway. Financial institutions should
consider articulating how they plan to address
such topics throughout their transition plans,in particular through policies and conditions.
Two such topics highlighted at COP26 were theneed to halt and reverse deforestation by 2030
and the need to transition away from unabatedfossil fuels.78
Financial institutions should state how they willprioritize different key financing strategies tosupport the real-economy transition to net zero.79
Prioritization of key financing strategy(ies) may
depend on the financial institution’s size, businessmodel, levers of influence, operating environment,
portfolio and client characteristics and emissions
profiles, and geographic coverage, among otherfactors. The application of the Implementation
Strategy and Engagement Strategy themes should
be guided by the prioritized financing strategies.

77 In the context of a net-zero transition plan, various years and intervals are specified by the net-zero alliances and industry
authorities, such as SBTi. Short-term are between five and ten years maximum with mention of 2025 and 2030 as “interim” targets.
The year 2040 is also used as an interim year.
78 United Nations, COP26 Together for our planet.
79 GFANZ expects that financial institutions will use various combinations of strategies and tactics to achieve a net-zero transition as
also acknowledged by SBTi in their description of possible mitigation strategies in their report Foundations for Science-Based NetZero Target Setting in the Financial Sector.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEFOUNDATIONSThe key financing strategies (introduced in• Aligning: Financing or enabling entities

Part B) for financial institutions to support the real-committed to transitioning in line with 1.5

economy net-zero transition include the following:

degrees C-aligned pathways. Actions under• Climate solutions: Financing or enabling entities

this strategy should detail how the institutions

and activities that develop and scale climate
solutions. This should include financing, investing,and related services supporting activities
such as early-stage climate technologies andservices to bring them into mainstream; laterstage climate solutions to scale and increase
deployment; new infrastructure needed for the
low-carbon economy; nature-based solutions;and understanding and addressing risks
associated with new zero-carbon activities
and industries.

• Aligned: Financing or enabling entities thatare already aligned to a 1.5 degrees C pathway.
Actions to do so should include shifting portfolio
allocations and financial services toward realeconomy companies or sectors that are moreadvanced in their transition; developing new
financial products that focus on such realeconomy companies; and related financial
services to continue supporting firms wellon their way to transition.

identify companies, assets, or projects in earlystages of transition, beginning to transition,
and advanced in transitioning. Actions should
include adapting their product and services
consistent with this strategy; seeking new clientsand portfolio companies willing to align theirbusiness consistent with 1.5 degrees C sectoral
pathways;80 and integrating use of proceeds
concept. Institutions should consider defining
conditions for determining whether net zerocommitted entities who are developing a netzero transition plan can be included as “aligning”
for internal purposes. 81• Managed phaseout: Financing or enabling
the accelerated managed phaseout (e.g.,early retirement) of high-emitting physicalassets. Actions under this strategy should
include levers such as engaging with clientsand portfolio companies to identify
opportunities to accelerate the phaseout,
and developing products and services tosupport an orderly phaseout. 82

80 GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, June 2022.
81

GFANZ recognizes that many entities are in the early stages of implementing their net-zero commitment and that it requires time
to develop a credible net-zero transition plan. The focus of “aligning” is on progress toward full implementation of a net-zerotransition plan with an urgency on near-term action. GFANZ recognizes there is a gray area where entities may be committed andtaking significant steps in implementing but are still developing their net-zero transition plan. Disclosure from these entities will beessential to assessing progress as detailed in GFANZ’s Expectations for Real-economy Transition Plans, 2022.

82 GFANZ. The Managed Phaseout of High-emitting Assets, June 2022, p. 28-29. Figure 11 in the cited report represents initialfeatures that companies of financial institutions may be expected to provide as part of their transition plans in reference tomanaged phaseout.

31

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEFOUNDATIONS

Figure 9. Key levers for financing strategies
Key levers for financing approach
We encourage financial institutions to apply all components to their organization but recognize emphasison specific components may be more helpful when considering particular key financing strategies.
Foundations, metrics and targets, and governance are equally relevant for all financing strategies as they
are overarching accountability structures.
Special emphasis on the following strategy components may be helpful. Some examples include: Assessing
a firm’s transition to net zero may require new analysis in activities and decision making; Focusing financial
services at scaling climate solutions could be covered under products and services; Identifying a physicalasset for managed phase out may be covered under engagement with portfolio companies.

Foundations

1

2

3

4

CLIMATESOLUTIONSALIGNEDALIGNING

MANAGEDPHASEOUT

Objectives
and priorities

Implementation Products
and services
Strategy
Activities anddecision-making
Policies andconditions
Engagement
Strategy

Clients andportfolio companies
Industry

Government andpublic sector
Metrics andTargets

Metrics and targets

Governance

Roles, responsibilities,
and remuneration
Skills and culture

Of particular relevance

Generally covers

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEFOUNDATIONS

Financial institutions should provide a clear

science-based sectoral pathways; and whether

and structured articulation of the principles,

it applies exclusions or additional conditions orassumptions, and context that pertain to theircriteria, in line with credible transition scenariostransition plans. A statement should be from, oror pathways.

endorsed by, an institution’s senior executive, suchas the Chief Executive Officer, Board Chairperson,

BOX 4. JUST TRANSITION AND NATURE

or someone in an equivalent oversight role. The

IN NET-ZERO TRANSITION PLANS

statement should explain: 1) how the institution
is considering the prioritization of key financing

GFANZ believes the transition to a net-zerostrategies listed above and how these will affecteconomy should be a just transition and should

their GHG emissions, and 2) whether and how

strengthen nature and biodiversity.

the net-zero transition will impact the institution’s
overall business strategy. Where appropriate andTransition activities, such as replacing high-possible, such statements should be endorsed byemitting activities with low-emitting alternatives,

the Board (or equivalent strategic oversight body).

have the potential to disadvantage workers,

Institutions should also consider articulating:communities, and already marginalized social• overarching principles — such as justgroups. At the same time, transition activities

transition or intersection with otherclimate topics (e.g., climate-related
financial risk, adaptation, and resilience);83, 84• business context — for example, how theinstitution’s size, business units/operating
models, departments, products, and services
will affect or contribute to overall net-zero
objectives;• assumptions — transition pathway uncertainties
and implementation challenges;• timing — in addition to near-term GHG emissions
reduction, objectives that target mediumterm outcomes (within portfolios and the real
economy); and• geographical context — for example, differencesin policy and regulatory environments, regional
business activity, other country or regionspecific risks and opportunities.

can also contribute positively to economic
opportunity, energy access and affordability,
and community resilience.
Transition activities can also have unintended
negative consequences on nature andbiodiversity. At the same time, protecting
nature and biodiversity can play an importantrole in mitigating climate change, and transition
activities can be pursued in ways that contribute
positively to nature.
GFANZ has outlined these important topics
as areas requiring further work to develop
pan-sector guidance on how financial
institutions can integrate them into transition
plans, discussed in the Financial Institution
Net-zero Transition Plans — Supplemental
Information report. In the meantime, financial

In describing its objectives and approach, aninstitutions can use existing guidance andinstitution should consider providing a high-develop their own understanding and practicelevel discussion of any sector-specific strategies;

to factor these topics into the objectives andwhether it takes a top-down or bottom-up

priorities of their net-zero transition plans.

approach;85 whether it will rely on particular

83 For example, RMI’s IMPACT+ Principles for Climate-Aligned Finance.
84 Banks may also refer to NZBA’s core guiding principles on Transition Finance. NZBA. NZBA Transition Finance Guide,
October 2022.
85 A top-down approach refers to decision-making at the highest level or looking at the big picture and filtering down to theteams. A bottom-up approach refers to starting with the details and building up to a corporate strategy. For example, PAII’s Net
Zero Investment Framework (NZIF) approach for setting objectives and targets at the portfolio and asset class levels would be
33
considered bottom-up.

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEFOUNDATIONS

An institution should also articulate whether andemissions. 86 For both these uses, firms should

how it intends to use carbon credits. While primary

articulate their strategy and considerations such

focus is on decarbonization and real-economy

as type and quality of credits the institution will

emissions reduction within the financial institution’ssource, the emissions outside the value chain

value chain, institutions may use carbon removalthat the institution intends to compensate withcredits to neutralize residual emissions that are

credits, and how credits will be used to neutralize

not feasible to eliminate. Moreover, firms may

residual emissions. Please see the “Carbon

opt to pursue a “high ambition path to net zero”

credits” section in the Financial Institution Net-and compensate for emissions in addition tozero Transition Plans — Supplemental Information

decarbonization efforts, thus purchasing carbon

report and “Component: Metrics and targets” forcredits as they are working to drive down absolute

more information.

Figure 10. Carbon credits “high-ambition path” illustration 87

Decarbonization
Decarbonization

Decarbonize your own operationsand value chain
lineoperations
with scientific
Decarbonize
your inown
consensus
andvalue chain in line with scientificconsensus

Net-Zero as endpoint
Net-Zero as endpoint

Decarbonize, and increasingly
neutralize unabatableemissions to
Decarbonize,
and increasingly
reach Net-Zeroas endpoint
neutralize
unabatableemissions toreach Net-Zero as endpoint

High-Ambition Path to Net-Zero
High-Ambition Path to Net-Zero

Decarbonize, and neutralize andcompensateand
all emissions
Decarbonize,
neutralize on
andthe path to
Net-Zero all emissions on the path tocompensate
Net-ZeroCompany AemissionsCompany A
Tonnes CO2eemissions
Tonnes CO2e

Net-Zero

Net-Zero

Net-Zero

Impact on
global CO2e
Impactonbudgetglobal CO2ebudget Drastically lower the rate with which the total stock ofCO2e in the atmosphere increases by decarbonizing
 Drasticallyrateuntil
withitwhichstock ofyour ownlower
valuethechain
can gothe
nototalfurther
CO2e in the atmosphere increases by decarbonizing
your own value chain until it can go no further

 NoneUse ofcarbon NoneUseofcredits
carboncredits
Paris-aligned 1.5 degree pathway
Paris-aligned 1.5 degree pathway Drastically lower the rate with which the total stockof CO2e in the atmosphere increases by Drasticallylower yourthe rate
which
theuntil
totalit stock
decarbonizing
ownwithvalue
chain
can goof noCOfurther
2e in the atmosphere increases byown
value chain
it can goby
decarbonizing
Reduce totalyour
stockof CO2ein the until
atmospherenoincreasingly
furtherremoving CO2e from it over time Reduce total stock of CO2e in the atmosphere byincreasingly removing CO2e from it over time High-quality removal credits
 High-quality removal credits

Gross emissions
Gross emissions

Neutralization (removal)
Neutralization (removal)

Net-ZeroAll companies invited to participate, even if difficult
to achieve. Applicability to scope 1, 2 and 3
Allemissions
companies
invited defined
to participate,eveninitiatives
if difficultiii,iv,v
currently
by several
to achieve. Applicability to scope 1, 2 and 3iii,iv,v
emissionscurrently
definedbyseveralinitiatives
 Drastically lower the rate with which the total stock of CO e
2

in the atmosphere increases by decarbonizing your own
 Drasticallylower
theit rate
withnowhich
the total stock of CO2e
value chain
until
can gofurtherintheatmosphere
increases
byindecarbonizing
your Reduce
total stockof CO2ethe atmospherebyown
removing
value
chain
until
it cango no further
CO2e
from
it now(throughnature-based removal such as Reduce
total
stock
of
CO2e
in
the
atmospherebyremoving
reforestation) or as soon as possible (through new
CO2efrom it now (throughnature-based
removalsuch astechnology-based
removalsuch as direct
air capture)or astosoon
possible (throughnew naturereforestation)
Support others
avoidasemissions
and preserve
technology-based
removal such
capture) (e.g.,(e.g., avoid deforestation)andas
to direct
reduceairemissions
 Support
to avoid technologies)
emissions and preserve natureswitchothers
to low-carbon(e.g., avoid deforestation) and to reduce emissions (e.g.,switch to low-carbon technologies)
 High-quality removal credits
 High-quality avoidance and reduction credits
 High-quality removal credits
 High-quality avoidance and reduction credits

Compensation (avoidance/reduction): Encouraged
Compensation (avoidance/reduction): Encouraged

Compensation (avoidance/reduction): Expected
Compensation (avoidance/reduction): Expected

Ultimately, an institution’s net-zero objectives

core business areas to drive change throughout

and priorities should articulate how the financial

the institution. To support the integration,

institution’s strategy aims to align with the net-considerations should be embedded into corporate

zero transition immediately and over the long

financial plans including budgets and internal

term. Where relevant, a financial institution should

resource allocation decisions. Objectives andintegrate its objectives and priorities in internal

priorities should be reviewed at regular intervals,

policies that govern company strategy; businessconsidering the rapid pace of change of thepractices; products and services; and othereconomic, technological, and social context.

86 Institute of International Finance (IIF). Calling for a High Ambition Path to Net Zero, July 2021.
87 IIF. Calling for a High Ambition Path to Net Zero, July 2021.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEFOUNDATIONS

Example 1. Aviva’s Climate Transition Plan defines objectives
Sub-sector: Insurance
1. ForewordAviva’s first iteration of
2. Ourand strategy
on our pledges
4. Embedding an
ClimateRisk
5. Using
itsambition
ClimateTransition Plan,3.88Delivering
launched
in March 2022, provides
explicit
discussionof our influence

the company’s objectives,
strategy,
and priorities.
This corresponds
closely 4.toEmbedding
the GFANZ
recommendations.
2. Our ambitionand strategy
3. Deliveringon our pledges
Climate Risk
5. Using our influence

1. Foreword

It presents a short ambition statement that clearly specifies the company’s priority areas and scope, and contains
an accelerated timeframe (i.e., earlier than 2050) compared to its sub-sector alliance commitment. Aviva states:

Our ambition and strategy
Ourambition
We pledge
to be a Net Zero andcompanystrategy
by 2040, abating the carbon emissions we produce“We pledge to be a Net Zero company by 2040, abating the carbon emissions we produce ourselves and fromour suppliers by 2030, from our insurance book by 2040, and from customers’ and shareholders’ investments
by 2040.”

1

Footnotes to this statement provide definitions of “corporate net zero” and “asset coverage” for readers interested

suppliers
by by
2030,
from
our insurance
bookby 2040,we
and
from
1
Weourselves
pledge toandbe froma NetourZerocompany2040,
abating
the carbon
emissionsproducecustomers’
by our2040.
ourselvesandandfromshareholders’our suppliersinvestments
by 2030, frominsurance book by 2040, and from
Using a simple timeline, Aviva details its roadmap, including interim
2 climate goals and targets, with the interval
customers’ and shareholders’ investments by 2040.
in technical details, and a link to a web page for more information. 2

between the targets shorter in the short term and longer in the long term. This shows that it has considered

immediate steps while allowing for regular reviews and potential adjustments to be made along the way. Aviva
is also preparing its science-based targets for submission to the Science Based Targets initiative (SBTi).

Figure 2: Aviva’s climate goals
Figure 2: Aviva’s climate goals
Figure 11. Aviva’s timeline
By the end of 2021
• Aviva stopped
By theend of 2021
underwriting
insurance
forstopped
companies making• Avivamore thaninsurance
5% of theirunderwriting
revenue fromcoal orfor companies
makingunconventional
fossilmorethan 5% of theirfuels,fromunlesstheyrevenuecoal
or havesigned up to fossil
Scienceunconventional
Based
Targets
fuels,
unlessthey havesigned up to Science
Based Targets

By the end of 2022

By the end of 2025

By the end of 2030

• Divest from companies• 25% cut in carbon
By theend
ofmore2022than By theendofofinvestments
2025
which
make
intensity
5%fromof theirrevenue from • 25%• Divest
companies
cut inrenewablecarbon• 100%
coalmake
unlesstheythanhaveelectricity
for all offices,
which
more
intensityof investments
to Science
which
total 230,231m2
5% signedof theirup
revenuefrom•100%
renewable
coalBased
unlessTargets
they have• 100% electric/hybrid
electricity
for all offices,• Expected
to invest
signedup to Sciencevehicleleases2
which
totalnew
230,231m
a further£10bn of
Based
Targets
for electric/hybrid
our 1,540-strong•100%
assets tofromautomotor
fleet• Expected
investvehiclenewleasesenrolmentfund
a further£10bndefault
of
•
Aviva
will
invest £6bn infor
our
1,540-strong
andfrom
otherautopolicyholder
assetsgreen
assets, including
motor
fleet
funds
into
low
carbonenrolment default fund£1.5bnof policyholder• Aviva
will invest£6bn in(of whichandstrategies
other policyholder
money
intoincluding
climategreen
assets,£5bn
hasalreadybeenfunds into low carbon
transaction
funds£1.5bnof policyholder
announced)
strategies(of which• Avivainto
investors
will
money
climate£5bn has already been
invest £2.5bn
transaction
fundsinannounced)
lowinvestors
carbon and• Avivawill
renewableenergyinvest£2.5bn inlowinfrastructure
carbon and anddeliver £1bn
of carbon
renewableenergytransactionand
loans
infrastructure• 60% cut in carbon
By theendofofinvestments
2030
intensity• 60%
cutZeroin carbon• Net
operations
intensityof investments• Net Zerosupply chain• Net
Zero operations• £100m
committed to

By the end of 2040
• Net Zero company

By theof 2040
withendNet Zerocarbon• Netinvestments
Zero company
with Net Zero carbon
investments

solutions• Netnature-based
Zero supply chain• £100m committed tonature-based solutionsdeliver £1bn of carbon
transaction loans

The SBTi Net-Zero Standard defines corporate Net Zero as: (i) Reducing Scope 1, 2 and 3 emissions to zero or to a residual level that is consistent with reaching Net Zeroemissions at the global or sector level in eligible 1.5°C-aligned pathways; (ii) Neutralising any residual emissions at the Net Zero target year and any GHG emissions released
atmosphere
thereafter
1
The into
SBTithe
Net-ZeroStandard
defines corporate Net Zero as: (i) Reducing Scope 1, 2 and 3 emissions to zero or to a residual level that is consistent with reaching Net Zero
2
This will
shareholder
andpolicyholder
assets where wehave control
and data andmainemissions
asset classesof Aviva’scoremarkets
direct realestate andemissionsatcoverthe global
or sector
level
in eligible 1.5°C-aligned
pathways;(ii) Neutralising
anytheresidualat theNet Zerotargetyear (credit,
and anyequities,
GHG emissions
releaseddebt). We
will be able to expand this further as new data and methodologies become available. For more details, please see www.aviva.com/climate-goals
intosovereign
the atmosphere
thereafter
1

2This will cover shareholder and policyholder assets where we have control and data and the main asset classes of Aviva’s core markets (credit, equities, direct real estate andsovereign debt). We will be able to expand this further as new data and methodologies become available. For more details, please see www.aviva.com/climate-goals

88 Aviva. Aviva’s Climate Transition Plan, First Release, 2021

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEFOUNDATIONS

Additionally, the Climate Transition Plan connects Aviva’s objectives to targets and actions. The company explains
its current and future activities to achieve net zero for Scopes 1, 2, and 3 emissions by 2040; reach net zero in its
operations by 2030; and increase its sustainable investments. For each objective, Aviva sets out actions and levers
to implement. It also discusses complementary objectives related to the highest carbon-emitting sectors; supporting
people as the economy changes (relating to a just transition); the dependencies and impact on biodiversity andthe influence it can bring to bear on various actors who help shape global economies and financial markets; andplanning its future carbon-removal offsets (negative emissions).
GFANZ guidance is that financial institutions should articulate how their plan will be embedded within the wider
organization. Aviva states, “To deliver this plan will require action on our investments and underwriting, which
between them account for around 90% of our current emissions, alongside how we run and operate our business.”
The company explains how it will deliver on its pledges, and how it is organizing efforts into five functional streams:
Investments, Internal Operations, Supply Chain, General Insurance Underwriting, and Claims Management. The planalso touches on governance and long-term incentive plans, demonstrating the considerations taken in developing
the transition plan.
Aviva signals that this is the first release of its plan, and it will refresh and strengthen its plan over time. For thesector, Aviva considers that many pieces of the puzzle are still missing: The data is imperfect; methodologies areincomplete. These will evolve over time; however, Aviva believed it could no longer wait for everything to be neatly
laid out before it developed and started to implement a plan.

Example 2. Robeco’s ambition and roadmap
Sub-sector: Asset Management
Robeco, an international asset manager owned by Japan’s ORIX Corporation, produced its Net Zero Roadmap 89
in October 2021, which communicates the company’s commitment and plan. In addition to setting out Robeco’s
interim targets, the roadmap document contains a clear commitment statement, which includes two of GFANZ’s
recommended elements: scope and timing.
“Our commitment: Robeco is committed to achieving net zero greenhouse gas emissions across all its assets
under management by 2050. We commit to this goal because it’s part of our responsible stewardship and because
we are convinced it’s in the long-term interest of our clients and our investment performance. Our vision is thatsafeguarding economic, environmental and social assets is a prerequisite for a healthy economy and the generationof attractive returns in the future.”
An infographic lays out the company’s baseline emissions for investment portfolios and operational emissions(2019), interim GHG emissions reduction targets for 2025 and 2030, and key actions to be taken to achieve thereductions.
The document then describes each of the six key actions, articulating how the overall ambition links to theimplementation of the transition plan.

89 Robeco. Navigating the Climate Transition: Robeco’s roadmap to net zero emissions by 2050, October 2021.

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Figure 12. Robeco’s roadmap and targets

ROADMAPROADMAP AND TARGETS
Company engagement on climate,
as of 2008
Climate Policy developed (2017)

Fossil fuel exclusion policy expanded to all funds

Reduce carbon footprint by 30% per invested euro

Net zero commitment announced

Reduce operational emissions by 35%

Start engagement on ’Net Zero Carbon
Emissions’ with 15 high-emitters and on’Climate Transition of Financials’ with 10 banks

Climate Change Committee
established (2019)
First TCFD report published (2019)

Start of engagement with governments on
deforestation

Carbon targets and coal exclusion
policy for Sustainability Focusedand Impact Investing funds

Launch of climate funds in fixed income andquant equity

Reduce carbon footprint by 50% perinvested euro
Reduce operational emissions by 50%

Company engagement on climate covering 20% of
portfolio emissions

Set up joint investor action to expand engagementwith governments on climate action
Work with clients on their decarbonization targets

Baseline on the alignment of companies to the Paris Agreement.
Covering the top-200 highest emitters in our investment universe(based on companies’ scope 1, 2 and 3 emissions)

Commitment to Dutch Climate
Accord (2019)

Fully aligned
Aligning
Committed to alignNot aligning
Insufficient data

Net zero roadmap published

Baselines forcarbon targets
Investment
portfolios

104

tCO2e permln invested
euro

Operationalemissions

2015

5299
tCO2e

2019 2020 2021

Decarbonizing our activities
Accelerating the transition
Promoting climate-aligned
investing30%

reduction

Action 1: Decarbonize our portfolios
Action 2: Reduce our operational emissions
Action 3: Accelerate the transition of companies
Action 4: Call for climate action by countries
Action 5: Work with clients on decarbonization
Action 6: Collaborate to promote net zero investing

10%
11%
24%
13%
42%

50%

NET
ZERO

reduction

reduction

reduction

50%

NET
ZERO

2025

2030

2050

35%

Scope for 2025 targets

Six key actions

100% of AuM in scope

Increased share of AuM in scope

Active ownership on climate with top 200 emitters

Collaboration to promote net zero investing

Carbon-neutral operations (2017)

Net zero emissions in
our investments andoperations~40% of assets under management. This is the entire Robeco fundrange, except for asset classes that cannot be covered due to current
methodological limitations, such as sovereign bonds, cash andderivatives, and the Green Bonds fund for which carbon footprints
cannot be measured in an adequate way. We are collaborating withother investors and standard-setters to develop carbon accounting
standards for these asset classes.

Note: As part of our net zero roadmap, we will continue to improve ourmethods and data. These improvements mean that our baselines will
be subject to recalculation, for example when we incorporate scope 3
emission data, or when we have better data coverage on the alignment ofcompanies. Other factors will also prompt recalculation of the baselines,
such as the effect of market appreciation and the changing compositionof reference indices. We will follow international standards in any of theseadjustments. In our disclosures we will be transparent about revisions toour baselines and we will disclose both unadjusted and adjusted figures.

7 | Robeco’s Net Zero Roadmap

This example, in addition to the ambition statement, brings together many of the core components of the GFANZ
recommendations. The scope is broad (covering all assets under management as well as operations), the timing is
specific, and the ambition is high (50% reduction by 2030, net zero by 2050). The roadmap includes engagement
plans, clear actions to reduce emissions from portfolio companies and promote net-zero investments, and reporting
commitments. The company says its targets and annual progress report will be externally reviewed.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEFOUNDATIONS

BOX 5. A NET-ZERO TRANSITION PLAN INCLUDING THE MANAGED PHASEOUT OF
HIGH-EMITTING ASSETS
The Managed Phaseout approach outlined by GFANZ90 allows financial institutions to provide asset
owner-operators clarity that finance for high-emitting assets can be provided, but that it should be
conditional on plans to cease operation of those assets over a timeframe that is consistent with the
net-zero transition. The Managed Phaseout approach is an emerging area of transition finance.
The approach recognizes that some high-emitting assets will need to be operated while no/lowcarbon alternatives are being developed. This can be an equivalent approach to a net-zero GHG
emissions reduction pathway if the retirement date is 1.5 degrees C-aligned or earlier. The Managed
Phaseout approach is relevant: to assets that may be viable today but are either at financial risk as
the global economy decarbonizes or are inconsistent with a 1.5 degrees C-aligned transition in theircurrent operations; and where assets cannot be redeveloped or retrofitted and so need to be retired
over a suitable timeframe.
Figure 13 shows the illustrative GHG emissions profiles for a single asset and a portfolio of assets. Fora single asset, a possible 1.5 degrees C-aligned GHG emissions profile could be for GHG emissions
to remain largely constant and then stop completely upon closure (left graph). The latest retirement
point would need to be calibrated to be aligned with a 1.5 degrees C pathway. A company operating
several high-emitting assets could potentially retire them at different times (right graph).

Figure 13. Some high-emitting assets can continue to be operated in the short term, as long as
a 1.5 degrees C-aligned retirement date is set91
Illustrative Managed Phaseout for a single asset

Illustrative pathway for an asset owner-operator
Latest retirement points
for individual assets

Emissions

Emissions

Latest retirement point

2022

20xx

2050

2022

2050

90 GFANZ. The Managed Phaseout of High-emitting Assets, June 2022.
91 GFANZ. The Managed Phaseout of High-emitting Assets, June 2022.

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THEME

Implementation Strategy
A financial institution's core business activities and decision-making processes are integral to translating
its transition objectives and priorities into concrete goals and desired outcomes for business teams. The
Implementation Strategy recommendations focus on the products and services that are key to allocating
and securing capital for emissions reduction in the real economy; the internal analytics and processes thatdrive financing activity; and policies for financing climate-critical activities.

1) COMPONENT: PRODUCTS AND SERVICES
Recommendation

Guidance: Financial institutions should assess
whether and how their existing products andUse existing and new products and services

services support and de-risk the net-zero transition,

to support and increase clients’ and portfolio

whether and how they could be modified to do so,companies’ efforts to transition in line withand whether new “climate-aligned” products and1.5 degrees C net-zero pathways. Include

services are required. Where relevant (depending

accelerating and scaling the net-zero transitionon the institution’s business model), ensure that thein the real economy, providing transition-

suite of products and services sufficiently supports

related education and advice, and supporting

real-economy decarbonization and acceleration of

portfolio decarbonization in accordance withclimate solutions.92 Products and services can be

the institution's net-zero transition strategy.

geared to do the following:• Provide financing, investment, insurance, or other
Overview and relevance: Through its products
and services, a financial institution can facilitate
and accelerate GHG emissions reduction; signal
to the real economy that transition strategies will
be supported with capital or insurance coverage;
and educate clients, portfolio companies, andbroader society on the need for the net-zerotransition. To this end, financial institutions' financeservices that support companies and activities
developing climate solutions or enabling
the net-zero transition (e.g., financing that isconditional on phaseout of high-emitting assets
or partnerships with government to share risks
across the value chain; insurers could develop/
offer insurance and reinsurance products andsolutions for low-emissions and zero-emissions
technologies that enable capital flows).

and investment vehicles, insurance products, and• Reduce portfolio or financed GHG emissions infinancial services can be aligned with the financialalignment with a recognized decarbonization

institution’s and their clients’ net-zero objectives.

pathway, or construct a portfolio that is geared

92 An example of a new product that covers this type of investment is the European Investment Bank’s Venture Debt to fill thefinancing market gap faced by high-growth, innovation-focused companies.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGY

toward assets that have a clear transition

Because products and services are highlyplan in place (e.g., indices or funds based on

specific to different financial institutions andtransition-aligned pathways, Outsourced Chief

may span multiple business lines, an institution

Investment Officer (OCIO) services that include

should focus on products and services withintransition considerations).

its major areas of business (i.e., where it has• Educate and advise clients and counterparties
on the net-zero transition. Examples include
educating small- and medium-sized businesseson transition risks; educating clients on tradeoffs, such as pursuing a low GHG footprint
versus an overweight allocation to a lowemissions fund; insurance brokers could engage
with clients to help them take steps toward
reducing their GHG emissions to be allowed
to purchase a specific insurance policy; andpension funds could educate their beneficiaries
on net zero-related considerations.

significant influence, a large network, or greatest
potential for decarbonization or real-economy
transition acceleration).
When designing products and services, financial
institutions should consider a few key aspects
to ensure suitable alignment with 1.5 degrees C
pathways and the institution’s net-zero objectives
and targets, as well as effective deployment.
The key aspects that form the conditions
around the business relationship should beclearly communicated.

Table 2. Aspects of net-zero product design
KEY ASPECTCONSIDERATIONS

Real-economy impact

Will the product or service support and/or create incentives for the client or portfolio
company to decarbonize in a meaningful way, in addition to meeting the financial
institution’s own net-zero targets?

Transparency and integrity

Is the purpose of the product or service clear and transparent? Is it labeled clearly,
tied to an industry standard, and/or verified by a third-party audit (if relevant) to avoid
potential greenwashing claims?

Data availability

Are there sufficient datasets or proxies available to build the product or service, and tomeasure the impact of the product or service if it is offered?

Scale

Is the product or service commercially viable to allow it to scale? Is the productor service measured against specific performance indicators to ensure it is being
provided at a meaningful scale?

Acceleration

Is the product or service geared toward accelerating climate solutions or the transitionin hard-to-abate sectors in line with 1.5 degrees C scenarios or sectoral pathways?93

Methodology

Is there freedom in the net-zero product design process to allow for creativity
and innovation?

93 GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, 2022, and anticipated further work on sectorspecific pathways.

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Example 3. Bradesco’s green export credit noteSub-sector: Banking
In 2020, Banco Bradesco S.A. structured the first green export credit note in the Brazilian market.94
Bradesco worked with Companhia Brasileira de Aluminio (CBA), a vertically integrated aluminum company, on a
BRL 250 million credit note — a loan to exporting clients — to support CBA to reduce the carbon footprint of its
aluminum production.
Loan proceeds are targeted toward CBA projects that improve environmental indicators involving, among otherbenefits, the reduction in the carbon emissions per ton of aluminum produced. The use of proceeds will adhere to
the criteria of CBA’s Green Financing Framework,95 which was developed with technical assistance from Bradesco.
The aluminum company’s framework received a second-party opinion from SITAWI 96 that indicates capital raised willbe allocated to projects and assets with a positive environmental impact, aligned with international best practices(Green Bond Principles, Green Loan Principles, and United Nations Sustainable Development Goals [UN SDGs]).
The green export credit note to CBA was Bradesco's first ESG-labeled operation and shows how its investmentbank unit is engaging with, and financing, clients in the transition to a low-carbon economy, consistent with
GFANZ recommendations. Bradesco is working to develop further customized solutions to help corporate clientsachieve their objectives and environmental goals through loan operations as well as in the capital markets.
Similarly, Bradesco supported Volkswagen with a BRL 500 million green export credit note, which ensures thatthe vehicle manufacturer is committed to reduce its Scope 1 GHG emissions by 12% by replacing 20% of natural
gas consumption with biomethane by 2024, and achieve 25.6% of women in leadership positions, ensuring at least
24.8% of women in management and executive management positions, by 2024.97
As for other net zero-supportive products and services, Bradesco is one of Brazil’s main financial agents forrenewable energy projects (in 2020, it advised on 15 operations focused on generation, transmission, anddistribution of energy from renewable sources). It also participates in a program offering loans with special
interest rates for farmers to remediate pastureland and forests and adopt farming technologies that help reduce
GHG emissions, and it offers a direct-to-customer loan product for solar power equipment.98

94 Bradesco. Integrated Report 2020, May 24, 2020, p. 59.
95 CBA. Green Financing Framework 2020, 2020.
96 A Brazilian non-governmental advisory organization.
97 Inside EVs. Volkswagen contracts a line of credit linked to an ESG commitment, February 5, 2022.
98 Bradesco. Climate Change Management at Bradesco, June 2022.

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Example 4. HSBC’s support for client decarbonization
Sub-sector: Banking and Asset Management
HSBC aims to support its customers on their net-zero transition and works with clients in different sectors on
their sustainability and GHG emissions reduction goals.99 This corresponds to the GFANZ recommendation todevelop products and services that will accelerate and scale the net-zero transition in the real economy andsupport portfolio decarbonization. To do this, HSBC provides clients with a range of products and services aligned
to the transition, while contributing to its own net-zero targets. Relatedly, these initiatives contribute to HSBC’s
sustainable finance and investment100 target of between $750 billion and $1 trillion by 2030.101 In 2021, HSBC:• organized two large-scale, aviation sector sustainability-linked loans:– Etihad airline company raised $1.2 billion, with targets including emissions reduction for the passenger fleet,with financial penalties and incentives of up to $5.5 million.

– British Airways plc raised £1 billion linked to aircraft fuel efficiency.
• attracted international and domestic investors when Greece-based Public Power Corporation issued a €650
million high-yield sustainability-linked bond, committing the company to reduce its carbon emissions, or facehigher financing costs;• launched HSBC Pollination Climate Asset Management to establish natural capital funds to address naturerelated issues and climate change, for both emerging and developed markets;102• launched a £500 million Green SME Fund to support businesses in the transition to a low-carbon economy,
outlining criteria for green activities across a range of sub-categories;103 and• introduced green mortgages for customers in the UAE and Singapore to finance the purchase of homes
accredited as energy efficient.104

99 HSBC Holdings plc. Annual Report and Accounts 2021, February 2022.
100 HSBC defines “sustainable finance and investment” as any form of financial service that integrates ESG criteria into business orinvestment decisions; and financing, investing, and advisory activities that support the achievement of UN SDGs, including but notlimited to the aims of the Paris Agreement on climate change. The SDGs, also known as the Global Goals, were adopted by all UN
member states in 2015 as a universal call to action to end poverty, protect the planet, and ensure that all people enjoy peace andprosperity by 2030, according to its 2021 annual report and accounts.
101 The breakdown of HSBC’s sustainable finance and investment progress is included in its ESG Datapack. The detailed definitions of
the contributing activities for sustainable finance are available in the revised Sustainable Finance and Investment Data Dictionary,2021. Please refer to their ESG Datapack, Sustainable Finance and Investment Data Dictionary, and PwC Assurance Report.
102 HSBC. Climate Asset Management, 2020.
103 HSBC. HSBC UK Launches £500M Green SME Fund, November 5, 2021.
104 HSBC Holdings plc. Annual Report and Accounts 2021, February 2022.

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Example 5. Moody’s expands climate offerings
Sub-sector: Financial Service Providers
Moody’s Corporation, an integrated risk assessment firm, is committed to achieving net-zero emissions acrossits operations and value chain by 2040. Moody’s views the delivery of new products and services, research anddevelopment, and innovation as crucial pillars of its net-zero strategy. The company describes its role in the race
to net zero as bringing clarity to the complex and interrelated macroeconomic, financial, and social impacts ofclimate change.105
It organizes its climate-related products and services into two broad offerings:
1. New solutions to support customers in understanding portfolio alignment and climate risk
In 2021, Moody’s launched Climate Solutions,106 a product suite dedicated to the identification, quantification,
monitoring, and integration of climate risk into financial decision-making. For example, Temperature Alignment Data
assesses how individual companies’ emissions targets align with global temperature benchmarks.107 This productallows users to assess the forward-looking trajectory of companies’ emissions based on GHG emissions reduction
targets.108 Using this information, banks and asset managers can monitor the net-zero alignment of their portfolios,
benchmarking their emissions targets against peer targets.
Other products in the Climate Solutions product suite include CreditLens™, which aims to enable lenders to assess
and integrate the impact of climate on a customer’s credit quality, as part of existing credit origination processes;
and Supply Chain Catalyst, which aims to enable the assessment of climate risk throughout the supply chain.
2. Embedding climate analysis into credit ratings
In 2021, Moody’s Investors Service (MIS) provided greater transparency into how ESG and climate considerations
are integrated into its credit ratings by embedding ESG Issuer Profile Scores (including carbon transition scores)
and Credit Impact Scores into credit ratings.109 MIS also provides detailed Carbon Transition Assessments for rated
companies in sectors that are most exposed to these risks.110

105 Moody’s. 2021 TCFD Report, 2021.
106 Moody’s. Corporate emissions targets failing to keep pace with 1.5 degree C trajectory, December 8, 2021, p. 3.
107 Moody’s. 2021 TCFD Report, 2021, p. 8.
108 Moody’s. Corporate emissions targets failing to keep pace with 1.5 degree C trajectory, December 8, 2021, p. 2.
109 Moody’s. Four components to MIS integration of ESG.
110 Moody’s. 2021 TCFD Report, 2021, p. 8.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGY

Example 6. Nationwide’s ambition to lead the greening of UK homes
Sub-sector: Retail Banking, Insurance
According to Nationwide Building Society, a mutual owned by its 16.3 million members, the 29 million homes in
the UK account for 16% of the country’s total carbon emissions.111 Reducing these emissions and addressing thebarriers to retrofit is a cross-industry challenge.
For its part, Nationwide has developed new green products and services focused on home energy efficiency to help
reach its commitment to net zero by 2050. By offering innovative financing programs, it aims to improve the energy
performance certificate (EPC) ratings of its mortgage portfolio such that by 2030, at least 50% of homes on its
mortgage book will be EPC C or better. Nationwide has launched propositions across three key real estate markets:
1. Purchasing of new energy-efficient homes
2. Retrofitting for homeowners
3. Retrofitting for landlords

In 2020–21, Nationwide:112, 113, 114• launched a Green Additional Borrowing mortgage product to its members to help make energy-efficient
home improvements;• partnered with Switchd to offer its members and colleagues a free six-month trial of their auto-energy tariff
switching service, which includes green options;• launched a solar panel pilot program with MakeMyHouseGreen, aiming to help 300 customers install solar
panels on their homes;• contacted approximately 70,000 The Mortgage Works customers (around 33% of Nationwide’s buy-to-let book)who did not appear to have a valid EPC, with the aim to remind them of the regulation and educate them about
energy efficiency;• progressed its Oakfield development in Swindon, consisting of 239 homes built to high environmental
standards, which it hopes will provide a blueprint for future sustainable homes;• launched the Green Reward Mortgage product to members, offering cash back for properties with an EPC
of A or high B; and• launched the Green Further Advance Mortgage to The Mortgage Works customers to help them make energyefficient home improvements.

111 Nationwide Building Society. Climate-related Financial Disclosures 2022, 2022.
112 Nationwide Building Society. Climate-related Financial Disclosures 2021, 2021.
113 Nationwide Building Society and MakeMyHouseGreen. Find the right green products for you.
114 Nationwide Building Society. Climate-related Financial Disclosures 2022, 2022.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGY

Through its products and services, Nationwide is attempting to accelerate the net-zero transition in the real
economy and is providing transition-related education and advice to retail customers, consistent with
GFANZ recommendations.
Nationwide notes, however, that public policy changes are also required if it is to meet its net-zero objectives.
Government policies and regulations promoting high energy-efficiency standards for new homes and retrofit
incentives for homeowners and occupiers to cut their carbon emissions are considered particularly important
for reaching a net-zero economy.115 Nationwide has introduced its products to cater to the increase in demand
expected as policies and regulations are introduced.

115 Ibid., p. 55.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGY

2) COMPONENT: ACTIVITIES AND DECISION-MAKING
Recommendation
Embed the financial institution’s net-zero
objectives and priorities in its core evaluationand decision-making tools and processes tosupport its net-zero commitment. This applies• transaction approvals• lending approvals• investment mandate allocations• direct investment allocations• credit underwriting

to both top-down/oversight structures and• insurance underwriting

bottom-up tools and actions.

• client and/or investment due diligence
Criteria used in decision-making should reflect

Overview and relevance: Financial institutions

any conditions laid out in policies. Where possible,

use analytical tools and review processes toconsider adjustments that integrate transition-

evaluate and inform decisions on all financing

relevant data, information, and implications into theactivities, including risk-return ratios in investments,

detailed analytical processes, statements, terms

underwriting, lending, approving new clients, andof reference, or procedures that underpin the coremore. These tools and processes form the coredecision-making processes. For instance, by:business operations, and most do not account• adjusting factors in risk models and expected

for transition objectives. If institutions are to alignbusiness activities with net-zero commitments,
then they should integrate net-zero data, targets,and objectives into these evaluation and decisionmaking tools and processes.
Guidance: The integration should be guided byany specific net-zero objective or target for thatbusiness and mindful of sector-specific prioritytransition activities. Where there is no specificobjective or target, processes should still align with
the institution’s net-zero ambition. Core decisionmaking processes vary across the financial sector,
and may involve the following:

return models, such as discount rate or credit
quality/ratings, based on a view of the transition;• adding transition-related diligence questions tocommittee processes or reviews of third parties,
such as asset managers, OCIOs, investment
consultants, and subject matter experts;• utilizing a recognized framework116 to assess theplan for sustainability-linked finance; and• incorporating client and portfolio company
transition plans/progress; third-party
assessments of client/portfolio company
actions; sector decarbonization pathways; andemissions mitigation technology uptake inthe market.

116 Examples include the Green Bond Principles, Green Loan Principles, and the work of the Climate Bonds Initiative.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGY

Financial institutions should consider adjusting the top-down tools that inform their core decision-making
processes. For example, such adjustments could include using the following:• taxonomy-based ratios (e.g., green asset ratio, sustainable asset ratio)• internal carbon pricing• green capital weighting• carbon budgets• assigned changes to asset ratings based on transition readiness• internal thresholds aligned to financed emissions interim targets
Table 3 outlines examples from a sample of financial institutions of how a portfolio might change following
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Following its pledge to a two-step process to divest from fossil fuels (reduce exposure to coal and tar
Brothers
sands, and analysis of exposure to other fossil fuel investments), as of March 31, 2022, RBF’s exposure
119
Fund
(RBF)
toTargets
coal
and
tar
sands
has
been reduced to 0.05% of their total portfolio. (At the time of RBF’s first
Barclays’
Barclays’
ClimateClimateStrategy,
Barclays’
Strategy,
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Barclays’
Targets
andStrategy,
ClimateProgressandClimateTargets
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comprehensive
analysis of its exposure in April 2014, it was 1.6%.) The fund’s total fossil fuel exposureis estimated to be 0.3% (in April 2014, it was 6.6%).120

117 ING. 2021 Climate Report, 2021.
118 Barclays. Barclays’ Climate Strategy, Targets and Progress, 2022.
119 RBF. Fossil Fuel Divestment.
120 The fund uses the MSCI Fossil Fuel Reserves Screen to evaluate its fossil fuel exposure for publicly listed holdings. All publiccompanies with evidence of owning fossil fuel reserves, regardless of industry, are captured in the screen. For private holdings
and funds where individual holdings are not available, total energy sector exposure is used to conservatively estimate fossil
fuel exposure.
47

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGY

Example 7. Groupe BPCE Green Weighting Factor
Sub-sector: Banking
Natixis Corporate and Investment Banking (CIB), a subsidiary of the French banking group Groupe BPCE, hasdeveloped a dedicated tool to support climate-related decision-making. Groupe BPCE is gradually extending thiswork to cover all its lending portfolios (excluding the financial sector and sovereign issuers).
The Green Weighting Factor (GWF) tool assigns a climate rating to assets, financed products, or borrowers. It isa seven-level color rating resulting from an assessment of the climate impact of the transaction, incorporating
environmental externalities. The bank assesses indicators on water, biodiversity, waste, and air pollution,
though the weighting of each metric depends on the sector or project. This proprietary tool enables systematic
integration of climate change in CIB financing activities and is described in the Groupe BPCE 2021 TCFD Report.121
A GWF rating is assigned whenever credit is granted, and the rating is reviewed regularly. Natixis CIB uses the
GWF tool to measure and steer its share of balance sheet assets that are most exposed to transition risk. All“green” financing is assigned a reduction in analytical risk-weighted assets of up to 50% for the greenest. This
metric is increased by up to 24%, however, for financing that has a negative impact on the climate. By adjusting
the expected return on each loan according to its environmental and climate impact, teams are encouraged tofavor green financing solutions (for an equivalent level of credit risk). The tool was also used in the decision to exit
client relationships that had no potential to become aligned with net-zero objectives.122
The tool has been in use for more than two years, and ratings fluctuate as both the methodology and client
disclosure evolve. While it took time to fully implement and train employees, the GWF is now fully deployed andtargets have been set for every CIB line of business. Senior management emphasizes the importance of the GWF,

METRICS & TARGETS

which has also been integrated into CIB’s Risk Appetite Framework.

Figure 14. The Groupe BPCE Climate Report, October 2021123

An initial milestone for the alignment of financing portfolios with a 2.5°C trajectory
as early as 2024
Alignment of the Natixis CIB portfolio
From climate impact to the trajectory of portfolio alignment for the Corporate & Investment Banking division using the GWF

3.2°C in 2020

2.5°C in 2024
GWF color mix,
% of outstanding
loans

28%
41%

2.2°C in 2030

3°C
21%

31%

Achievement of
a 1.5°C trajectory
for the balance
sheet by 2050

52%

27%

€115bn in outstandings
Targets broken down by sector,
excluding the financial sectorbusiness line and geography
and loans to sovereign borrowers(EMEA, APAC, Americas)

2.5°C
2°C
1.5°C
2020

2025

2030

2035

2040

2045

2050

The Group uses these ratings and measurements of global

Groupe BPCE is now in a position to measure the carbon

warming trajectories to:intensity of its portfolios potentially having the most sig-

• Engagea strategic
dialogue climate
with customers
121 Natixis. TCFD
Report2021: Tacklingchange.and structure
thesustainablefinancial
products
resultingfrom
122 Natixis. TCFD Report 2021: Tackling climate change.
p. 20.

nificant climate impact and to manage their alignment
with a Net Zero trajectory. The Green Evaluation Models

this dialogue,
approach, which broadens the scope of these measures
123 Group BPCE. TCFD: The Group BPCE Climate Report, October 2021, p. 45.
• Manage the portfolios in an active manner,to the portfolios of the retail banks, will be rolled out for• Implement a strategic business planning system in linewith its commitments including – as far as the customer
ranking is concerned – the definition of priorities and identification of sustainable financing opportunities,

all its financing portfolios by 2024.

48

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGY

As well, in the context of Groupe BPCE’s 2024 strategic plan, the GWF has supported the ongoing measurementof climate impact and activity-specific target setting for each business line, sector, and geography using two mainindicators: 1) the mix of GWF ratings and 2) the bank balance sheet temperature trajectory. Groupe BPCE will use
the tool for its retail activities to rate customers and their maturity in terms of addressing the climate-related andenvironmental challenges of their sector.
The GWF tool is an example of how a major financial institution can embed its net-zero objectives and priorities
into its core evaluation and decision-making processes.

Example 8. How WTW helps clients make key climate decisions
Sub-sector: Investment Consultant
WTW is a global investment consultant. Investment consultants can play a vital role in supporting the net-zerotransition, acting as a critical link between asset managers and asset owners. Across the services provided,
investment consultants can integrate climate-related criteria into their clients’ decision-making processes.
For asset owners, they can provide strategic advice on investment criteria, asset allocation, and asset manager
selection, helping them to make decisions that align with their own net-zero commitments. And for asset
managers, they can provide guidance on climate solutions and capabilities, encouraging them, through theirrating process, to incorporate net-zero considerations.
Since making its net-zero commitment in 2021, WTW has already embedded key climate-related considerations
within its two main types of services:124
1. Fiduciary (outsourced) investment services
To achieve its net-zero objective,125 WTW uses multiple levers to decarbonize the existing assets in its fiduciary
portfolios, including changes to risk management and asset allocation, manager selection, index design,
stewardship, and policy-level engagement. Additionally, it makes new investments in climate solutions, such assustainable agriculture, forestry, and renewable energy.
2. Advisory investment services
WTW helps its clients make decisions about the risks and opportunities of climate change through a range ofadvisory services, including helping clients develop climate beliefs, asset allocation, benchmarking, climate scenario
analysis, net-zero considerations in manager selection and reporting, plus identifying new climate solutions.

124 WTW. 2020 UK Stewardship Code, 2021.
125 WTW. Our pledge: Net zero greenhouse gas emissions by 2050 for our discretionary investment portfolios, 2021.

49

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGYWTW uses its net-zero reporting framework, which includes Carbon Journey Planning and a Climate Dashboard
across both services.126 The Carbon Journey Planning127 sets out a pathway of emissions and an annual carbon
budget for investment portfolios that is consistent with the net-zero transition. Carbon Journey Planning has
been designed to feed into asset owners’ decision-making when changing asset allocation or awarding new
asset management mandates. The Climate Dashboard was inspired by the Climate Financial Risk Forum’s data
and metrics guidance.128 It incorporates data and metrics across five themes: transition risk, physical risk, carbon
footprint, alignment, and climate solutions. It is also supplemented by the reporting of engagement activities. The
Climate Dashboard has been designed to support WTW’s clients in their decisions on asset allocation, manager
selection, and performance monitoring, and in helping clients achieve their net-zero commitments.

Example 9. Railpen’s Climate Risk and Net Zero Alignment (CRIANZA) framework and toolfor decision-making
Sub-sector: Asset Management
Railway Pension Investments Limited (Railpen) is a wholly owned subsidiary of Railways Pension Trustee Company
Limited, the corporate trustee of the UK’s railway pension schemes (the Trustee). Railpen oversees the day-to-day
operation of the railway pension schemes and is the investment manager for the schemes.
In 2021, a new Risk Governance Framework was introduced, and Railpen also updated its Investment Beliefs
to explicitly reference climate change. Railpen incorporates assessment of climate risk and net-zero alignment
into investment decisions using CRIANZA (Climate Risk And Net Zero Alignment), a proprietary framework anddeveloped in-house. CRIANZA, a bottom-up portfolio assessment tool, is used to assess individual companies on
their climate risk and net-zero alignment.
CRIANZA is currently used to assess the key emitters contributing to 70% of Railpen’s financed emissions in material
sectors in listed equities,129 but it has been designed to be applied across asset classes and to analyze sponsoring
employers in the future.130 It incorporates sector-specific features and can be used for risk management, regulatory
reporting, and to identify gaps in a company’s practice, informing discussions and engagement.
For each company, CRIANZA produces a risk score (ranging from 1 [low] to 5 [high] risk) and a net-zero alignment
status (Not Aligned, Committed, Aligning, or Fully Aligned). The alignment scores are determined using amilestone-based approach also outlined in the IIGCC Net Zero Stewardship Toolkit131 to assess and score acompany’s alignment with a net-zero pathway. The objective of the portfolio alignment assessment is “to enable a
feedback loop between company analysis and company engagement.”132

126 For example, WTW. Climate Dashboard.
127 An example of this in practice for Lloyds Banking Group can be found here.
128 Climate Financial Risk Forum. Climate Financial Risk Forum Guide 2021: Climate Data and Metrics, 2021.
129 Railways Pension Scheme. Taskforce on Climate-Related Financial Disclosures, p. 55.
130 Ibid., p. 48.
131 IIGCC. Net Zero Stewardship Toolkit, p. 13.
132 Railways Pension Scheme. Taskforce on Climate-Related Financial Disclosures, p. 49.

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this

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGYThe assessment criteria are shown in the figure below.133 They feature many of the net-zero transition plancomponents and considerations set out by GFANZ in this document.

Figure 15. CRIANZA’s Net Zero Alignment Assessment Criteria
As part of the 2021 net-zero plan, Railpen Trustees have set a target that, by 2040, 100% of AUM in material
sectors should be “aligning” or “fully aligned.” In 2021, based on the analysis of 70% of financed emissions,which is 10% of overall AUM, 1% of AUM in material sectors fell into these categories. Progressing this further, the
CRIANZA assessment
can be carriedClimateout on all holdings in Climate
materialrisks
sectors and mayMetrics
result in
the percentage inMemberClimateandGlossarysummary
governancein theThe
Schemetargets criteria will influence“aligning” or “fullychangealigned” companies
to potentially be higher.
CRIANZA assessment
future decision-making and engagement.
Railpen also uses the CRIANZA framework to assess companies for purposes of its Net Zero Engagement Plan
(NZEP).134 The NZEP uses a four-step approach of prioritization, analysis, engagement and voting, and reportingof decarbonization impact on portfolio companies.
CRIANZA assessment
methodology

Net Zero
Alignment Assessment
PolicyGovernance
Data, Systems and Performance

Climate and Net Zero
Stewardship andEngagement

Accounting and Audit
Risk Management
Startegy and Capital Allocation
Just Transition Considerations
Lobbying and Collaboration

limate Type Classification of Investment

Climate
Risk

Appen

ClimateEnabler

ClimateOpportunity

Likelihood,
Materiality,
Valuation
ImpactNot Aligned

Committed

Aligning

Fully Aligned

The objective of the portfolio alignment asseto enable a feedback loop between compan
and company engagement. I.e. the insights
the analysis feeds into climate stewardship,
ultimately should improve company alignme
time. The Trustee has adopted a target to inproportion of portfolio companies rated as “
and “fully aligned” (see section 6). The CRIA
framework and tool uses sector and asset cl
analysis in its scoring thereby providing a codata and metrics means that enable the Trus
measure and track progress against this targ

5.4.4.3 Climate Risk Integration in Pr
Markets and Property

Private markets represented c11% of Schem
December 2021. Private markets investors aa lower level of climate-related information
to public markets. In addition, private markebeen a little slower to develop net zero meth
Railpen has sought to work with industry pedevelop a private markets methodology forand to that end Railpen has been an active mof the Paris Aligned Investing Initiative’s Priv
Working Group, whose draft methodology w
published in February 2022.

133 See Figure 5.4.4.2.1 in Railways Pension Scheme. Taskforce on Climate-Related Financial Disclosures, p. 49.
134 See Figure 6.4.1.1. in Railways Pension Scheme. Taskforce on Climate-Related Financial Disclosures, p. 57.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGY

3) COMPONENT: POLICIES AND CONDITIONS
Recommendationcoal and oil and gas, and harmful activities suchas deforestation, if relevant to the institution’s

Establish and apply policies and conditions on

business. These sectors have been highlighted

priority sectors and activities, such as thermal

because of their contribution to GHG emissions.

coal, oil and gas, and deforestation. Include

Their importance in achieving GHG emissions

other sectors and activities that are high-reductions places them at risk of greater business

emitting, or otherwise harmful to the climate,disruption as a result of climate risk and potential

to define business boundaries in line with thegovernment action leading to firm-specific transition

institution’s net-zero objectives and priorities.

risk and potential for stranded assets. Coal power
plants produce one-fifth of global GHG emissions.135
Scopes 1, 2, and 3 emissions from the oil and gas

Overview and relevance: Policies and conditions

sector represent between 33% and 40% of global

can be used to manage a financial institution’s

GHG emissions.136 Bodies such as the IEA and IPCC

interaction with high-emitting activities andagree that the rapid shift away from fossil fuels

physical assets; to transition those assets to ais critical to achieving net zero, with widely used

net-zero pathway; and to speed the real-economy

pathways projecting a significant decline in the use

transition to net zero. Assets and activities mightof coal, oil, and gas through 2050.137

be emissions-intensive in and of themselves
or contribute to increased GHG emissions

Halting deforestation is a priority because forests

downstream. Policies and conditions set out aabsorb vast amounts of carbon dioxide and forest

clear management process for priority areas andloss both eliminates carbon sinks and contributes

communicate the organization’s intentions both

directly to GHG emissions.138 Approximately 22% ofinternally and externally.

the world’s emissions stem from land-use activity,
including logging, deforestation, and farming,

Guidance: Financial institutions should develop andand half of that from deforestation.139 Agreements

implement policies and conditions that are clear

related to phasing out coal and methane andand comprehensive and that support the realization

halting deforestation were spotlighted at COP26

of the institution’s net-zero transition plan.

and the Glasgow Climate Pact included a specificfocus on fossil fuels, non-CO₂ gases, and nature

Policies and conditions should apply to high-and ecosystems.140, 141

emitting sectors and activities, such as thermal

135 IEA. It’s critical to tackle coal emissions, October 8, 2021.
136 Analysis based on International Energy Agency, Global Energy Review: CO₂ Emissions in 2021, 2022, Energy and process CO₂
emissions; International Energy Agency, Global Methane Tracker, 2022, World methane emissions from all sources, and World
methane emissions from energy sources; assumed that 1 ton methane = 25 tonnes CO₂e; and Estimates of total emissions vary
between 50 Gt CO₂e and 60 Gt CO₂e from United Nations Environment Programme Emissions Gap Report 2020, 59.1 Gt CO₂ eq.,
2019; World Resources Institute, 48.9 Gt CO₂e.
137 IPCC. Climate Change 2022: Mitigation of Climate Change: Summary for Policymakers, 2022, p. 28.
138 Grantham Research Institute on Climate Change and the Environment. What is the role of deforestation in climate change andhow can ‘Reducing Emissions from Deforestation and Degradation’ (REDD+) help? January 8, 2018.
139 IPCC. Climate Change 2022: Mitigation of Climate Change: Summary for Policymakers, 2022.
140 COP26. Global Coal to Clean Power Transition Statement, November 4, 2021, and Forests, Agriculture and Commodity Trade,November 2, 2021; COP26 Presidency. COP26: The Glasgow Climate Pact, 2021; European Commission and the United States ofAmerica. Global Methane Pledge, 2021; Financial Sector Commitment Letter on Eliminating Commodity-Driven Deforestation,
November 2, 2021; and PPCA Declaration.
141

UNFCCC. Report of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement, March 8, 2022.
The Glasgow Climate Pact included herein calls for “the phasedown of unabated coal power” and “further actions to reduce by2030...methane” and emphasizes “protecting, conserving, and restoring nature and ecosystems...including forests.”

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGY

Beyond the priority areas listed previously, financial

In their policies, institutions should consider

institutions should consider implementing policies

including a clear objective connected to net zero;

to cover other issues related to the net-zeroa definition of the sectors and activities to whichtransition, including methane and biodiversity,

the policy applies; conditions and standards forwhere they are relevant to their organization.

ongoing business engagement; details of any
restrictions or exclusions that apply; and relevant

Policies should be anchored in science-based

timelines. As well, the policy should be transparent.

transition scenarios and pathways used to set theTable 4 sets out the potential policy elements

organization’s net-zero targets, and should reflect

and a description of examples of what they might

the strategy taken by the institution to support

include. If companies are unable or unwilling todecarbonization in the real economy. Policies

meet the conditions and standards after suitable

may also draw from sectoral decarbonization

engagement, financial institutions should consider

pathways, where available, to ground thehaving an escalation process.

conditions in a robust, credible methodology

142

and best available information on how to manage

See Policy examples section in the Financial

an orderly phaseout.

Institution Net-zero Transition Plans —143

Supplemental Information report for an inPolicies and conditions should be regularly

depth discussion and examples of thermal coal,

reviewed and updated. This should include

oil and gas, and deforestation policies andevaluating progress against policy timelines andconditions in the financial sector.

objectives, reflecting updates in data availability,
and considering scientific understanding.

Table 4. Elements in policies on emissions-intensive assets/activities — Considerations
ELEMENTDESCRIPTION

Objective

The overarching goal of the policy, how it supports implementation of the institution’s net-zerotransition ambition and priorities, and how it is informed by science.

Scope

The type of company, asset, project, and/or activity, as well as the consideration across the
supply chain, to which the policy applies. Examples include companies whose share of revenue
generated by specific activity (e.g., coal-fired power) exceed a threshold, a list of specific projecttypes (e.g., gas pipelines), or geographies (e.g., the Amazon Basin).
Scope could include the types of business activities within the financial institution (e.g., lending,underwriting, investing, advising, services) to which the policy applies, with the aim to cover thewhole business where feasible over time.

Conditions

Criteria or conditions consistent with a science-based net-zero transition and under which
the financial institution provides products and services within the activities, geographies, andsectors/business areas defined in the policy. For instance, the institution’s policy could require
more extensive due diligence on particular clients or portfolio companies, or a transition or
managed phaseout plan.144 Engagement programs may focus on influencing companies todecarbonize operations.

142 GFANZ. Introductory Note on Expectations for Real-economy Transition Plans, 2022, and Guidance on Use of Sectoral Pathways
for Financial Institutions, 2022.
143 GFANZ. The Managed Phaseout of High-emitting Assets, 2022.
144 GFANZ. The Managed Phaseout of High-emitting Assets, 2022.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGYELEMENTDESCRIPTION

Exclusions

Specific prohibited companies, assets, projects, and/or activities that cannot be served or
financed by the financial institution upon conditions not being met.
Examples include the prohibition of services or financing to entities in scope that do not havemitigation plans or whose activities involve expansion of high-emitting sources. Any exclusions
which a financial institution chooses to apply should be informed by science-based pathways anddetermined unilaterally.

Timelines

A roadmap for the transition to net zero in the context of the policy, outlining when and underwhat circumstances the new and existing conditions and exclusions will apply. These timelines
should be consistent with the science-based pathways used to set net-zero targets.

Transparency

Disclosure of methodology used within the policy, metrics used to demonstrate compliance,
and/or progress, and the governance and review process associated with the policy. Additionally,financial institutions should disclose the policies’ scope and percentage coverage of the portfolio
or otherwise, and any changes to the scope or coverage change.

Table 5 to Table 7 present examples of how the previously stated elements are found in policies onthermal coal, oil and gas, and deforestation, based on a review of existing policies in the financial sector.

Table 5. Examples of elements in thermal coal policies
KEY ELEMENTS

INDUSTRY EXAMPLESScope

NZBA: “Any client with more than 5% of their revenues coming directly from thermal coal mining,and electricity generation activities shall be included in the scope of targets.”145
SBTi: “Coal companies are defined as companies with greater than 5% of revenues from thermal
coal mining, exploration and drilling, mining services, processing, trading, transport and logistics,
equipment manufacturing, operations and maintenance services, engineering, procurement andconstruction services, transmission and distribution of coal-fired electricity, coal to liquids andcoal to gas.”146

Conditions

Axa: “An engagement initiative was launched targeting issuers which are exposed to coal but are
below our exclusion thresholds, to inform them of our decision, and ask them to define robusttransition plans, implementing Science-Based Carbon Reduction targets and Transition Pathways
in line with the Paris Agreement’s +1.5 degree C ambition, and report regularly on progress.”147
Bank of America: “Unless those facilities employ technology that is focused on complete or nearelimination of atmospheric carbon emissions, such as carbon capture technology.”148
Mitsubishi UFJ Financial Group, Inc. (MUFG): “Coal-fired power generations equipped withcarbon capture, utilization and storage (CCUS), mixed combustion, and other technologies
necessary to achieve the Paris Agreement target may be considered on an individual basis.”149

145 NZBA. Guidelines for Climate Target Setting for Banks, April 2021.
146 SBTi. Financial Sector Science-Based Targets Guidance, version 1.0, February 2022.
147 AXA IM. Responsible Investing: AXA IM Climate Risks Policy, April 2021.
148 Bank of America. Bank of America Corporation Environmental and Social Risk Policy (ESRP) Framework, June 2022.
149 MUFG. MUFG Environmental and Social Policy Framework, May 2022.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGYKEY ELEMENTS

INDUSTRY EXAMPLES

Exclusions

Credit Agricole: “The Bank will not participate in dedicated financing for the development of new
coal-fired power plants or their expansions, regardless of the country.”150
NZAOA: “Other than coal plants currently under active construction, no further thermal coal
power plants should be financed, insured, built, developed or planned. There should be an
immediate cancellation of all new thermal coal projects, including thermal coal plant, coal mines
and related infrastructure (i.e., supplying products or services to thermal coal-based projects orbusiness models) that are in pre-construction phase.”151
PAII NZIF: “It is recommended that investors should not allocate additional capital to companies
which are planning or constructing new thermal coal projects and associated infrastructure(power, mining).”152

Timeline

Citigroup Inc (Citi): “It is our expectation that such strategies will align with Paris Agreement
decarbonization pathways by 2030 (for clients with power generation in OECD countries) andby 2040 (for clients with power generation in non-OECD countries).”153
Credit Agricole: “For the continuation of financial services from 2021, the Bank expects its
clients to develop and communicate to it an [sic] phasing out plan in line with the timetable
recommended by climate science (2030 for EU and OECD countries and 2040 for the rest of theworld), including a commitment not to develop new projects.”154
IA ICAPs: “A clear position should be developed on engaging high emitting investments(including adopting a formal fossil fuel policy), consistent with any climate pledges made. […]investors should adopt a robust and science-based policy for the organization in relation to fossil
fuel phaseout. This policy may also recognize the need for a just transition in countries or regions
where there is significant dependence on thermal coal power or mining and reflect regional
differences in speed of phaseout consistent with 1.5 degree C scenarios.”155
IEA: The Net Zero Emissions (NZE) scenario involves the phaseout of unabated coal power plants
in advanced economies by 2030 and globally by 2040.156
PPCA: Requires phase-out on science-based timelines to meet Paris, with specific dates set in the
PPCA Declaration.157

150 Credit Agricole Group. Credit Agricole Group CSR Sector Policy — Coal-fired power plants, March 2020.
151

NZAOA. Thermal Coal Position.

152 PAII. Net Zero Investment Framework: Implementation Guide, version 1.0, March 2021.
153 Citigroup. Environmental and Social Policy Framework, March 2022.
154 Credit Agricole Group. Credit Agricole Group CSR Sector Policy — Coal-fired power plants, March 2020.
155 Investor Agenda. Investor Climate Action Plans (ICAPs) Guidance on Using the Expectations Ladder, July 2022, p. 19.
156 IEA. Net Zero by 2050: A Roadmap for the Global Energy Sector, October 2021.
157 PPCA. PPCA Declaration, 2017.

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Table 6. Examples of elements in oil and gas policies
KEY ELEMENTS

INDUSTRY EXAMPLES

ScopeIntesa Sanpaolo: Policy applies “to the unconventional resources as described [below], in
upstream activities, such as exploration and mining, and midstream activities, such as transport
through pipelines solely linked to exploration and mining of unconventional resources.”158• Tar sands (oil sands)• Shale/tight oil and gas• Onshore/offshore oil and offshore gas in the Arctic region• Oil in the Amazon headwaters
NatWest: “Stop lending and underwriting to all major oil and gas producers unless they have acredible transition plan aligned with the 2015 Paris Agreement in place by end of 2021.”159, 160

Conditions

Swiss Re: “By 2025, half of our overall oil and gas premiums are to come from companies thatare aligned with net zero by 2050, as per SBTi or a comparable, credible third-party assessment.
These ambitions will be translated into net-zero alignment targets once guidance based on
science-based target setting becomes available.”161, 162

Exclusions

Allianz: “As of 1st of January 2023 we will not issue new single-site/stand-alone P&C insurance
policies/coverages and not provide new funding for projects in:• exploration and development of new oil and new gas fields (upstream)• construction of new midstream infrastructure related to oil• construction of new oil power plants• practices relating to Arctic (as defined by AMAP13, excluding operations in Norwegian
territories) and Antarctic, coal-bed methane, extra-heavy oil and oil sands, as well as ultra-deepsea. This pertains to both new and existing projects/operations
As of 1st of July 2023, we will also not renew single-site/stand-alone policies/coverages forelements above.”163
Dai-Ichi Life: “No longer engaging in finance for new thermal power generation by means offossil fuels (includes coal, petroleum, and gas).”164
PAII NZIF: “It is recommended that investors should not allocate additional capital to companies
which are...taking forward new exploitation of tar sands.”165

158 Intesa Sanpaolo. Rules for lending operations in the unconventional oil and gas sector, July 2021.
159 NatWest Group. 2020 Environmental, Social and Governance supplement, 2020.
160 NatWest Group. Climate-related Disclosures Report, 2021. This report defines a Credible Transition Plan assessment criteria as
having a quantitative assessment using an independent third-party proprietary model (calculating a temperature alignmentscore) to assess alignment with the 2015 Paris Agreement; a credibility assessment with the use of a standardized scorecard; anda management review and assessment by the NatWest Group Reputation Risk Committee.
161 Swiss Re. Sustainability Report 2021, 2021.
162 Swiss Re anticipates that the SBTi oil and gas framework will become available before its new oil and gas policy becomes
effective. For the scenario that the framework is not available for, it will consider other frameworks to assess oil andgas companies.
163 Allianz. Statement on Oil and Gas Business Models, April 2022.
164 Dai-ichi Life Group. Responsible Investment Report 2021, 2021.
165 PAII. Net Zero Investment Framework Implementation Guide, version 1.0, March 2021.
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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEIMPLEMENTATION STRATEGYKEY ELEMENTS

INDUSTRY EXAMPLES

Timeline

CDPQ: “Complete our exit from oil production by the end of 2022.”166
IA ICAPs: “A clear position should be developed on engaging high emitting investments(including adopting a formal fossil fuel policy), consistent with any climate pledges made. […]investors should adopt a robust and science-based policy for the organization in relation to fossil
fuel phase out. This policy may also recognize the need for a just transition in countries or regions
where there is significant dependence on thermal coal power or mining and reflect regional
differences in speed of phase out consistent with 1.5 degree C scenarios.”167
IEA: The NZE scenario involves no new oil and gas fields approved for development after 2021
and phaseout of all unabated oil power plants by 2040.168
Nest: “We will decarbonise our portfolio. This will include divesting by set dates from companies
involved in thermal coal, oil sands and arctic drilling, reducing other carbon-intensive holdings
and investing more money in companies that are developing solutions such as renewable energy
infrastructure and low-carbon technologies. We will continue to exclude from our investment
portfolios: — all companies making new developments in these activities — all companies withmore than 10% of revenues from these activities by 2023 — then all companies still involved inthese activities by 2025 if they have not committed to a full, accountable phase-out by 2030 at
the latest”169

Table 7. Examples of elements in deforestation policies
KEY ELEMENTS

INDUSTRY EXAMPLES

Scope

Citi: “Customers that are directly involved, as a material business line, in logging or primaryprocessing of timber (includes milling of logs for pulp, paper, sawnwood, plywood or veneer).
This includes all customers who are engaged in harvesting or processing of forest resources fromeither natural forests or plantations.”170
Global Canopy: “Finance provided to clients/holdings (including companies, projects, andfinancial institutions) which produce, process, procure and finance the highest-risk agriculturalcommodities, which are responsible for over two-thirds of tropical deforestation including: Soy;
Cattle products (including beef and leather); Palm oil; Timber; and Pulp and paper.”171
Santander: Defines a list of high-risk activities and high-risk geographies.172

166 CDPQ. Climate Strategy, 2021.
167 Investor Agenda. Investor Climate Action Plans (ICAPs) Guidance on Using the Expectations Ladder, July 2022, p. 19.
168 IEA. Net Zero by 2050: A Roadmap for the Global Energy Sector, October 2021.
169 Nest. Climate change risk policy, December 2021.
170 Citi. Sustainable Forestry Standard, 2013.
171

Global Canopy. Eliminating Commodity-Driven Deforestation, Finance Sector Roadmap, February 2022.

172 Santander Group. Environmental, Social & Climate Change Risk Management Policy.

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INDUSTRY EXAMPLES

Conditions

MUFG: “When we consider providing financing for logging businesses, including managementof forest plantations, we conduct an assessment of clients to ensure that developments andmanagement are conducted in an environmentally and socially responsible manner. In addition
to confirming that illegal logging and deforestation in high conservation value areas are not
involved, we request our clients to certify the relevant operations according to internationallyrecognized certification organizations such as Forest Stewardship Council and Programme
for the Endorsement of Forest Certification, when providing finance to the subject businessactivities mentioned above, in countries other than High Income OECD countries. We will
request our clients to submit action plans to achieve certification when relevant operations are
not certified.”173
LGIM: Assesses companies’ net-zero pathways by looking at traceability of select forest
commodities across supply chains, percentage of purchases under zero-deforestation principles,
existence of deforestation and regenerative agriculture policies, and compliance with zerodeforestation principles.174, 175

Timeline

Financial Sector Commitment Letter on Eliminating Commodity-driven Deforestation: “Commit
to use best efforts to eliminate forest-risk agricultural commodity-driven deforestation activities
at the companies in our investment portfolios and in our financing activities by 2025...”176

Example 10. LGIM’s policy on thermal coal, oil sands, and deforestation
Sub-sector: Asset Management
Legal and General Investment Management (LGIM), one of the world’s largest asset managers, has set a 2030
target for 70% of its eligible investments to be managed in line with achieving net-zero carbon emissions by
2050.177 Where possible, LGIM has implemented its policies and conditions with features including:• a clear objective connected to net zero;• definition of the sectors and activities to which the policy applies;• details of any restrictions or exclusions that apply;• relevant timelines; and• transparency.
Launched in 2016, the Climate Impact Pledge178 is LGIM’s targeted campaign to address the issue of climatechange. Since 2020, LGIM has expanded its assessment179 to include around 1,000 companies in 15 climate-criticalsectors, responsible for more than half of GHG emissions from the world’s largest publicly listed companies.

173 MUFG. MUFG Environmental and Social Policy Framework, May 2022.
174 LGIM. Climate Impact Pledge Sector Guide: Net zero: food, 2021.
175 LGIM. Climate Impact Pledge Sector Guide: Net zero: apparel, 2021.
176 Financial Sector Commitment Letter on Eliminating Commodity-driven Deforestation. November 2, 2021.
177 NZAM. Initial Target Disclosure Report, May 2022.
178 LGIM’s Climate Impact Pledge 2022 report is available for professional investors only.
179 Assessment involves Paris Agreement alignment and evaluating the level to which global warming companies’ plans are aligned,
as well as their net-zero ambitions.

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A key pillar in the assessment framework is scenario analysis, which includes the comparison of a company’s
emissions reduction efforts against the sectoral pathways necessary to be in line with the Paris Agreement. Under
the Pledge, those targeted companies that are not meeting LGIM’s minimum expectations around climate change
may face a voting sanction. In other words, LGIM, on behalf of its clients, may vote against these companies, if
appropriate, or ultimately, remove them from selected funds.180
More broadly, LGIM’s commitments include a specific policy related to thermal coal and oil sands181 as well as
commitments to address agricultural deforestation and work with clients to set decarbonization goals and develop
investment solutions to support them.
Thermal coal
LGIM has:182• the ability to invest in a company if it has set out a clear Paris-aligned plan to phase out coal by 2030 in OECD
countries, and by 2040 in non-OECD countries;• the ability to fund specific issuing entities if a company has non-coal subsidiaries; and• applied the exclusion policy to companies that generate 20% or more of their revenues from thermal coal mining
and/or thermal coal-fired power generation183 unless they meet the above conditions.

Oil and gas
LGIM has:184• under its Climate Impact Pledge, the ability to vote against companies that do not meet their minimum
standards in relation to Scope 3 emissions disclosure185 and oil-related expansion plans, and do not makesufficient progress on areas of engagement;• through its exclusion policy, sanctioned companies that derive more than 20% of their revenues from oilsands; and• committed to exclude (in addition to the above criteria) companies making new investments in oil sands fromthose funds that LGIM has committed to manage in line with reducing net-zero emissions.

180 Companies are divested from selected funds with £87 billion in assets (LGIM, as of December 31, 2021), including funds in the
Future World fund range and all auto-enrollment default funds in L&G Workplace Pensions and the L&G Mastertrust. Companies
are divested up to a prespecified limit for funds that track market indices; if this limit is reached, holdings are reduced rather thanfully divested.
181

Oil sands are sands that contain bitumen deposits. LGIM. LGIM’s policy on coal, 2022.

182 LGIM. LGIM’s policy on coal, 2022.
183 The scope of the policy does not extend to metallurgical coal.
184 Reference LGIM’s documents: Climate Impact Pledge: Oil and gas sector guides, LGIM’s policy on coal, June 2022, and Climate
Impact Pledge Report 2022 (only available for professional investors).
185 Scope 3 emissions are indirect emissions that occur in a company’s value chain.

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Deforestation
LGIM has:186• under its Climate Impact Pledge, introduced an assessment of companies in the Food sector on its approachto reducing GHG emissions in their supply chain from agriculture, forestry, and other land use. This includes
an assessment of the level of traceability of forest risk commodities (tradeable goods that come fromtropical forest ecosystems) across its supply chain, and the percentage of commodities purchased under nodeforestation principles;• sanctioned companies in the Food and Apparel sectors that do not have a deforestation policy with sufficient
coverage (e.g., for beef, cattle, and soy); and• committed to strive to eliminate agricultural commodity-driven deforestation from its investment portfolios.

186 Reference LGIM’s documents: Climate Impact Pledge: Food sector guides, Climate Impact Pledge: Apparel sector guides, andClimate Impact Pledge Report 2022 (only available for professional investors).

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCETHEMEEngagement Strategy
Given their roles as trusted providers of capital, insurance, and other financial services, or as owners ofcompanies, institutions in the financial sector can support the transition to net zero by engaging with awide range of stakeholders. There are three main engagement approaches financial institutions can use
to help implement net-zero ambitions, strategies, and targets:• Engage with clients and portfolio companies.
• Engage with financial sector peers and industry associations.
• Engage with governments and the public sector.

1) COMPONENT: CLIENTS AND PORTFOLIO COMPANIES
Recommendation

to ensure that efforts are consistent with the natureof their net-zero objectives or transition strategy,

Proactively and constructively provide

and work to bring existing efforts in line with their

feedback and support to clients and portfolio

net-zero engagement strategy.

companies to encourage net zero-aligned
transition strategies, plans, and progress with

The engagement strategy should include thean escalation framework with consequences

following characteristics:

when engagement is ineffective.

• Clear objectives: the desired behaviors,

Overview and relevance: Financial institutions canplay a significant role in supporting and advisingclients and portfolio companies on their approach
the transition to net zero. Different types of
institutions have different capabilities and client
mixes, and the nature of engagement, therefore,
varies broadly.
Guidance: Financial institutions should develop an
engagement strategy that supports their overall
net-zero strategy consistent with their commitment.
The strategy should be tailored to the institution’s
business model, as well as the needs and context
of specific clients or portfolio companies and therelationship between the financial institution andthe company. Financial institutions should review
existing client and portfolio company engagement

requests, or results from clients or portfolio
companies (including implementing a net-zerotransition plan).

• Timing of engagement: length of engagement,
deadlines, and milestones to indicate progress.

• Coverage: extent of engagement over clientand company portfolios (e.g., as a percentageof the portfolio) and how to prioritize if
100% engagement has not been reached(e.g., by greatest potential influence orhighest emissions).

• Method of engagement: including meetings,
letters, conferences, educational material, andother forms of engagement selected basedon engagement target and relationship (e.g.,
equity ownership, debt holder, client) and otherconsiderations including levers available to thefinancial institution (e.g., side letters, insurance
contracts) or length of time of the relationshipor influence.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEENGAGEMENT STRATEGYEngagement in support of net-zero objectives

can magnify an individual institution’s effort

requires a baseline understanding of the client’s

to encourage clients and portfolio companies

or portfolio company’s business with respect toto progress work on net-zero commitments.

climate impacts. Sectoral pathways can be used as

For example, financial institutions can consider

a benchmark for comparison and assessment of thejoining industry groups that engage with clientsbusiness or the project where finance is requested.

and portfolio companies on behalf of a group of

Depending on the goals of a particular engagement

financial institutions.188

effort, engagement may require a commitment ofseveral years and a collaborative approach, along

The following are examples of client/company-

with a clear escalation process.

specific engagement activities and subjects.
Many of these can be designed to be specific

An escalation process with consistent andtwo-way communication with clients andtransparent criteria that are communicated to theportfolio companies:

client and portfolio companies should also be a

• Share net-zero objectives and priorities withcritical part of an engagement strategy. This may
include sharing the financial institution’s net-zerotransition plan and policies and conditions withclients and portfolio companies. When clients or
portfolio companies show little or no responseto the engagement, a financial institution should
consider using the business levers available toit according to its business relationship. These
levers will differ and include stewardship actions
such as proxy voting, shareholder resolutions,and voting to remove directors who have failed intheir accountability; financing levers such as more
onerous/costly lending conditions and refusal toengage in new business; and, as a last resort,
cessation of the relationship either as a service or
product provider, or opting to divest.187
Financial institutions should consider appropriate
collaboration to promote a clear and consistentengagement objective and streamline theinformation request to the real-economy
companies. Working together, as appropriate,clients and companies, including specifictimelines and consequences, as articulated in
the financial institution’s net-zero transition planand receive feedback on such. Such discussions
may include clarifying or explaining to clients/
companies the policies and conditions theinstitution is implementing or any other criteriathat may impact access to or cost of capital.
The discussions may also include topics about
the social impacts of the client/portfolio
company’s activities.

• Support and advise on topics specific to thecompany or client, such as identifying potential
high-emitting physical assets accelerated for
managed phaseout, developing their own
interim and long-term net-zero commitments
and science-based transition plan, or aligning
their business to a net-zero pathway.189• Request information on strategic decisionmaking and investment required to transitionbusiness models and provide advice, lessons
learned, and resources, if applicable.

187 See guidance from CA100+, CERES, Investor Agenda, UN PRI, and CDP (science-based targets campaign and nondisclosure campaign).
188 For example, see CA100+ and the PRI Collaboration Platform.
189 For example, banks can refer to: NZBA. NZBA Transition Finance Guide, October 2022. and University of Cambridge Institutefor Sustainability Leadership and Banking Environment Initiative. Let’s Discuss Climate: The essential guide to bank-client
engagement, May 2021.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEENGAGEMENT STRATEGY• Obtain transition-related data190 through a range
of interactions such as direct engagement, due
diligence, and onboarding processes.

• Monitor and support client actions pursuant to
net-zero transition plans.

• Convene forums for targeted roles such as
CEOs of clients and portfolio companies toappropriately raise awareness of climaterelated risks and opportunities and encourage
investment in net zero-aligned assets orinvestment products.

• Encourage companies and clients who have notalready sought external validation of metrics,
targets, and net-zero transition plans (e.g.,using SBTi, Climate Transition Pathways, World
Benchmarking Alliance) to do so.

• Hold leadership accountable for net-zerotransition progress, including the potential
integration of remuneration for seniordecision-makers.

• Exercise rights with respect to proxy voting,191
director voting, and shareholder resolutions tosignal to companies the financial institution’s
expectations for net-zero transition disclosure,planning, and strategy.192• Collaborate with clients and portfolio companies
on a range of topics including understanding
risk transfer needs from changing risk profiles of
new and scaling climate solutions and businessmodels; deploying decarbonization technology
for existing high-carbon assets.

• Provide new collaborations (e.g., facilities,
captives) to pool and share risks and informrisk profiles.

• Include items in Requests for Proposals related
to net-zero activities, such as the respondent’s
position on climate-related expertise, climaterelated proxy voting, engagement approaches,and methodologies to assess climate-related
financial risk.

• Develop client assessment methodologies ordashboards incorporating sector-specific andgeography-specific considerations to trackclient performance, prioritize engagements, anduse as engagement topics.193• Encourage formation of new networks ofcompanies to support transition products,
managed phaseout, transition-related
infrastructure, and assets.
The following are examples of engaging
simultaneously with multiple clients and portfolio
companies where there is no opportunity for
individual dialogue:• Host or participate in governance andleadership forums on topics related to the netzero transition.

• Issue public statements, commentary, and calls
to action aimed at accelerating the transition to
net zero.

• Hold or participate in information sessions
on the transition to net zero for various
audiences/groups.

• Participate in initiatives and/or organizations
aimed at accelerating the transition to net zero.

• Participate in collaborations and/or initiatives
aimed at understanding and forwarding
climate solutions.

• Disclose own net-zero goals, timelines, transition
plans, activities, and expectations.

190 This refers to data that can be used to inform on the transition to a net-zero economy, or more broadly, climate change mitigation.
It is inclusive of, but not limited to, data on entity emissions, targets, transition strategies, transition-related investment, andclimate-related risks and opportunities.
191

For example, NZAOA have developed guidance on engagement of asset managers on this topic.

192 Further discussion relevant for asset owners and asset managers can be found here.
193 For example, banks can refer to: University of Cambridge Institute for Sustainability Leadership, Banking Environment Initiative,
and UNEP-FI. Leadership Strategies for Client Engagement: Advancing climate-related assessments, 2022.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEENGAGEMENT STRATEGY

Following engagement on the previously stated topics, feedback and insights from clients and portfolio
companies and outcomes from stewardship conversations should be reflected in the financial institution’stransition plan.
Please see the Expectations for Real-economy Transition Plans report for information that may
inform engagement.194
BOX 6. EXPECTATIONS FOR REAL-ECONOMY TRANSITION PLANS (EXCERPT FROM THE
EXECUTIVE SUMMARY)195
For the global economy to reach net zero, annual greenhouse gas emissions from activities of realeconomy companies need to rapidly reduce, while financial institutions allocate capital and use theirinfluence as shareholders and/or financial partners to support and catalyze such action.196 It is criticalto have dialogue and associated flows of data between companies and financial institutions. Disclosureof transition plans of real-economy firms, including the detailed assumptions and data that underpins
them, enables effective engagement and capital allocation across the financial ecosystem.
GFANZ aims to improve this data flow by increasing the implementation and disclosure of transition
plans by real-economy companies. The Expectations for Real-economy Transition Plans report serves
as a practical guide for financial institutions engaging with real-economy companies and for thesecompanies when building transition plans and disclosing progress against them. The report provides
clarity regarding the data financial institutions expect from their real economy clients and portfolio
companies. Rather than inventing a new framework, the report uses existing guidance and frameworks
to arrive at the themes, components, and sub-elements financial institutions expect in real-economy
transition plans.

Example 11. Aviva’s engagement program with teeth
Sub-sector: Insurer
In its Climate Transition Plan,197 Aviva describes how its engagement program relates to its ambition and strategy,
and “has teeth” in order to drive the transition to net-zero emissions.
The company discusses its Aviva Investors (AI)-led climate engagement escalation program, which is focused on
30 systemically important carbon emitters in the oil and gas, metals and mining, and utilities sectors held in its
investment portfolios. Aviva is prepared to send a message to all companies through voting actions when thosecompanies do not have adequate climate plans or do not act quickly enough.

194 GFANZ. Expectations for Real-economy transition plans, 2022.
195 GFANZ. Expectations for Real-economy transition plans, 2022.
196 IPCC. AR6 Report: Working Group III, 2022.
197 Aviva. Aviva’s Climate Transition Plan, First Release, 2021.

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TargetActivities in 2021

Outcomes and 2022 Priorities

CONTENTS| FINANCIAL
INSTITUTION
NET-ZERO
TRANSITION
PLANS— FUNDAMENTALS,
RECOMMENDATIONS,AND GUIDANCE
Science Based
Targets alignedto• The Science
Based Targets
initiative(SBTi)• Validationof SBTi pathways

a 1.5°C pathway

is a collaboration between United Nations
Global Compact, CDP (a global disclosure
ENGAGEMENT STRATEGY
system, formerly the Carbon Disclosure
Project), World Resources Initiative andWorldwide Fund for Nature. We committed
Aviva emphasizes the importance of engaging in the first instance, while considering divesting where necessary:to the SBTi in March 2021“[I]t’s crucial to pair emissions reduction targets with engagement targets to encourage the decarbonisation of

our investees rather than just divesting and switching to lower carbon emitting sectors.”198

TargetActivities in 2021

Outcomes and 2022 Priorities

Engagement with teeth to drive
the transition• We announced our climate engagement
escalation programme, through which weseek to influence 30 systemically important
carbon emitters, in which we invest, thatcurrently produce 30% of global Scope 3
emissions in the oil and gas, metals andmining, and utilities sectors• At the beginning of 2022 Aviva Investors
Chief Executive Officer, Mark Versey, wrote
to 37 finance ministers and central bankgovernors for countries whose sovereign
debt we hold

• More widely, through our annual letter toChairs of companies we have advised we
may vote against re-election of directors
at companies that do not make adequate
climate plans, and in two years divest fromthose that do not comply• In 2023, we will complete our engagement
escalation process for the 30 largest carbon
emitters globally

Aviva’s approach aims to encourage ambitious transition strategies, plans, and progress from portfolio companies,

Targetin 2021withan escalation framework whenActivities
engagement
is ineffective.

Outcomes and 2022 Priorities

Link ESG performance with• 10% of the Long Term Incentive Plan is• Increase weighting within the 20% allocatedremuneration
based on ESG metrics, split across separate
range covering climate, customer, andAviva reported that, in 2021, AI undertook 112 engagements (meetings and written communication) with themeasures (one climate and two diversity
diversity and inclusion metrics
30 companies in scope and recorded
engagement
and95
inclusion
metrics) “wins,” which it defined as improvements in one of thefollowing: targets, transition plan, governance, disclosures, or lobbying.199

Example 12. AXA Investment Managers (AXA IM) takes a “three strikes, you’re out” escalation
approach for portfolio companies
Sub-sector: Asset Management
As active asset managers, AXA IM considers its power to influence portfolio companies’ behavior. It believes“engagement and open dialogue with companies and clients is crucial to understanding and influencing the netzero trajectories.” As noted by AXA IM's Executive Chairman, “if we don’t see progress and strong commitmentsfrom companies, we need to be brave and bold in their investment decisions and be ready to divest”. 200
Beginning in 2022, AXA IM, the asset management arm of the French multinational insurance company, began
applying a stronger climate lens in making its investment decisions. 201 AXA IM’s approach involves evaluating highimpact companies and issuers, and grouping them into categories to inform ongoing decision-making.

Aviva’s Climate Transition Plan | First Release | 9
198 Ibid., p. 15.
199 Ibid., p. 19.
200 AXA IM Corporate. AXA IM further strengthens its climate actions to accelerate its contribution to a low-carbon world,
November 8, 2021.
201 Ibid.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEENGAGEMENT STRATEGYWith respect to companies AXA IM considers to be laggards, AXA IM will apply a “three strikes and you’re out”
approach. 202 This means that if AXA IM does not feel the company’s progress on its net-zero path is substantial
within three years (2025), AXA IM will divest from the company so that it can reallocate the capital to climatetransition leaders.
This example is one approach of an escalation process for a portfolio company engagement strategy. Whenclients or portfolio companies show little or no response to calls for climate action, a financial institution should
consider using the stewardship or financing levers at its disposal.

Example 13. BlackRock’s public-private finance vehicle ― Climate Finance Partnership
Sub-sector: Asset Management
BlackRock, the world’s largest asset manager, completed the fundraise of its Climate Finance Partnership (CFP)
Fund in October 2021, achieving a $673 million final close, 203 exceeding its target by 35%. The CFP is a publicprivate finance vehicle, first announced in September 2018, that is focused on investing in climate infrastructure
across emerging and developing markets. CFP is supported by a diverse global investor group including
governments, philanthropies, and institutional investors.
The Climate Finance Partnership is built on the following:
Blended Finance Structure: CFP uses a structure that seeks to de-risk the investment in emerging markets for
institutional investors. 204 The governments of France, Germany, and Japan, together with U.S. philanthropic
institutions and a global multi-energy company, participate through a subordinated equity tranche to incentivize
private investors to participate.
Climate Infrastructure Investing: CFP aims to invest in climate solutions such as onshore wind and utility-scaleand distributed solar PV, and supporting climate infrastructure such as battery storage and clean transmission
projects. Through these investments, the CFP aims to reduce potential emissions from emerging markets by
preventing the need for incremental fossil fuel development and generation while providing access to affordable,
reliable, clean energy.
ESG Risk Identification, Management, and Reporting: CFP is implementing an ESG framework compliant with
International Finance Corporation (IFC) performance standards to support the entire life cycle of its investments.
CFP has also put together a collaborative committee composed of experts across BlackRock and some of CFP’s
investors, seeking to bring together leaders in the field of ESG risk identification and management. CFP and its
investors will also feature measurement and reporting aligned with the UN SDGs, Global Impact Investing Network(GIIN), and Impact Reporting and Investment Standards (IRIS).
This fundraising effort is an example of how financial institutions can engage with private and public partners,
including their clients, to mobilize institutional capital for the transition in emerging markets.

202 AXA IM. 2021 Active Ownership and Stewardship Report, May 2022, p. 10.
203 Blackrock. TCFD Report 2021, 2021.
204 Ibid., p. 21.
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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEENGAGEMENT STRATEGY

9. Report on Stewardship Activities (Our History for stewardship activities and Review)

41

Medium-term Engagement Outcomes

Example 14. Dai-ichi Life’s strategy for engaging portfolio companies on emissions
Sub-sector: Insurance Progress has been made to solve the issues raised with companies over time. The companies have resolved
roughly 80% of governance and 60% of management strategy issues identified before fiscal year 2016.
The Dai-ichi
Life Insurance
Company
has developed
strategyneutrality,that includes
engagementwith portfolio
companies
 In lightof factors
such as Japan’scommitment
toa carbon
investeecompanies
have also
furtheredtheirresponsetoenvironmentalandsocialissuesandhave
resolved
about
50%
of
the
issuesidentified
on setting ambitious GHG emissions reduction targets and on disclosure regarding the financial impact of climate infiscal year2052018.
change. In line with the Net-zero Asset Owners Alliance (NZAOA) protocol, in 2021, Dai-ichi conducted targeted We will continue to identify and follow themes centered on critical issues for investee companies.
climate-related engagements aimed at pursuing net zero-aligned actions with the 50 companies in its investment

100%
80%
60%
40%

portfolio with the highest emissions. Dai-ichi has also been participating in collaborative engagement initiatives＜ Status of the issues raised in each fiscal year as of the end of June 2021 ＞
such as Climate Action 100+ and Institutional Investors Collective Engagement Forum (IICEF) to addEnvironment/social
to itsGovernanceissues100%
engagement activities.

④③

With regard to climate change issues, Dai-ichi asks companies to 1) set ambitious reduction targets
consistent with80%
50%
the Paris Agreement, 2) formulate a concrete roadmap to achieve the targets, and 3) integrate the targets and60%
80%roadmap into their medium- and long-term strategies.

②

Dai-ichi tracks engagement progress based on four milestones:

20%
0%

①
Figure16:
Dai-ichiengagement
milestones
bef.2016
2017
2018
2019
2020

20%
0%

① Raise issue: Dai-ichi Life raises a matter it considers to be an issue with a company② Recognize issue: The company recognizes that it must address this issue③ Address issue: The company begins addressing the issue④ Solve issue: Dai-ichi Life confirms that the issue has been solved

2018

2019

2020

Progress ofengagement

Tracking engagement milestones

40%

If a company does not show any improvement on ESG issues, including climate change, Dai-ichi will vote tooppose reappointment of representative directors. In Dai-ichi’s experience, the majority of companies are willingto engage in dialogue and they do improve on issues Dai-ichi raises. Despite its best efforts to support transition,
if a company refuses to recognize or address an issue Dai-ichi has raised, Dai-ichi will take that into account in its
investment decision-making and may ultimately divest its holding.
Achieving all four milestones can take some time. For example, Dai-ichi has been engaging with an iron and steel
company since 2016. 206 Dai-ichi first engaged the company about setting climate change targets and creating aroadmap to reduce its GHG emissions. In 2019, the company endorsed TCFD and disclosed its scenario analysis
results. By 2021, the company disclosed its CO₂ emissions reduction targets. Getting to that point required six
engagement sessions. Dai-ichi classifies the climate change issues as having been “addressed” by the portfolio
company (milestone 3 in Figure 16) and will continue engaging, pushing it to conduct more sophisticated scenario
analysis and to support its emissions reduction initiatives.

205 Dai-ichi Life Group. Responsible Investment Report 2021, 2021.
206 Ibid., p. 46.

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Example 15. Swedish bank SEB focus on customers and society
Sub-sector: Banking
Swedish bank SEB has placed “supporting our customers and society at large” at the center of its efforts toaccelerate change. 207 Recognizing that as a bank, it interacts with large corporations and financial institutions,
SMEs, private individuals, employees, shareholders, and wider society, SEB sees engagement as an opportunity toachieve its “strong ambition to accelerate the pace towards a sustainable future.”208
SEB has outlined how it will engage customers to make a positive impact through engagement, including those it
has identified as green, in transition, or suitable for selective engagement. At the same time, where it finds that acustomer’s convictions do not align with SEB’s, it will not shy away from phasing out engagement with that clientin an orderly fashion. Figure 17 shows how SEB approaches engaging — and disengaging, when necessary — withcompanies in its credit portfolio. 209
B

Credit portfolio classification

Engaging to create the largest positive impact for the climate

Figure 17. SEB’s engagement outcome tree

SEB decision on client relationship

Engage with clientGreen

In transition

Disengage with client

Selective
engagements

No newbusiness

Orderly exit

Immediate exit

14

SEB assesses customers’ current GHG emissions, public data, and information from direct engagement to placethem within its Climate Classification Model (Figure 18), which is based on alignment with the Paris Agreement.

207 SEB. Accelerating change, November 2021.
208 SEB. Accelerating change, November 2021.
209 SEB. Accelerating change, November 2021.

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Credit portfolio classification

B

Climate classification of our credit portfolio based on Paris Agreement
Figure 18. Climate classification model

Assessment of a customer’s current greenhouse gas emissions
Significant measures
taken

SEB customer

Transformed/
has no negative
impactOngoingtransformation
to improve
Some measures
to improve

No/limited measures
taken

Examplecustomer

Little or nomeasures toimprove
Material
carbonfootprint

Slightcarbonfootprint

Negative
impact15

Industry/
sectorVery limited
carbonfootprint

Non-material
carbonfootprint

Positive
impactStatus quo (no improvement against 2010 baseline)
Gradual change (>2 degrees C pathway)
Transition (1.5-2 degrees C pathway)
Paris aligned transition (1.5 degrees C pathway)
Sustainable (close to net-zero emissions)

By the end of 2021, SEB had classified 45% of credit exposure of customers with material carbon footprints210 and
25% of credit exposure of customers with a slight carbon footprint, and has set out its ambition to track customers’transition over time with annual reviews to support its ongoing engagement efforts. 211, 212

210 Measured as share of credit exposure.
211

Measured as share of credit exposure.

212 SEB. Accelerating change, November 2021.

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2) COMPONENT: INDUSTRY
Recommendation

1. Learn from other institutions throughdiscussion, and share noncompetitive,

Proactively engage with peers in the industry tononconfidential details about tools, data, and1) as appropriate, exchange transition expertise

methodologies that enable and accelerate theand collectively work on common challenges

design, implementation, assessment, and review

and 2) represent the financial sector’s viewsof a net-zero transition plan. For example:

cohesively to external stakeholders, such as– encourage adoption of net-zero transition

clients and governments.

Overview and relevance: No single financial
institution will determine the success of the global
transition to net zero and limit global warming
to 1.5 degrees C. A collective effort is required
from finance, the public sector, civil society, andthe real economy. Sharing transition lessons
learned, pooling resources to address common
challenges where appropriate, and developing
collaborative initiatives will benefit all institutions’transition plans.
Guidance: Financial institutions should pursue
with peers (where relevant, appropriate, and incompliance with all applicable antitrust laws) andother industry-related bodies working in theseareas, 213 any of the following objectives that areconsistent with their net-zero priorities and support
1.5 degrees C alignment:

plans across the industry, particularly withless advanced peers, by being transparent
about implementation experiences/lessons learned;– seek common approaches or frameworks
to support comparability, driving further
momentum and accountability;– collaborate where appropriate to solve

challenges that arise in designing andexecuting a transition plan. For example,
pursue joint transactions or financing
vehicles to increase scale of net zerofocused services and tools, such as industrial
clusters for hydrogen or carbon capturestorage technologies;– engage in cross-sector initiatives in the real

economy to help accelerate the phaseout ofhigh-emitting assets and rollout of transition
infrastructure; and– work to encourage appropriate government
net-zero targets and strategies; promote
government policies, regulations, andenvironments that facilitate net zeroaligned investment; advocate against
policies that may act as roadblocks to the
net-zero transition; and encourage sciencebased public policies that incorporatetransition considerations.

213 Industry-related bodies may include civil society and nongovernmental organizations providing subject matter expertise,targeted initiatives, and collaborative opportunities, among other purposes (e.g., Council for Inclusive Capitalism’s Just Energy
Transition Framework for Company Action, ShareAction, WWF, World Resources Institute).

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2. Represent a pan-financial sector view on
critical issues, including those communicatedto governments, the public sector, and realeconomy counterparties. Financial institutions
can contribute to sector-wide ambition andsolutions in multiple ways. They can:– join a sector-specific net-zero alliance thatbrings peers together under a common set ofcommitments, and help members implement
those commitments;– join relevant industry initiatives that focus

on net-zero transition planning for a specificsector or on a specific topic;214– participate in sector-specific or pan-sector

finance group(s) that are working toward
consistency on expectations for realeconomy companies on information needs,
such as real-economy disclosure; and– work to address and overcome data

challenges by collecting consistent data.

3. Sign on to public climate transitionspecific commitments. 215– Jointly develop or publicly support

industry-wide calls to action aimed atpolicymakers, regulators, supervisors,and global standard setters. 216– Enter into bilateral and multilateralengagements with both financial institutions
and stakeholders outside the sector tobuild industry- and system-wide thought
leadership and to enable solutions.
Partnerships could be with real-economy
firms, governments, or civil society
organizations. Examples include climate andnet-zero data utility efforts, open-source
analytics solutions, industry-wide reporting
solutions, platforms to scale the financing
available for the energy transition, andinnovative low-carbon technologies.

– Lead or participate in public webinars,

events, or panels to enable knowledge
sharing on a mass scale across the industry
or pan-sector, on both technical andoperational topics relating to the netzero transition.

214 Examples include MPP, SMI, First Mover Coalition, and Climate Transition Pathways.
215 Examples include the Powering Past Coal Alliance Declaration, the Financial Sector Commitment Letter on Eliminating
Commodity-Driven Deforestation, and the Global Methane Pledge.
216 Examples include GFANZ’s Call to Action and the Investor Agenda’s 2021 Global Investor Statement to Governments on the
Climate Crisis.

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Example 16. Global lenders work to decarbonize aircraft emissions
Sub-sector: Banking
RMI’s Center for Climate-Aligned Finance is partnering with six banks that are active in the aviation sector withthe goal of helping decarbonize the sector. 217
GHG emissions from aviation are considered hard to abate, and to achieve net-zero aviation emissions by 2050,
the sector will require more efficient aircraft, new aviation technology, and sustainable aviation fuels. 218 The SBTi
estimated in its Aviation Guidance 219 that the sector needs to reduce its carbon intensity by 35% to 40% between
2019 and 2035, and by 65% between 2019 and 2050. The six banks acknowledged that “the financial sector willplay a crucial role in funding the technologies, projects, and companies involved in this net-zero transition.”
In April 2022, the banks announced the Aviation Climate-Aligned Finance Working Group, which aspires tocollectively define common goals for action for aviation sector decarbonization before the end of 2022.
Financial institutions participating in a framework being developed would agree to annually assess and disclosethe degree to which the GHG from the aircraft, airlines, and lessors that they finance are in line with 1.5 degrees C
climate targets.
This effort shows how engagement in cross-sector initiatives in the real economy may help to accelerate
the managed phaseout of high-emitting assets and rollout of transition infrastructure, and to seek common
approaches or frameworks to support comparability, driving further momentum and accountability.
The six banks aim to create consistency and transparency in reporting and measuring progress to climate
targets. Financial institutions using the climate-aligned framework will be able to assess the emissions of theiraviation loan books, and work with their clients to report their emissions, fund lower-carbon solutions, and support
investments in new technologies. The intent is to design the framework for rapid adoption by aviation financiers
globally. The working group will invite other financial institutions to adopt the climate-aligned finance frameworkby the end of 2022.

217 RMI. Six Global Financial Institutions Chart a Flight Path to Decarbonizing Aviation, April 7, 2022.
218 IATA. Our Commitment to Fly Net Zero by 2050, October 4, 2021.
219 SBTi. Science-Based Target Setting for the Aviation Sector, version 1.0, August 2021.

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Example 17. ICAPs — New York State Common Retirement Fund’s Climate Action Plan
Sub-sector: Asset Owner
The Investor Agenda is a collaboration of groups that work with investors — AIGCC, CDP, Ceres, IGCC, IIGCC,
PRI, and UNEP FI 220 — focused on developing guidance for investors to address the climate crisis and advocatingcollectively for public policy to accelerate the net-zero transition.
The Investor Agenda released a framework for Investor Climate Action Plans (ICAPs), the ICAPs Expectations
Ladder, 221 in May 2021 to provide investors with clear expectations for issuing and implementing comprehensive
climate action plans to support the goal of a net-zero economy by 2050 or sooner. The ICAPs Expectations
Ladder summarizes the key climate actions investors can take in the four focus areas of the Investor Agenda:
investment, corporate engagement, policy advocacy, and investor disclosure. Governance is a crosscutting theme
across all four areas.
An example of an investor who has developed a climate action plan following this guidance is the New York State
Common Retirement Fund (CRF), one of the largest public pension plans in the United States. It published its
Climate Action Plan 222 in June 2019, which sets out its climate-related assessments, investments, engagement,
and advocacy work.
Following publication of its Climate Action Plan, in December 2020, CRF announced its commitment to reduce
GHG emissions from its entire portfolio to net zero by 2040. 223 In April 2021 CRF issued a progress report on its
Climate Action Plan. 224 In this report, CRF explains how it uses engagement to help mitigate its climate-relatedrisks. It files climate change-related shareholder resolutions, and it recently updated its proxy voting guidelines
to include specific climate guidelines.
CRF performs direct engagement with portfolio companies in high-impact climate sectors. 225 It urges companies
to establish transition strategies, to develop strategic CapEx planning, to adopt GHG emissions targets, and to
disclose emissions data and other key climate-related disclosures. In addition, it engages its top global equity and
fixed income external managers in areas of climate governance, risk management, engagement, proxy voting, and
TCFD reporting.
As part of its public policy advocacy work, CRF has weighed in on a number of important climate-related
investment and regulatory issues. 226 Its advocacy work includes testifying, providing public comments, andparticipating in state, national, and international forums.

220 Asia Investor Group on Climate Change (AIGCC), Investor Group on Climate Change (IGCC), Principles for Responsible
Investment (PRI).
221 Investor Agenda, Investor Climate Action Plans (ICAPs) Expectations Ladder, May 2021.
222 CRF. Climate Action Plan 2019, June 2019.
223 CRF. New York State Pension Fund Sets 2040 Net Zero Carbon Emissions Target, December 9, 2020.
224 CRF. Progress Report on the New York State Common Retirement Fund’s Climate Action Plan, April 2021.
225 Ibid., p. 13. CRF identifies the following as being high-impact climate sectors: oil and gas production, coal mining, electric andnatural gas utilities, automobile manufacturing, airlines, banking, materials, and real estate industries.
226 Ibid., p. 16.

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3) COMPONENT: GOVERNMENT AND PUBLIC SECTOR
Recommendation
Direct and indirect222 lobbying and publicsector engagement should, in a consistentmanner, support an orderly transition to
net zero, and as appropriate, encourage
consistency of clients’ and portfolio companies’
lobbying and advocacy efforts with theinstitution’s own net-zero objectives.

Overview and relevance: Public policy and227
regulation shape international, national, regional,
and local strategies for transitioning to net zero,and will have significant impact on real-economy
corporations as well as financial institutions.
Financial institutions engage with a range ofgovernment and public-sector institutions on abroad set of topics through advocacy, lobbying, andother indirect channels, with the goal of influencing
the direction of policy and regulation. 228, 229
Guidance: Financial institutions engaging withpublic-sector institutions should proactively include
topics that support or enable an accelerated andorderly transition to net zero. Several of these topics
were laid out in the GFANZ Policy Call to Action(published in October 2021, with an update on
progress published in November 2022) and could
be used to guide engagement with government andpublic sector. Examples include the following:• National net-zero targets and strategies:
Establishing interim and 2050 targets at thecountry level that bring economies in line with
1.5 degrees C scenarios, underpinned by aneconomy-wide transition plan, including credible
and well-communicated strategies for different
sectors, derived from credible, science-based
sectoral pathways. 230 Setting a strategy for thetransition of energy systems, ensuring stabilityof energy supply consistent with net-zero targets
and managed phaseout of high-emitting assets.

• Aligning regulation with net-zero delivery:
Establishing clear and consistent policy
regarding disclosure of climate-related
information, including transition plans. Providing
guidance on transition planning, promoting
global consistency. Supporting regulators andsupervisors to consider climate change froma financial stability perspective. Encouraging
regulations that support an orderly transition to
net zero. 231, 232• Pricing the externalities of carbon emissions:
Establishing direct and indirect carbon
pricing instruments to change the economics
of high-emitting activities. Supporting thedevelopment of high-integrity private voluntarycarbon markets.

• Accelerating the real-economy transition
through incentives and policies: Catalyzing
private investment to enable the real-economy
transition, including by scaling up production
capacity; designing market models for lowcarbon technologies and other climate solutions;

227 Via a third party on behalf of the institution, such as an industry trade association.
228 “Government/public sector” is defined broadly in this context, and includes policymakers, central banks, regulators, supervisors,and standard setters.
229 WGIII of IPCC emphasizes the importance of policy packages as well as individual policies, to enable innovation and build
capacity to support a shift toward equitable low-emissions futures. Refer to the Climate Change 2022: Mitigation of Climate
Change: Summary for Policymakers report.
230 GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, June 2022.
231 The NZIA paper, Insuring the net-zero transition: Evolving thinking and practices, 2022, offers the following observation:“Government policies that have a positive environmental impact often require more than one company to make changes…A key
question for the NZIA is therefore how to implement cross-industry environmental initiatives while complying with antitrust laws
and regulation…the NZIA and its members have begun to engage with antitrust regulators in global jurisdictions on the impact ofantitrust laws and regulations on the net-zero agenda and the benefits possible with industry cooperation and approaches such as
open standard setting.” p. 34.
232 NZBA suggests that issues should be discussed with international standard setters, jurisdictional policymakers, and otherstakeholders. NZBA. NZBA Transition Finance Guide, October 2022.
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and defining fiscal incentives to reduce the“green” premium. Supporting communities andindividuals to transition, including via demand
reduction strategies and (re)training schemes.
Publishing planned activities to safeguard
nature, both immediate and long-term, andprevent deforestation.

• Mobilizing capital flows to emerging markets
and developing economies: Delivering anenhanced Country Platform framework thatdelivers on the aspects proposed within
GFANZ’s Country Platform Statement. 233
Exploring a potential coordinating andmonitoring mechanism, as well as technicalassistance to countries, to support scaling andtesting the Country Platform model acrossmultiple geographies. Encouraging the MDBs
to set their own net-zero targets and pilot
reforms that can channel private climate financemore effectively.

Financial institutions should work to ensure thatpolicy engagement strategies are supportive ofnet zero and they should set out clear, objective
statements with their focus areas for government
support. To do so, financial institutions should
conduct reviews of direct and indirect policy
positions to see that they are aligned with theinstitution's net-zero commitments and with theoverall transition to a net-zero economy. 234, 235, 236
Some approaches to government and public-sector
engagement include the following:• Review and discuss if financial sector tradeassociations’ climate policy positions andlobbying activities are aligned with achieving

net zero by 2050 and limiting warming to 1.5
degrees C. Engage with trade associations orother bodies to encourage them to advocate fornet-zero objectives.

• Seek opportunities for senior-level dialogue withgovernment leaders to demonstrate privatesector leadership on climate goals and supportof specific net zero-aligned policies. This
could include participating in key international
meetings to promote net zero-aligned public
policy at senior levels.

• Provide feedback, as an individual institution,
via a trade association, or in partnership withpeers, to consultation processes launched byregulators and policymakers. Work to align theinstitution's feedback and comments provided
to public institutions as part of relevant policy
consultations with net-zero objectives orcommitments. If relevant, broaden the scopeof feedback offered to proactively support net
zero-aligned policies.

• Provide feedback, as an individual institution,
via a trade association, or in partnership withpeers, to consultation processes launched bystandard setters and multilateral organizations
and NGOs that could eventually inform
policy recommendations. 237• Publish original research and reports that set out
the case for policy action on climate change and/or conduct media and public outreach callingfor policy action on climate change. Provide
analysis to highlight the essential role of public
policy in achieving emissions reduction in specificsectors and across the economy.

233 GFANZ. Mobilization Statement of Support 2.0, 2022.
234 Ceres’ Blueprint for responsible policy engagement on climate change provides guidance on how to conduct an audit of indirect
and direct lobbying positions on climate change. Guidance is also provided on systematizing decision-making on public policy
engagement on climate change; getting the Board to engage on climate policy; and acting to align both direct and indirect
lobbying with science-based climate policies.
235 Influence Map’s LobbyMap Methodology illustrates how financial institutions’ lobbying activities can be assessed. UNFCCC and
UNEP definitions from their Guide for Responsible Corporate Engagement in Climate Policy apply.
236 The Global Standard on Responsible Climate Lobbying promotes attention to and action on corporate climate lobbying for theinvestor community.
237 The IIGCC’s Policy Programme offers an example of an investor coalition that helps “to inform the policy dialogue and perspectiveof key stakeholders, to ensure investor policy positions are well communicated, understood and reflected in final decisions
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Example 18. Impax advocacy on climate solutions
Sub-sector: Asset Management
Impax Asset Management is a UK-based asset management group working to demonstrate its commitment toreaching net-zero GHG emissions by 2050, in line with global efforts to limit warming to 1.5 degrees C. Since its
inception in 1998, Impax has invested in companies and assets that lead or benefit from the transition to a moresustainable economy. Impax sees active engagement as a key part of its role and collaborates with clients andothers to create policies supportive of a low-carbon, sustainable economy.
Impax has established a Global Policy Group, with a dedicated lead and senior membership including the CEO.
The group brings together expertise from across the firm to implement a rolling three-year advocacy plan
focused on engagement with policymakers in Europe and the United States. Impax deploys a variety of advocacy
approaches, ranging from traditional interventions (e.g., consultations and sign-on letters) to more proactive
activity (e.g., publishing perspectives and funding research). Impax also applies its environmental markets
expertise to stimulate innovation in science and technology, such as through its CEO’s role as an independent
director on the UK government’s Net Zero Innovation Board.
In the last two years, Impax has focused its activities on financing the energy transition; nature-based solutions;
physical climate risk; and greening the finance industry. In early 2020, Impax produced a Clean Investment
Roadmaps white paper, 238 which called for governments to make investment opportunities more explicit
by breaking down their national climate goals into clear sectoral roadmaps. The white paper also called onpolicymakers to establish dialogues with investors and other key stakeholders on the design of policies likely
to attract finance into the solutions needed in each sector.
Impax actively contributed to commitments and calls to action that emerged at COP26, including:• the Investor Agenda Global Investor Statement to Governments on the Climate Crisis, 239 which calls forgovernments to strengthen their NDCs to align with a transition to net zero; commit to a clear decarbonization
roadmap for each carbon-intensive sector; implement domestic policies to incentivize private investments; andcommit to mandatory climate disclosures;• the Energy Transitions Commission (ETC) report Keeping 1.5 degree C Alive: Closing the Gap in the 2020s, 240
which set out the key actions needed, sector by sector, to deliver the Paris Agreement; and• various “coalitions of the willing” that committed to ambitious global action in key sectors (e.g., the PPCA,
the Natural Capital Investment Alliance, investor commitment to deforestation-free portfolios, and NZAM).
During 2021, Impax also advocated in favor of improvements to the regulation of climate-related disclosures.
It was a lead author of the Climate Financial Risk Forum’s Climate Data and Metrics report 241 whose
recommendations were referenced in the FCA’s subsequent consultation on TCFD implementation. In responseto the SEC’s request for inputs on climate disclosure, Impax submitted a set of detailed recommendations242 that
informed the SEC’s proposed rule published in March 2022.

238 Impax Asset Management. Clean Investment Roadmaps: A framework for building clean energy economies, July 2020.
239 Investor Agenda. 2021 Global Investor Statement to Governments on the Climate Crisis, September 2021.
240 ETC. Keeping 1.5 degree C Alive: Closing the Gap in the 2020s, September 2021.
241 CFRP. Climate Financial Risk Forum Guide 2021: Climate Data and Metrics, 2021.
242 U.S. SEC. Response to the Commissioner’s Questions of March 15, 2021, About Investor Interest in the Financial Impact of Climate
Change, June 9, 2021.

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THEME

Metrics and Targets
Metrics and targets provide credibility and clarity when financial institutions communicate their net-zerostrategy to internal and external stakeholders. Quantitative metrics and targets are necessary to groundnet-zero ambition in specific objectives and concrete actions, and to track progress over time. Wellformulated targets allow for the assessment of an organization’s long-term decarbonization strategy, as
well as its interim activities and results. The appropriate metrics and targets for a given financial institution
will depend on its overall objectives and priorities. This theme focuses on the selection and use of metrics
and targets.

1) COMPONENT: METRICS AND TARGETS
Recommendation

zero Transition Plans — Supplemental Information
report. However, these challenges are not a reason

Establish a suite of metrics and targets to drive

to delay target setting or measurement, and theexecution of the net-zero transition plan andrapid evolution and direction of travel of data

monitor progress of results in the near, medium,

availability and measurement methodologies may

and long term. Include metrics and targets

inform selection of metrics and targets.

focused on aligning financial activity in supportof the real-economy net-zero transition; on

In addition, GFANZ recognizes that Scope 3

executing the transition plan; and on measuring

emissions of clients and portfolio companies arechanges in client and portfolio GHG emissions.

critical for financial institutions to evaluate in their
metrics and target setting. Many regulators andindustry bodies have highlighted the importance ofOverview and relevance: This report acknowledges

including Scope 3 financed emissions. 243, 244

that specific metrics and targets methodologies
may be more suited to a certain sector or net-zeroFinancial institutions should take care to set andfinancing approach. As well, the report recognizes

use various metrics and targets appropriately.

there are challenges in using certain metrics, and in

Metrics and targets can be used for multiple

the availability and quality of data. Some of these

purposes, such as signaling commitment to net

challenges, including the early stage of metrics

zero; driving action inside an institution; increasing

related to the four key financing strategies, areunderstanding of client and portfolio company

discussed in the "Expansion of metrics and targets”

plans; and driving financing to real-economy

and “Data” sections in the Financial Institution Net-transition activities.

243 Scope 3 should be included at minimum for high-emitting sectors, such as the priority sectors identified in the Net Zero Asset
Owners Alliance target-setting protocol, which include Oil and gas; Utilities (including coal); Transport (civil aviation, shipping,and road transport); Materials (steel, cement, and aluminum); Agriculture, forestry, and fisheries; Chemicals; Construction andbuildings; Water utilities; and Textiles and leather. Financial institutions should consider other sectors for Scope 3 that areproportionally material to their financed emissions and where data allows. Financial institutions should also refer to their sectorspecific alliance for guidance. (NZAOA. Target Setting Protocol Second Edition).
244 Recall that this report uses “financed emissions” and “portfolio emissions” interchangeably.

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Last, some essential transition actions, likethere are material updates or developments in data,

supporting firms in the early stages of transition or

methodology, business models; or if targets are

funding the managed phaseout of high-emitting

met sooner than anticipated.

physical assets, may result in increased financed
emissions in the near term but contribute tomeaningful decreases in the medium or long term.
To capture this progress for both interim andlong-term targets, financial institutions may use
multiple metrics to gain a better understanding of
the effectiveness of a net-zero transition plan asa whole.
Greenhouse gases, including carbon dioxide,

Where logistically possible, scheduling of emissions
targets monitoring should be designed to alignwith reporting timelines used for other corporate
strategy and capital planning targets to allow foreasier integration. Common timelines facilitate
joint reviews by the Board (or equivalent body)and senior management committees and create
opportunity for joint consideration of all businessstrategies and priorities.

methane, and nitrous oxide, should be

Where available, to provide stakeholders withconsidered within GHG metrics and targets. 245

independent assurance that targets and data arecredible, financial institutions should consider
seeking external validation for their GHG emissions

Guidance:
General guidance
Selection and calculation of metrics and targets
should be aligned with financial sector guidance
to support transparency and comparability.
Institutions should regularly review targets
according to their sector-specific guidance; whentargets from third parties.
Financial institutions are encouraged to set andmonitor progress toward a net-zero emissions
reduction target on their own operational andcorporate value chain emissions, in addition to theirfinanced emissions, to which this report applies. 246

BOX 7. CONSIDERATIONS FOR ABSOLUTE AND INTENSITY METRICS247
A key design choice in selecting emissions and portfolio alignment metrics and targets is whether tobase these on measures of absolute emissions, or some form of intensity ratio.
Absolute emissions metrics may offer the benefit of a direct link to the carbon budget and can also
be applied consistently across sectors. However, they can discourage the transformation needed.
Absolute metrics may disincentivize investment in transition sectors, constrain growth of lowemissions entities, and make comparability of different-sized portfolios or entities difficult.
An economic intensity metric, based on a simple calculation (e.g., emissions/revenue) can addresssome of the challenges above. They allow for growth, investment, and comparability across sectors

245 IPCC. IPCC Updates Methodology for Greenhouse Gas Inventories, 2019. The definition excludes water vapor.
246 For more information on corporate emissions, please see World Business Council for Sustainable Development (WBCSD)
and World Resources Institute (WRI). The GHG Protocol: A Corporate Accounting and Reporting Standard Revised Edition,
March 2004.
247 Adapted from GFANZ. Measuring Portfolio Alignment: Driving Enhancement, Convergence, and Adoption, 2022.

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and portfolios. However, they target emissions efficiency improvements less directly, and can also
be subject to volatility through changes in the denominator that may be unrelated to climate such aschanges in company revenue.
Physical intensity metrics address these concerns by scaling emissions relative to a production
measure (e.g., MWh produced), which can then encourage a transformation of the business throughgreater use of carbon-efficient technologies and processes. However, use of sector-specificproduction data does not support comparability between sectors and such data for each sector may
not always be available. There is also a debate over whether physical intensity metrics are best suitedin the fossil fuel sectors where net-zero scenarios suggest a reduction in production is required, which
may not be as easily conveyed by intensity metrics.
Both types of intensity metrics can result in total emissions increasing even if the carbon intensity
measure used decreases. There is also a risk of volatility across both absolute and intensity metrics inhigh-emitting industries because of several factors such as fluctuations in revenue, production volume,and market movements. Drivers of the changes in the metrics should be tracked to attribute thechange to emissions reduction efforts or other factors. Ultimately getting absolute emissions to zerois the end goal, and both absolute and intensity metrics should be considered together to measureprogress of different pathways to net zero.

Guidance by metric categories

metrics with metrics that focus on real-economy

Institutions should use multiple metrics to track

emissions reductions. The latter may be related toprogress toward their interim and final net-zero

any or all of the four key financing strategies thetargets. GFANZ acknowledges that emphasizing

financial institution selected as its objectives andportfolio emissions reduction targets, such aspriorities. Also, metrics to track internal progress

portfolio footprints, could have unintended

in executing the net-zero transition plan are key toconsequences of reducing financing support tomanaging the implementation of the plan. Figure

real-economy emissions reduction efforts as laid

19 summarizes the three overarching categories ofout in Part B. Therefore, this guidance recommends

metrics and targets that can be used to monitor

complementing client and portfolio emissions

progress against net-zero objectives and priorities.

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Figure 19. Three categories of metrics and targets$

1. Real-economy transition

2. Plan execution

Monitoring progress in directing capital to real-economy
net-zero transition activities as outlined in the four key
financing strategies

Monitoring transition plan implementation across theorganization, including its strategy, internal processes,
professional staff, and internal functions such as portfolio
metrics and engagement

3. Portfolio emissions
Climatesolutions

AlignedAligning

Managedphaseout

Monitoring financed emissions reductions withtransparency on the link to real-economy emissions
reductions

Metrics and targets for each category are meant to measure progress for different aspects of a net-zero commitment. Category 1
focuses on how financing and related services enable emissions reduction in the real economy. Category 2 focuses on the executionof the plan within a financial institution. Category 3 reflects the changes in the real economy broadly in client and company portfolios.
As the rollout of the net-zero transition plan progresses, progress may be seen in category 1 and, finally, category 3.

The three categories introduced in Figure 19, whichreal economy as introduced in Part B and include

financial institutions should consider monitoring

financing and related services to enable andand setting targets against, are described here withsupport 1) climate solutions; 2) companies alreadydetailed discussions of key considerations.

aligned to net zero; 3) the transition of companies
committed to aligning; and 4) the managed

See the “Metrics and targets examples and case

phaseout of high-emitting physical assets. Because

studies” section in the Financial Institution Net-

these actions could temporarily increase client

zero Transition Plans — Supplemental Informationand portfolio emissions in the short term, using

report for examples of metrics and targets for all

only portfolio emissions footprint metrics may

three categories.

not reflect the extent of transition activities thefinancial institution may be supporting.

1. Metrics and targets for the real-

Table 8 provides some illustrative examples of

economy transition

the potential key financing strategies may have

Financial institutions should use metrics and targets

on portfolio emissions and why use of only

to monitor and describe progress in supporting the

backward-looking portfolio footprint metrics could

key financing strategies they selected to prioritize

be misleading.

in their transition plans. The four key financing
strategies are positive actions to decarbonize the80

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Table 8. Example interplay between the four key financing strategies and portfolio emissions248
KEY FINANCING STRATEGY EXAMPLE IMPACT ON PORTFOLIO EMISSIONS (NOT EXHAUSTIVE)
1. Climate solutions• If a portfolio company meets increased demand for its low-emissions technology,
its own emissions could likely increase and the financial institution’s overall portfolio
emissions may increase proportionally.
• Conversely, if entities using low-emissions technologies are included in the financial
institution’s portfolio, overall portfolio emissions could decrease as the technology
is deployed.

2. Aligned• Portfolio emissions could decrease as more companies or clients in the portfolio arealigned to net zero.

3. Aligning• Portfolio emissions could increase with the addition of more high-emitting realeconomy firms that are just beginning to transition.
• As firms execute their net-zero transition plans, reductions in portfolio emissions inline with 1.5 degrees C-aligned pathways take place.

4. Managed phaseout• Portfolio emissions may initially be higher if the financial institution is financing highemitting assets with plans to accelerate their retirement.
• Significant reductions in portfolio emissions may only occur as the phaseout planis completed.

Where possible, a financial institution should test

in examples in the Financial Institution Net-zero

the assumptions around the inputs used in theTransition Plans — Supplemental Information report.

calculation of real-economy targets and metrics
to assess how the institution’s performance andConstructing a target framework that best

progress may be impacted by external conditions

accounts for key financing strategies of climatethat differ from the initial assumptions (e.g.,solutions, incentivizing real-world decarbonization

availability of technology or government policies).

efforts, and managed phaseout requires further

Additionally, financial institutions should consider

research to establish net-zero benchmarks (seehow external influences, such as regional policies“Expansion of metrics and targets” section

and sectoral pathways, may affect their transitionin the Financial Institution Net-zero Transition

plan assumptions. 249

Plans — Supplemental Information). In addition,
financial institutions should consider working

Table 9 presents guidance for each approach,toward expressing an umbrella metric, transition

particularly on metrics. Such metrics could be

finance, to represent the proportion of their total

based on emissions or on transition-related

business that relates to the four key financing

categories and should consider both backward-

strategies collectively.

and forward-looking methodologies as shown

248 Recall that portfolio emissions include those associated with a financial institution’s investment, lending, and underwriting
portfolios, or from clients of investment consultants or financial service providers.
249 GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, June 2022.

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Table 9. Guidance for metrics and target setting across four key financing strategies to net-zero capital
allocation and related services
KEY FINANCING STRATEGY GUIDANCE
1. Climate solutions

Financial institutions seeking to enable and finance the development or scaling ofclimate solutions should consider a range of metrics to track the impact of solutions on
real-economy emissions reduction. Target setting for climate solutions is still nascent,but, where available, sectoral pathways could be used to set targets in line with thescale needed to achieve net zero. (See “Expansion of metrics and targets” section in
the Financial Institution Net-zero Transition Plans — Supplemental Information reportfor further discussion.)

2. Aligned

Financial institutions supporting those companies or assets that are already substantiallyaligned should determine the metrics to monitor progress of financing of this key strategy.
These metrics could be drawn from criteria used to assess the current and ongoingalignment to a 1.5 degrees C pathway of the companies or assets. The criteria should also
be reviewed and updated over time.

3. Aligning

Financial institutions supporting those companies that have committed to transition
and are beginning the process, or are still transitioning, should determine metrics tomonitor links between financing support and transition activities, as well as progressof financing of this key approach. These metrics could be drawn from the criteria ofwhat “transitioning” means. This criteria will be similar to that for companies and assets
already aligned to net zero but account for an earlier stage of transition activity anddepend heavily on net-zero transition plans and their execution. The criteria should also
be reviewed and updated periodically.

4. Managed phaseout

The GFANZ report The Managed Phaseout of High-emitting Assets provides initialand preliminary guidance on a net zero-aligned approach to financing or enablinghigh-emitting assets where there is a plan for their early retirement. The report notesthat such an approach would need its own metrics and targets. Financial institutions
should consider metrics that demonstrate how a Managed Phaseout plan throughearly retirement will reduce emissions as well as broader impacts (e.g., related to
the workforce).

2. Metrics and targets for plan execution

industry standards. Multiple metrics may be

Financial institutions should set targets and monitor

needed to assess different aspects of an

metrics that indicate their organization’s progressinstitution’s portfolio and business activities

in executing on their net-zero transition. Similar(e.g., across different sectors, or to distinguishto other strategic plans of the institution, clear

between on balance sheet emissions versus those

corporate financial and operational KPIs should be'facilitated' by financial institutions on the behalf

monitored and reviewed on a regular basis. Theseof their clients). Using both forward-looking andcould pertain to any of the themes and components

backward-looking metrics should be considereddiscussed in this report that show activity offor a more holistic assessment (historical climate

the institution’s teams in applying their net-zero

performance and future net-zero plans) ofcommitment to parts of the business.

companies and clients.

Financial institutions should select metrics and set

Emissions reduction targets should be consistenttargets for engagement programs, in alignment

with science-based, 1.5 degrees C-aligned scenarioswith sector-specific guidance, where available.

and sectoral pathways, where available, to reachnet-zero emissions by 2050 and should include

3. Metrics and targets for financed emissions

interim targets for 2030 or sooner. Financial

Financial institutions should choose financed

institutions should use low- or no-overshootemissions metrics and targets, and thescenarios wherever available. Key elements to bemethodologyto develop them, in alignment withincluded in GHG emissions reduction target-setting

sector-specific guidance, where available, or withmethodologies include:82

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEMETRICS AND TARGETS• GHG emissions in scope (Scopes 1 and 2, andScope 3 based on materiality);250• business activities in scope (sectors and/or linesof business);• target years for interim and net-zero targets; and• percentage of portfolio covered by targets.
Table 10 lists sources of guidance on important
methodological questions in defining GHG• baseline year;251

emissions metrics.

Table 10. Resources for metric methodologies
CATEGORYRESOURCES

Definition of portfolio company emissions

GHG Protocol252 and jurisdiction-specific guidance 253

Calculation of financed emissions

PCAF254, 255

Definition of physical and economic
intensity metrics

SBTi, 256 TPI, 257 PCAF258

Portfolio alignment metrics

PAT, 259 GFANZ, 260 SBTi, PACTA 261

Selection of reference scenario and/or
sectoral pathway

Sector-specific alliance guidance, 262 GFANZ guidance, 263 IEA, 264
Mission Possible Partnership, 265 NGFS266

Tracking and disclosure of use ofcarbon credits267

SBTi, 268 Sector-specific alliance guidance, carbon markets initiatives269

The guidance documents listed above generally focus on one area of methodology. Where relevant, financial institutions can also referto the Net-zero Investment Framework 270 and NZAOA’s Target Setting Protocol 271 for overarching guidance.

250 See the “Overview and relevance” section for a note on materiality thresholds for Scope 3 emissions of portfolio companies
and clients.
251 Based on years that are recent and representative, following sector-specific alliance guidance and taking into accountconsiderations such as COVID-19.
252 WBSCD and WRI. The GHG Protocol: A Corporate Accounting and Reporting Standard, Revised Edition, March 2004.
253 Examples include Environmental Protection Agency Greenhouse Gas Reporting Program (GHGRP) and Government of Canada
technical guidance on reporting greenhouse gas emissions.
254 PCAF. The Global GHG Accounting and Reporting Standard for the Financial Industry, 2020.
255 PCAF is also developing methodologies across more asset classes and guidance on underwriting due by the end of 2022.
256 SBTi. Foundations for Science-Based Net-Zero Target Setting in the Financial Sector, 2022, and Financial Sector Science-Based
Targets Guidance, 2022.
257 TPI. Methodology and indicators report, 2019.
258 PCAF. The Global GHG Accounting and Reporting Standard for the Financial Industry, 2020.
259 PAT. Measuring Portfolio Alignment: Technical Considerations, 2021.
260 GFANZ. Measuring Portfolio Alignment: Driving Enhancement, Convergence, and Adoption, 2022.
261 Paris Agreement Capital Transition Assessment (PACTA) provides guidance for investors and banks to measure alignment of
portfolios with climate scenarios.
262 GFANZ, Guidance on use of Sectoral Pathways for Financial Institutions, 2022.
263 GFANZ. Guidance on Use of Sectoral Pathways for Financial Institutions, 2022.
264 IEA. World Energy Model.
265 Mission Possible Partnership. Sector Transition Strategies.
266 NGFS. NGFS Scenarios for Central Banks and Supervisors, 2022.
267 Also, please refer to to the “Carbon Credits” section in the Financial Institution Net-zero Transition Plans — Supplemental
Information report”
268 SBTi. Foundations for Science-Based Net-Zero Target Setting in the Financial Sector, 2022, and Financial Sector Science-Based
Targets Guidance, 2022.
269 Reference VCMI Claims Code of Practice.
270 PAII. Net Zero Investment Framework: Implementation Guide, version 1.0, March 2021.
271 NZAOA. Target Setting Protocol, second edition, January 2022.

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Financial institutions should consider also

the path to net zero. 273 Financial institutions may

developing metrics to monitor progress on changing

also set separate carbon credit targets alongside

portfolio composition, supporting the explanation

emissions reduction targets.

of portfolio emissions increase or reduction. These
metrics may include the proportion of GHG portfolio

These metrics could include the following:emissions reduction that are a result of changes in• The number of credits by type: type of credit

portfolio composition and those by changes in theunderlying companies. 272
Where carbon credits are used by financial
institutions or their clients, financial institutions
should monitor how credits are used and the typeand quality of credits. The use of credits should bemonitored alongside, but separate from portfolio
emissions. Financial institutions should consider
specifying whether credits are being used toneutralize residual emissions or to compensate(i.e., reduction, removal), type of mitigation
activity, and the accounting methodology tomeasure the emissions reduction.

• Certification/verification of the credits:
standards, issuing registries, and other relevant
details to ensure that credits are verified tobe high-quality.

• How and when the credits are used: forneutralization of residual emissions, on the pathto net zero or after net zero is obtained, and/or
against outside value chain emissions.

emissions beyond emissions reduction targets on

Table 11. Examples of metrics and targets
METRIC CATEGORY

EXAMPLE

Driving financial activity:
Climate solution

BNP Paribas: 274 In 2015, had a target to invest €100 million by 2020 to encourage
innovative start-ups to develop pioneering technologies and business models that
address energy transition challenges.

Driving financial
activity: Alignment

Robeco:275 Measure degree of alignment of companies to the Paris Agreement covering
their top-200 highest emitters in their portfolio.

Driving financial
activity: Transition

CDPQ: Creating a $10-billion envelope to support the transition of heavy emitters. 276

Driving financial activity:
Managed phaseout

Proportion of coal assets with a credible transition (including managed phaseout) plan,with a target to increase coverage; Avoided emissions from planned early retirement ofcoal assets.

272 Where the portfolio changes significantly, a recalculation of the baseline may be needed. Both the GHG Protocol and PCAF
Standard call for a policy to define the circumstances that trigger a recalculation. There are additional data consistency
considerations in such cases.
273 See the Financial Institution Net-zero Transition Plans — Supplemental Information report for additional information on ongoing
initiatives to define standards for the use and quality of carbon credits. For example, SBTi notes that “Carbon credits may only beconsidered to be an option for neutralizing residual emissions or to finance additional climate mitigation beyond their sciencebased emission reduction targets. SBTi. SBTI Corporate Net-zero Standard. 2022. (Note that the SBTi guidance for financial
institutions on carbon credits refers back to this standard.)
274 BNP Paribas. TCFD Report 2020, 2020.
275 Robeco. Navigating the climate transition: Robeco’s roadmap to net zero emissions by 2050, October 2021.
276 CDPQ. 2021 Sustainable Investing Report, 2021.

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METRIC CATEGORY

EXAMPLE

Executing the plan

Citi: Has two board committees responsible for oversight of the climate change policy. 277
ING: In 2020, supported the issuance of 62 green/social/sustainability-linked bonds
and schuldscheins, 54 green/sustainability-linked loans, 19 sustainable structured
finance transactions, and four sustainable investments transactions. An increase to 139
sustainable finance transactions in 2020 from 123 sustainable finance lending and bondtransactions in 2019 showed year-on-year growth. 278

Measuring
portfolio emissions

ING: Measured that focus on their loan book in 2020 covered 42 million tons ofCO₂. Sixty-nine percent of the portfolio is currently measured using methodologies
compliant with the Global GHG Accounting and Reporting Standard for the Financial
Industry developed by PCAF. 279

Example 19. SBTi’s net-zero guiding principles
The SBTi is an organization dedicated to promoting the adoption of science-based target setting by companies
and financial institutions (FIs) as they embark on their transition to net zero. Within the net-zero ecosystem, theSBTi is unique in providing independent, transparent, and quantitative assessment of company and financial
institution targets. The SBTi believes that the focus of FI net-zero targets “should not lie on reaching a state of
net-zero GHG emissions within portfolios but instead, ensuring that net-zero targets incentivize FIs to sufficiently
contribute to helping achieve the global goal of net-zero emissions at a planetary level.”280
In its Foundations for Science-Based Net-Zero Target Setting in the Financial Sector report, the SBTi proposed a
set of four principles to “guide the formulation and assessment of net-zero targets.”281
To drive the action needed to meet societal climate and sustainability goals, the SBTi stresses the principle of“completeness.” This means that FIs should ensure their net-zero targets lead to a state that is “compatible withreaching net-zero emissions at the global level.”282 To achieve this, the SBTi says FIs should address all operationaland financing activities — not just those they can directly influence.
The SBTi sets out its expectations that FIs should “transition and align their financing activities to net zero inline with pathways that achieve the Paris Agreement”283 in its “science-based ambition” principle. This principle
encourages FIs to consider both the synergies and trade-offs between different pathways.

277 Citi, TCFD Report 2021: Citi’s Approach to Climate Change and Net Zero, 2021.
278 ING. 2021 Climate Report, 2021.
279 Ibid.
280 SBTi. Foundations for Science-Based Net-Zero Target Setting for the Financial Sector, version 1.0, April 2022, p. 7.
281 Ibid., p. 27.
282 Ibid., p. 27.
283 Ibid., p. 28.

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The SBTi understands that actions FIs take to achieve portfolio reductions can have different outcomes on
real-world emissions, depending on how they are implemented. On this issue, the SBTi’s “real economy impact”
principle states that FIs “should leverage their abilities to influence and engage other actors as well as focus theirfinancing activities to help achieve economy-wide decarbonization and a just transition, and not simply reduce
portfolio exposure to GHG emissions.”284
The SBTi emphasizes that the development of climate solutions is needed in parallel to the decarbonizationof existing assets, with the two being complementary in supporting the economy’s transition to net zero. The
SBTi’s “decarbonization and climate solutions” principle outlines how FIs should consider both the financing of
decarbonization efforts as well as climate solutions. 285
In addition to these principles, this SBTi report provides further detail on metrics and targets for different typesof FIs, and the opportunity to assess and validate science-based targets.

284 Ibid., p. 29.
285 Ibid., p. 30.

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THEMEGovernance
Governance structures are key mechanisms for enabling financial institutions to oversee progress
toward net-zero targets. The outcome of a net-zero transition plan will flow directly from governanceand leadership tone. Identifying senior personnel for specific oversight and implementation roles andresponsibilities, and linking remuneration, where structure allows, to achieving progress, will ensure
appropriate resources are deployed.
Senior personnel will be responsible for ensuring that all teams across their organization have the required
climate transition-related skills, resources, and understanding to deliver the desired results. Leaders can
support a culture of innovation and maximum employee engagement to find creative solutions to meetingthe net-zero objectives. Transparent communication about the transition plan and ongoing progress keeps
internal stakeholders up-to-date and adds another layer of accountability.
Climate-related governance should be integrated at the highest levels of a financial institution and should
flow down to every part of the organization through training, education, and engagement.

1) COMPONENT: ROLES, RESPONSIBILITIES, AND REMUNERATION
Recommendation

Overview and relevance: Ultimate accountability
rests with the Chief Executive Officer and relevant

Define roles for the Board or strategy oversightgovernance body responsible for strategic

body and senior management ensuring they

oversight, to set a bold, actionable plan and ensure

have ownership, oversight, and responsibility

that the organization can adapt to effectively

for the net-zero targets. Assign appropriate

implement it. Several functions within a financial

individuals and teams to all aspects of both

institution are typically involved in the design anddesign and delivery of the transition plan. Use

execution of a net-zero transition plan. Establishing

remuneration incentives for all roles, where

effective governance processes and structures,

possible. Review the transition plan regularly

with clear roles, responsibilities, and remuneration,

to ensure material updates/developments

is critical to the success of the plan’s design

are incorporated; challenges are reviewed

and execution. Remuneration and incentives foras an opportunity to correct course; andindividuals should be in line with key performance

implementation risks are properly managed.

indicators related to the net-zero transition planand relevant to the individual’s role.

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Guidance: Financial institutions should establish

institution’s senior management, this should be wella clear mandate, role, and authority for the Board

documented and communicated.

(or equivalent governance body) and its subcommittees in the oversight of transition planning.

The net-zero transition will be a multiyear effort and

The Board or body charged with oversight should

the institution’s ambition and strategic approachconsider including members with climate-relatedshould provide that it continues, regardless ofexperience and expertise. This body should bechanges in management and Board. Integrating

responsible for providing advice; reviewing thenet-zero transition awareness and objectives

suitability of the transition plan and its design;

within strategies and core business practices

and assessing progress toward stated targets.

will require resources, new skills, and change

Where authority for the above is delegated to the

management expertise.

Example 20. Sample guidance from organizations
Investor Agenda (IA) 286

TCFD 287

Global Association

World Economic“Ensure that the“Approval: The board orof Risk Professionals

Forum 289 proposedorganization’s climate

appropriate committee(GARP) and UNEP

“guiding principles

change policies andof the board approvesFIfor effective climate

plans are actively

the transition plan andof Directors Climate

governance on corporate

supported by theclimate-related targets.”

Dashboard to ensureboards” including climatetransparent reporting

accountability, subject

to the Board, including

demand, board structure,

topics across balancemateriality assessment,

sheet management

strategic integration,and own operations.

incentivization,

The topics cover Risk,

reporting and disclosure,

Financed emissions,and exchange.

Board and senior
management.” (tier 1)“Oversight: The board or
appropriate committee“Define formal climateof the board overseeschange responsibilities

execution of thein Board and/or Board

transition plan.”Committee Terms ofReference and roledescriptions.” (tier 3)288

outlines a Board

Portfolio alignment,
Mobilizing transition“Report regularly tofinance, Client

the Board and senior

engagement,

management on climate

Regulatory actions,performance andDisclosure alignment,

portfolio climate risk

Audit findings, Own

exposures.” (tier 1)

emissions, and Business
continuity incidents.

286 Investor Agenda. Investor Climate Action Plans (ICAPs) Expectations Ladder, May 2021.
287 TCFD. Guidance on Metrics, Targets, and Transition Plans, October 2021.
288 GARP and UNEP FI. Steering the Ship: Creating Board-Level Climate Dashboards for Banks, July 2022.
289 World Economic Forum. How to Set Up Effective Climate Governance on Corporate Boards: Guiding principles and questions,January 2019.

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Financial institutions should ensure that there are

IT systems for data collection, and to develop

clear roles, responsibilities, and remuneration fora network to stay informed of the progress ofthe design and execution of the transition plan inindustry peers and other organizations that offer

order to embed it at all levels of the organization.

relevant information and insight.

At the senior management level, individuals withaccountability for design and delivery should be

Typically, responsibilities for the execution of

specified. These accountable individuals should

the transition plan involve functions acrosshave sufficient authority to deploy resources andthe organization and cover the full scope of its

set operational objectives. Scope of authority

business activities. Table 12 suggests key functions

may cover ability to secure access to specialistthat might be involved, in addition to teams

advisors, to develop resources and tools to ensureleading sustainability efforts. The examples are

effective implementation, to enhance or implement

not exhaustive.

Table 12. Internal stakeholders
COMPONENTFUNCTIONS THAT MIGHT BE INVOLVED

Objectives and priorities

Board or equivalent body, Chief Executive Officer, Senior Management,
Business-line management, Legal, Strategy

Products and services

Business-line management, Strategy, Legal, Marketing

Activities and decision-making

Business-line management, Risk, Data teams

Policies and conditions

Risk, Compliance, Legal, Business-line management

Clients' and portfolio
companies' engagement

Business-line management, Relationship managers/Stewardshipteams, Communications

Industry engagement

Business-line management, Legal, Communications

Government and publicsector engagement

Compliance, Public Affairs/Government Relations, Legal

Metrics and targets

Business-line management, Finance, Data teams, Risk, Audit

Roles, responsibilities,
and remuneration

Risk, Audit, Legal, Board or Board committee, Corporate Secretary, Investor
Relations, Change Management, Communications, Human Resources

Skills and culture

Human Resources, Executive Management, Business-line management

Note: Sustainability, Climate, or Environmental functions may be involved across transition plan implementation.

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Financial institutions should regularly report on

C-suite roles could be directly linked to transition

the status of the transition plan to the Board orplan targets, where structures allow.

strategy oversight body and to senior management,with relevant reporting thresholds and escalation

Incentives should be tailored to individuals’ roles,

protocols in place. In addition to business metrics

their progress against performance targets, and theiralready reported, key transition-related items

contribution to the transition plan implementation.

monitored and reported could include:

Incentives should be reviewed annually alongside• metrics for activities supporting the real-

performance and should include outcomes for both

economy transition;• results from key engagement activities;• change management performance indicators as
the net-zero transition strategy is embedded inbusiness processes across the organization;• identification of key transition plan execution
risks and how they are being mitigated (oraccepted); and• reports from third-party assessment of thetransition plan and progress.
Financial institutions should update or refine

when targets are met and when they are not.
These incentives can be designed to:• reward performance on net-zero transition
objectives, where possible designing incentives
to emphasize quantifiable real-economy change;• adjust or influence internal analytics, decisionmaking, and offered products and services; and• build employees’ skills and bring innovation
to the activities that are aligned with net-zero
objectives.

performance criteria, role descriptions, andIncentives at all levels of the organization should

remuneration throughout the organization to

be commensurate with the priority of the transitionreflect the transition plan objectives and targets,plan. They should consider taking into account bothincluding for senior management. Remuneration forinterim and long-term climate goals.

Example 21. Sample incentive guidance from organizations
CDP 290

TCFD 291

TPI 292“Do you provide incentives for the“Incentives: Remuneration and“Does the company’s remuneration

management of climate related

other incentives are aligned withfor senior executives incorporate

issues, including the attainment

the organization’s climate goals,

climate change performance?”of targets?”as described in the transition plan.”

290 CDP. Climate Change 2022 Questionnaire, 2022.
291 TCFD. Guidance on Metrics, Targets, and Transition Plans, October 2021.
292 TPI. TPI’s Management Quality and Carbon Performance, version 4.0, November 2021.

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Example 22. Climate and sustainability measures make up 10% of executive variable pay
opportunity at Barclays
Sub-sector: Banking
To reach its ambition to be a net-zero bank by 2050, Barclays is taking a three-pronged approach: 293• Achieve net-zero operations.
• Reduce financed emissions.
• Finance the transition.
Barclays’ climate and sustainability strategy is reflected in the compensation plans for its executive directors. 294
The performance measures for each of the 2022 bonus and the 2022–2024 Long Term Incentive Plan (LTIP), set
by the Remuneration Committee of the Barclays PLC Board, include a 10% weighting for climate and sustainability.
This section primarily focuses on climate-related measures, including:• progress toward achieving the ambition to be a net-zero bank by 2050;• alignment of financing with the goals of the Paris Agreement;• reduction of operational and supply chain carbon footprint and increase use of renewable energy; and• progress toward green financing commitments.

Example 23. Citi forms governance and business teams to drive its net-zero planSub-sector: Banking
Global bank Citi has committed to achieving net-zero emissions associated with its financing by 2050, which
involves “rethinking our business and helping our clients rethink theirs.”295 While the plan is still being formulated,
Citi’s 2021 TCFD report outlines some aspects already in place. Specifically, the report discusses remuneration andemployee training and upskilling to demonstrate how roles, responsibilities, and remuneration, as well as skills andculture, in line with GFANZ recommendations and guidance, are being considered in the organization.
The management of climate change efforts is considered in Citi’s discretionary incentive compensation program in
two ways:• Certain senior executives have performance scorecards that include metrics designated on a position-byposition basis. Metrics include progress on Citi’s $1 trillion Sustainable Finance Goal and milestones for thedevelopment of its net-zero plan.

• Climate change strategy and risk management performance goals are incorporated into annual goals andperformance review processes for several of Citi’s senior managers and their teams who are responsible fordeveloping and implementing the approach to climate change.

293 Barclays. Barclays’ Climate Strategy, Targets and Progress 2022, March 22, 2022.
294 Barclays. Remuneration.
295 Citi. TCFD Report 2021: Citi’s Approach to Climate Change and Net Zero, 2022.

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In addition, Citi is investing in the skills and expertise of its employees. It has established a Net Zero Task Force, led
by its Chief Sustainability Officer, with leaders from across the business. The task force was formed to collectively
build knowledge on net zero, inform decisions on methodology, and ensure that information is flowing acrossCiti’s businesses. Additionally, Citi has formed sustainability and transitions teams in the lines of business to shareexpertise and more effectively evaluate and pursue client opportunities. “Through these teams, we have increased
the climate fluency of our business team leaders, allowing climate considerations to be better integrated into ourbusiness decision-making,” the company stated in its 2021 TCFD report.
Citi acknowledges that a net-zero target must be translated into policies, procedures, and programs that guidesustainable finance operations. While Citi has begun this work, it notes that “we are still developing internal
processes in several areas, particularly in identifying metrics and performance indicators to demonstrate Citi’s
progress in achieving the targets in our net-zero plan while simultaneously managing our level of risk and returns
on our portfolios.”

Example 24. MSCI’s clear roles and responsibilities
Sub-sector: Financial Service Provider
MSCI provides indices, data, and analytics to the financial and investment industry. It has committed to aligning all
relevant services and products to achieve net-zero GHG emissions by 2050 or sooner. It has also defined one of its
strategic pillars of growth to “Lead the enablement of ESG and climate investment integration.”296 As part of this,MSCI provides and is further developing a wide range of climate-focused data and analytics products and services. 297
MSCI has established governance processes and structures with clear roles and responsibilities for realizing thisstrategy. In its 2020 TCFD report, 298 it set out a governance and reporting structure that included describing the
responsibilities of the Board’s standing committees, including the allocation of responsibilities with respect toclimate change. The Board receives regular updates on MSCI’s net-zero commitment and other climate-related
initiatives. MSCI also leveraged its in-house expertise around climate science and climate-related solutions to
inform Board education sessions that strengthened the Board’s foundational knowledge of climate, including on
net-zero commitments. 299
Goals related to climate change are also KPIs that factor into the compensation of certain executives. While all its
executive officers support its climate initiatives, MSCI’s 2022 proxy statement specifically describes actions takenby the CEO and the General Counsel to advance MSCI’s climate capabilities and to help clients transition to a
net-zero world. 300 In 2022, all members of the company’s Executive Committee, a committee comprising 23 of thecompany’s senior-most leaders, will include a climate commitment goal in their 2022 individual KPIs that they will
be assessed against in 2023.

296 MSCI. 2021 Annual Report.
297 MSCI. 2022 Annual Meeting of Shareholders and Proxy Statement, March 2022, p. 73.
298 MSCI. MSCI: Enabling Sustainable Investing: Task Force on Climate-related Financial Disclosures (TCFD) Report, December 2020.
299 MSCI. 2022 Annual Meeting of Shareholders and Proxy Statement, March 2022, p. 13.
300 Ibid., p. 73 and p. 78.

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2) COMPONENT: SKILLS AND CULTURE
Recommendationof the net-zero transition plan from the Board,
strategy oversight bodies, and senior management

Provide training and development support

to day-to-day plan execution by employees.

to the teams and individuals designing,
implementing, and overseeing the plan so

Financial institutions should consider providingthat they have sufficient skills and knowledge

ongoing and relevant training at every level of theto perform their roles (including at the Board

organization, including the highest strategic levels,and senior management level). Implement

and transparent processes should be in place toa change management program and foster

assess and improve skills and knowledge gaps.

open communications to embed the net-zero

Organizations may also want to consider making

transition plan into the organization’s culture

skills and training accessible to key vendors andand practices.

value chain partners. 301
All levels of the institution should have access to

Overview and relevance: Net-zero transition

external climate experts and resources for deepplans involve organizational change, withtechnical knowledge as appropriate and as internalpotentially significant impacts on businessteams start to build their climate skills. Teams maylines and employees. Proper skills, training, andneed to be kept abreast of new developments incommunication are needed to ensure that plans are

science and industry and such resources should be

implemented as designed and implementation risks

refreshed, as needed.

are managed. Implementing a net-zero transition
will be a multiyear effort and should be designed to

An ambitious net-zero transition plan requires ancontinue being implemented, regardless of changes

organization-wide reorientation and culture change.

in the Board and senior management. Therefore,

As part of a change program, the institution

adoption of the plan requires a commitment

should consider building broader awareness andto culture change, communication, broader

understanding of the transition plan, so employees

training for employees, and innovation across thethroughout the organization understand how andfinancial institution.

why the institution is adapting its business; whatis expected of them; and how they can contribute.

Guidance: Financial institutions should provide

Employees could be engaged and educated on the

support required for individuals to perform theirtransition plan through initiatives like employee

assigned roles in designing and implementing

engagement surveys, and integrated learningtransition plans.

plans. Employee skill sets could be assessed inperformance evaluations and interviews. Awareness

Organizations should consider conducting

and understanding will facilitate integration of theassessments to determine if key individuals havetransition objectives into decision-making acrossthe required skills and knowledge appropriate tothe organization and help create employee buy-in

their role. Roles range from strategic oversightat all levels.

301 Specific transition skills may include building familiarity with accepted sustainability standards, which will vary based on thefinancial institution’s type, geography, and jurisdiction and may include frameworks like the European Union’s Taxonomy, the U.S.
Securities and Exchange Commission’s proposed rules on climate disclosure, or the Science Based Targets initiative’s guidance forthe financial sector. Another example of transition skills and training could be technical competency around scenario analysis andscience-based transition pathways.

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Example 25. Sample training guidance
Climate Safe Lending Network 302

Investor Agenda ICAPs303“All staff need to have a solid understanding of the“Education and training can be done in-house,overall strategy and the specific role that they play inpreferably in collaboration with experts incontributing to success.”

relevant aspects of sustainability risks or in offsite“Training should be integrated with work functions
and processes instead of being treated as a one-off
skills development session.”“Relationship managers trained on Paris alignment.

sessions conducted by established programs. The
competencies and capabilities of the Board, senior
management and investment teams should beformally and annually assessed with the results
and criteria for assessment disclosed.”

Sustainability/ESG team as coordinatorsand innovators.”“Sustainability and ESG leads will need to support
the process along with people who are skilled inchange management.”

A net-zero transition will require considerable change and innovation across the organization. Some waysthat people managers can support employees through this change include:• identify challenges that arise as opportunities to deepen dialogue with the teams;• encourage diverse views and difficult conversations as a way to build understanding;• update senior management on metrics and data that show progress (in addition to completed
milestones) to integrate transition understanding among teams;• facilitate clear communication from senior management and the Board or strategy oversight body on
climate strategy, scopes, and net-zero targets; and• create cross-departmental teams or networks to facilitate reflection on transition plan implementation,
including individuals’ concerns and perspectives on the transition.

302 Climate Safe Lending Network. The Good Transition Plan, October 2021.
303 Investor Agenda. Investor Climate Action Plans (ICAPs) Guidance on Using the Expectations Ladder, July 2022, p. 43.

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Table 13. Highlights of how some financial institutions have started to achieve organizational change
FINANCIAL INSTITUTION

EXCERPTS

Commercial International
Bank (CIB) 304“CIB works on ensuring sustainable capacity building and providing aknowledge-sharing platform for the Bank’s employees, clients, and the financial
industry. This is to increase the awareness level and/or technical expertise of
CIB’s employees in different functions.”“Sustainability risks and opportunities are positioned at the top of the Bank’s
Board of Directors’ agenda who are committed to advancing the Bank’s
governance structures to ensure the integration of ESG into the Bank’s policies,
operations and culture.”

KCB 305“We have been able to achieve these milestones by placing sustainability at
the forefront of KCB business culture. It is present in our training, integrated instaff KPIs, recruitment processes, policies, as well as our 10-point action plan.
Entrenching sustainability in culture and operations means that we always
consider our economic, social and environmental impact before we make any
decision as an organisation. Building this culture has been one of our mostlaudable achievements ― as it has enabled us to place sustainability at theheart of our new strategy, informing in many ways trends that will affect ourcustomers and business in the future.”

Example 26. TD’s Climate Target Operating Model (TOM) and ESG Center of Expertise (COE)
Sub-sector: Banking
In November 2020, TD announced its Climate Action Plan, including a target to achieve net-zero GHG emissions
associated with its operations and financing activities by 2050. 306, 307 Since announcing the plan and targets, TD
has joined NZBA and has also announced interim Scope 3 emissions targets for key sectors. 308 TD’s ESG strategy
is coordinated across the bank and increasingly integrated into its business as usual practices, including throughthe establishment of its Climate TOM and ESG COE, which have been mobilized to deliver on and embed TD’s ESG
strategy throughout the organization. 309
TD’s Climate TOM represents an important step toward implementing the actions necessary to reduce the bank’s
GHG emissions, further embed enterprise climate-related risk management practices into its business activities,
and capitalize on climate-related opportunities. 310 The Climate TOM is a framework that outlines how functions,capabilities, governance, and supporting infrastructure will be configured or managed to achieve the strategic

304 Commercial International Bank. Sustainable Finance Policy, January 10, 2021.
305 KCB. Accelerating the Future Together: 2020 Sustainability Report, 2021.
306 TD. 2021 TD’s Climate Action Plan: Report on Progress and Update on TCFD, 2021.
307 TD Bank Group Newsroom. TD Commits to Ambitious Climate Action Plan and Targets Net-Zero Emissions by 2050,
November 2020.
308 TD. 2021 TD’s Climate Action Plan: Report on Progress and Update on TCFD, 2021, p. 3.
309 TD. Building Tomorrow Together: 2021 Environmental, Social and Governance Report, 2021, p. 11.
310 Ibid., p. 11.

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCEGOVERNANCE

objectives of the enterprise’s Climate Action Plan. 311 TD developed its Climate TOM and roadmap 312 working with
TD stakeholders to assess the bank’s “current state” practice relative to agreed “target state” capabilities, identify
the actions necessary to reach the “target state,” and outline the roles and responsibilities of the various teams
involved in the implementation. The roadmap describes key milestones TD is focused on achieving over a threeto four-year period to build the required climate capabilities and supporting infrastructure. 313
The ESG COE and Climate TOM work very closely together. The COE was created in 2021 to bring together theexperience, expertise, and talent of colleagues working on ESG issues across the enterprise. 314 TD uses both a
top-down and bottom-up approach to embedding ESG within its business and culture, in addition to focusing
on educating leadership in key ESG areas to support alignment across the enterprise. The ESG COE coordinates
expanding ESG expertise, including understanding climate change, within TD’s lines of business. 315 The ESG
COE also facilitates coordination and knowledge-sharing across key areas including research, policies, risk
management, sustainable financing, and reporting. 316
TD has also linked senior executive compensation with the bank’s ESG performance, further reinforcing theimportance of ESG as a core component of TD’s business strategy and future. 317 These factors further demonstrate
TD’s commitment toward creating a culture where colleagues can contribute to and are responsible for advancing
the enterprise’s Climate Action Plan.

Example 27. Bank of America’s training for employees to support clients’ transition to net zero
Sub-sector: Banking
Bank of America is committed to helping finance the transition to net zero before 2050. One of the five pillars in
its “Approach to Zero™” framework strategy is assisting clients in their own net-zero objectives. 318 Because a key
aspect of its Approach to Zero™ includes extensive engagement with its clients across all lines of business, thecompany has developed net-zero awareness training for its banking, credit, and risk teammates to increase theirknowledge of how best to support clients in reaching net zero.
It has created an online ESG (environmental, social, and governance), Climate, and Sustainable Finance college
that is available to all teammates. 319 The aim of the training is to deepen employees’ understanding of the primary
decarbonization strategies for individual sectors and the financing solutions Bank of America can offer to assist
clients in their net-zero transition. These training initiatives focus on developing skills and knowledge to help
enable employees, managers, and teams across lines of business with the design and implementation of products
and services that will support the acceleration of the transition to net zero.

311

TD. 2021 TD’s Climate Action Plan: Report on Progress and Update on TCFD, 2021, p. 15.

312 Ibid., p. 15.
313 Ibid., p. 6.
314 TD. Building Tomorrow Together: 2021 Environmental, Social and Governance Report, 2021, p. 11.
315 Ibid., p. 11.
316 Ibid., p. 11.
317 Ibid., p. 5.
318 Bank of America. Approach to Zero, April 2022, p. 1.
319 Ibid., p. 3.

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D

Look ahead

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CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

The way forward
GFANZ offers the recommendations and guidanceDeveloping and implementing a credible transitionin this report to support financial institutions asplan in line with these recommendations supports

they develop their net-zero transition plans withinstitutions in their efforts to operationalize

a focus on delivering real-economy emissions

their commitments.

reductions in line with net-zero commitments.

Allocation of capital and services to net-zero financing

Figure 20. Example industry-wide implementation of net-zero transition plans

Growing FI adoption of
NZTPs and enhancement of
NZTP methodologies drive
real-economy actors todevelop their own NZTPs

Net zero systematicallyembedded across thefinancial sector,
accelerating ongoinggrowth in transition
finance

Regulators and standard settersincreasingly support an enabling
environment for net-zerotransition, which in turn,provides inputs into NZTPs by
FIs and grows real-economy
trust in financial NZTPs

GFANZ publishes final
net-zero transition plan
(NZTP recommendations
and guidance paper for
financial institutions (FIs))

Climate-related disclosures
become standard in many
jurisdictions, improving theavailability of transition-related
data from the real economy
Today~ Five-year time frameThis report is being published at a time when

Supporting financial sector commitments to net

the financial sector’s approach toward net zero,

zero that reflect the pledges from governments

including net-zero transition plans (NZTPs), isand real-economy firms, GFANZ is expanding

quickly evolving. The TCFD provided a frameworkon the work of the TCFD with resources on thefor disclosing how climate-related risks anddevelopment of NZTPs. Despite challenges,

opportunities can be material to financial returns.

membership in the sector-specific net-zero98

CONTENTS | FINANCIAL INSTITUTION NET-ZERO TRANSITION PLANS — FUNDAMENTALS, RECOMMENDATIONS, AND GUIDANCE

alliances is increasing and financial institutions are

solutions” as opportunities related to solutions

developing and implementing NZTPs, pointing to

expand in number and scale; greater attention

increased commitment and action to realize thoseand allocation to “managed phaseout” as thecommitments. Figure 22 sets out an illustrative path

practice becomes mainstream; and expansion infor how NZTPs could mature in the industry overthe “aligning” and “aligned” categories as more

the next five years.

real-economy, net-zero commitments are made andimplemented. Eventually, net-zero considerations

Realization of this path will require the widespreadshould become systemically embedded across the

adoption of NZTPs by financial institutions.

financial sector.

To enable this adoption, the financial sector
requires increased availability of high-quality

To achieve this, GFANZ encourages financialtransition-related data and transition plans

institutions to heed the guidance in this report andfrom real-economy firms; the improvement andtheir net-zero, sector-specific alliance by developing

harmonization of transition planning methodologies

and implementing NZTPs and evaluating theirfrom target setting to reporting standards; andstrategies against the four key financing strategies.

near-term action by policymakers.

Real-economy firms would also benefit fromsetting net-zero commitments and developing

Overall, transition plan implementation should

ambitious NZTPs, given the scale of the financial

increase financial flows toward the four key

sector’s commitment to net-zero alignment. For

financing strategies outlined in this report,

policymakers, establishing clear and consistent

ultimately supporting the real-economy net-policy around transition-related disclosures could

zero transition. Over time, the ratio of allocation

catalyze action at the scale needed to realize thebetween transition finance versus clients andambition of the Paris Agreement. Cooperation

portfolio companies who do not fall under the key

between all key stakeholders is critical to accelerate

financing strategies is expected to evolve as thewidespread development and implementation ofreal-economy transition progresses. For example,

NZTPs in support of achieving net zero and limiting

there could be a larger allocation to “climate

warming to 1.5 degrees C.

99

Please see
Section 1: Executive Summary
Section 3: Supplemental Information

For more information, please visit gfanzero.com