GFANZ seeks to refine definitions of transition finance and decarbonisation

investmentweek.co.uk:

Mark Carney (pictured) is the co-chair of GFANZ and the UN special envoy on climate action and finance.

The public consultation will run for six weeks until 2 November 2023 and is open to all stakeholders, with the final report due to be published by COP28.

GFANZ is seeking feedback to create consistent definitions that are «applicable across markets and sectors», which will help financial institutions to independently identify their risk exposure and investment opportunities, while supporting real economy decarbonisation.

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The body created four strategies in 2022 that are «necessary» for financing a whole economy transition to net zero, defined as financing or enabling: the development and scaling of climate solutions; assets or companies already aligned to a 1.5°C pathway; assets or companies committed to transitioning in line with 1.5°C-aligned pathways; and the accelerated managed phaseout of high-emitting physical assets.

As part of its consultation, GFANZ has requested feedback on a principles-based approach to segment portfolios by the four key strategies, and has highlighted potential approaches.

The consultation introduces the concept of expected emissions reductions (EER), which is applicable across the four strategies but employs «distinct approaches for each», which will allow firms to quantify the «emissions return» of their transition finance activities.

GFANZ co-chair and UN special envoy on climate action and finance Mark Carney said: «To achieve the largest and most rapid reduction in emissions possible, transition finance must be mobilised urgently and at scale.

»Trillions of dollars are required to bring emissions down