Blogs

The climate crisis has reached a pivotal point in time. The United Nations is predicting global warming will reach 2.8°C by the end of this century under current policies. There is still time to act, but efforts have the best chance at succeeding if markets, policy makers and businesses act together now. Investors have an essential role to play here because of their unique position to influence companies and direct financial flows towards critical climate and adaptation solutions.

To accelerate investor action on climate, the Founding Partners of the Investor Agenda – AIGCC, CDP, Ceres, IGCC, IIGCC, PRI and UNEP FI – have come together to create the Investor Climate Action Plans (ICAPs) Expectations Ladder and Guidance.

The ICAPs Expectations Ladder and Guidance were created to address the broad range of investors’ needs and concerns, and they are the only tools that have been designed specifically for investors, regardless of where they are in their climate transition. To make them truly integrated for the investment community, they are complementary to other broader climate guidance, such as the Glasgow Financial Alliance for Net Zero (GFANZ) Recommendations and Guidance on Financial Institution Net-zero Transition Plans, designed for the entire finance sector.

In the following interview, Dr Tony Rooke, the Executive Director and Head of Transition Finance at GFANZ discusses the relationship between the ICAPs Expectations Ladder and GFANZ Transition Plan Guidance, as well as his take on investor climate action. Rooke leads the technical workstreams in transition planning and transition finance, real economy and energy transition.

What key actions should investors take if they have already committed to net zero? And, what are the key steps for those just starting out on their climate journeys?

“Once net-zero commitments have been made, developing a net-zero transition plan is the natural next step. Transition plans help to translate commitments into targeted actions that align an organization’s business activities with a pathway to net zero emissions to deliver real-economy emissions reductions in line with achieving global net zero.

“Determining an approach to transition planning will be a very individual process for each organization and depends on structures already in place that can form part of the transition plan. We encourage those just starting out on their climate journeys to tap into the wide range of resources and support offered by their sector-specific alliances as well as the pan-sector tools and recommendations released by GFANZ.”

Following COP27, could you describe what you see as the critical areas of focus for the financial sector in 2023?

“As per the most recent IPCC synthesis report, there is an urgent need to mobilize funding for climate action around the globe. According to their estimates, a 3-6-fold increase in climate finance is required to achieve the goal of limiting global warming to a maximum of 1.5°C.[1]

“The financial sector is uniquely placed to help close this funding gap by enabling transition activities in the real economy via capital allocation towards four key financing strategies that GFANZ believes are essential to the transition:

• The first is to support climate solutions – the technologies and products that will enable the economy to decarbonize.
• The second is to finance business models already aligned with a science-based pathway to achieve net zero.
• The third strategy is going where the emissions are and backing those companies with credible transition plans to converge with a science-based decarbonization pathway. The world cannot divest its way to net zero.
• And finally, climate transition means backing the managed phaseout of those high-emitting assets otherwise at risk of being stranded in the transition to net zero.

“Net-zero transition plans help articulate the strategy for deploying capital against these four key financing strategies. The GFANZ Recommendations and Guidance on Financial Institution Net-zero Transition Plans offers a clear set of five themes which together constitute a credible transition plan.”

How are the Investor Agenda and GFANZ resources distinct and/or designed to complement each other? 

“The GFANZ framework presented in the Recommendations and Guidance on Financial Institution Net-zero Transition Plans is a principles-based, globally applicable, pan-sector set of voluntary recommendations and guidance that supports organizations in developing transition plans. It was developed by practitioners and experts from across the finance sector, builds on the work of the Task Force on Climate-related Financial Disclosures (TCFD), and draws on resources produced by financial sector net-zero alliances and a wide range of civil society and technical bodies, including the Investor Agenda’s Investor Climate Action Plans framework (ICAPs).

“The GFANZ framework was designed to be complementary with ICAPs – the GFANZ five themes and ten components are covered by ICAPs, and by meeting Tier 1 of ICAPs, investors would be considered to have developed a net-zero transition plan that covers the key elements under the GFANZ framework.

“One distinction is that ICAPs was developed specifically with investors in mind, while the GFANZ recommendations and guidance are pan-sector and may be used by all financial institutions and real-economy corporates.”

How will GFANZ continue to work with investors this year and beyond?

“We have seen great progress in 2023 already, but must ensure that the pace and scale of change continues to grow. GFANZ will continue to engage with key stakeholders, including financial institution members from the sector-specific alliances, civil society, and policymakers as part of our program of work in 2023. Some key highlights from this include:

• Mainstream Transition Finance – promoting widespread transition planning across the finance sector and real economy and developing a better understanding of transition finance, and GFANZ’s four key financing strategies.
• Energy & Real Economy Transition – supporting industry initiatives and platforms in hard-to-abate sectors.
• Capital Mobilization – working to mobilize capital under country platforms, including Just Energy Transition Partnerships, Egypt NWFE, CFLI, and more. We also want to ensure that the role and asks for the private sector on capital mobilization is clear, including with regards to wider MDB reform.
• Public Policy – collaborating with policymakers, regulators, and international organizations to support globally consistent approaches to transition planning across jurisdictions.
• Index Investing – launching a new cross-alliance workstream to advance work on standards for net-zero indices and aligning passive investment with transition.

“We are grateful for the support of investors who are members of our net zero alliances and to those who engage with us across other programmatic initiatives.”

What lies ahead this year for investor action on climate and investor transition planning?

 “For us, 2021 was the year of mainstreaming net-zero commitments and 2022 was the year of operationalizing these commitments. 2023 is all about implementation, which is why for GFANZ it is the ‘year of transition plans’. One of the most important priorities this year is to scale the development of net-zero transition plans.

“Widespread adoption of transition planning can benefit from active engagement by the investor community. We encourage all investors to use your networks and promote or ‘mainstream’ transition planning both informally and in formal settings, including in conferences, roundtables as well as general networking.”

Founding Partners of the Investor Agenda anticipate that the annual progress reports from the net zero investor alliances (Net Zero Asset Managers (NZAM), Paris-Aligned Asset Owners (PAAO) and the UN-convened Net Zero Asset Owners Alliance (NZ AOA) will show significant progress by investors developing ICAPs to meet their net zero commitments. For those investors who have not yet made net zero commitments, the Founding Partners of the Investor Agenda will be looking for comprehensive ICAPs that will show how investors are getting there. GFANZ and Investor Agenda partners will be highlighting these transition plans in events and case studies at Climate Week in NYC, at COP28 and at regional events over the next six months.

Find out more about the links between the Investor Agenda and GFANZ in this webinar.

[1] To put into perspective the magnitude of capital required, the energy sector alone will need a significant increase in financing for low-carbon energy (4:1 ratio funding for low-carbon energy vs fossil fuel energy between 2021 and 2030).