Tony Rooke on the impact recent geopolitical and economic changes have had on transition finance
Tony Rooke, Executive Director and Head of Transition Planning, at the Glasgow Financial Alliance for Net Zero (GFANZ) spoke to Climate Action about the work GFANZ has been doing on transition plans, plans which are critical for bringing business goals, actions and implementation together.
Tony Rooke, Executive Director and Head of Transition Planning, at the Glasgow Financial Alliance for Net Zero (GFANZ) spoke to Climate Action about the work GFANZ has been doing on transition plans, plans which are critical for bringing business goals, actions and implementation together. For finance to unlock climate action this requires an unrelenting focus on all aspects of the net-zero transition from climate disclosure, risk management, centrality of transition planning to company strategy, high integrity carbon markets, and country platforms.
The last 12 months have brought significant geopolitical and economic challenges. How has this impacted the momentum of transition finance?
Despite the geopolitical and economic challenges of the past year — from the war in Ukraine to the worst inflation in decades — we have seen evidence that the rapid change, at the scale we need, is possible. The investment in the energy transition doubled in two years to more than $1 trillion – with the pace stepping up in 2022 despite the disruption to global supply chains and geopolitical tensions regarding energy security.
GFANZ also continued to grow – as more institutions commit to aligning their businesses with 1.5 degrees C. We have added more than 100 members over the past year and now have more than 550 members.
Before we got started, not a single bank had set an interim, science-based sectoral target. Now, over half of the banks in the Net Zero Banking Alliance, GFANZ’s banking sector alliance, have set them and we have more than 310 interim targets total. These targets form the backbone of transition plans and are the first step to building accountability. Already, just a few months after publishing our net-zero transition plan framework, we are seeing financial institutions incorporating the recommendations into their climate strategies.
Recent BNEF research found NZBA members had a higher ratio of finance to clean energy than banks outside the alliance, with 50% of lending to clean energy.
We expect momentum to grow in 2023 despite the geopolitical and economic challenges. Financial institutions that committed to net zero in 2021 and developed interim targets in 2022 have begun implementation in earnest. Transition plans are central to achieving these targets.
What work has GFANZ been doing on transition plans and what does GFANZ define as the key elements of a transition plan?
Transition plans set the milestones, targets, oversight, and direction that companies will take to get to net zero. Transition plans are critical for bringing business goals, actions and implementation together.
Last year, we released our Net-zero Transition Plan (NZTP) framework for the financial sector, a common framework that outlines the components of a credible net-zero transition plan and helps financial institutions demonstrate progress against net-zero targets.
GFANZ also developed guidance on Expectations for Real-economy Transition Plans, which presents what net zero-committed financial institutions expect to see in the transition plans of the businesses they fund. For a successful transition to net zero, transition finance must be available to support every sector in an economy-wide transition.
This year, we’re bringing value to financial institutions by supporting the development of transition plans.
So far, several financial institutions have already released transition plans developed in line with the GFANZ NZTP framework, including BBVA, NatWest, Lloyds Bank, UBS, Intesa SanPaolo, Prudential and Citi.
We’re also working with standard-setters and government bodies like the ISSB and the UK Transition Plan Taskforce (TPT) to ensure the global landscape has alignment and isn’t fragmented.
While all elements of a transition plan are important, the key elements are implementation and metrics:
- Implementation shows the path and work needed to be done.
- Metrics provide comparable financed emissions reductions and convey how well a financial institution is implementing their transition plan, as well as the impact it is having on the real-economy transition.
How do you view the new UK plan to reach net zero that was announced in March? What will the impact be for your work on transition planning?
It was positive to see the UK government recognising the importance of transition plans in its 2023 Green Financing Strategy. Every business needs a strategy for how it will navigate the risks from climate change and seize the economic opportunities from the net-zero transition. GFANZ and the TPT have worked closely to ensure the TPT framework aligns with the GFANZ transition plan guidance, which shows financial institutions and the businesses they fund how to implement an ambitious and effective net-zero strategy.
It was also good to see that the UK government has indicated that it should consider privately held as well as publicly listed companies in transition plans – but it is critical that this does not slow down enactment of transition plan disclosure.
To meet our collective climate goals, we have only a couple of years for all major players in the global economy to develop these plans. Progress in this area is vital and requires a whole economy shift.
Why is it imperative for financial institutions to have access to credible data to develop realistic reduction targets and pathways towards net zero?
Every net zero-committed business, financial institution, and country needs a plan to get to net zero and to publish data that allows both commitments and progress to be held to account.
Governments, regulators, financial institutions, and others have all identified that a lack of data is a barrier to addressing climate risks and opportunities.
High quality data on the corporations they finance is essential both for financial institutions to do the work of developing and implementing their own transition plans, and for all stakeholders to hold companies accountable for their net-zero commitments and action.
GFANZ has developed guidance to help financial institutions and the businesses they fund develop robust plans to meet their net-zero commitments and measure progress in a consistent way.
While climate data is key to net zero transitions, major challenges around accessibility and standardization need to be overcome.
To further transparency and see who is leading and who is falling behind, GFANZ is working with the Climate Data Steering Committee to support the development of the Net Zero Data Public Utility (NZDPU). The NZDPU will be a free and central source for verifiable, high-quality, climate-related data that is necessary for the net-zero transition.
The NZDPU will provide transparency and enable stakeholders to easily access key climate transition-related data, commitments, and progress of businesses and financial institutions toward those commitments.
What are GFANZ’s current and future priorities for transition planning? What should we be looking out for from GFANZ?
The net-zero transition presents the biggest investment and job creation opportunity of our time – if we can create an enabling environment to get there. We’re helping turn commitments into action needed to do so.
This year is all about implementation – 2023 marks the year of transition planning. Progress is already underway and we expect to see more transition plans published this year. Beyond transition planning, mobilizing capital to where it is needed most and helping lift the barriers to get investment flowing is critical.
For finance to help unlock climate action requires an unrelenting focus on all aspects of the net-zero transition from climate disclosure, risk management, centrality of transition planning to company strategy, high integrity carbon markets, and country platforms.
To put it simply, we need to close three critical gaps:
- Make sure that every major business has a plan to get to net zero and we need better data so the commitments and performance can be measured.
- Accelerate clean energy investment (both in supply and demand) to phase out fossil fuels.
- Mobilize much more capital to EM&DEs.
We’re also helping to raise ambition of the financial sector and have begun to help mobilize capital to the Global South through the Vietnam and Indonesia JETPs.
While we’re not slowing down, we recognize finance can’t do this alone. The speed with which climate action occurs will be heavily influenced by governments and regulators and public policy – including industrial, trade and fiscal policies. We’ve seen significant momentum in these areas over the last year that will accelerate the pace of change – and we hope to see more progress moving forward.
Tony Rooke will be speaking at the Sustainable Investment Forum Europe 2023 on the 9th May in Paris. Regsiter now to join him and a community of Investment Managers, Insurers, Banks, Pension Funds, Multi- Laterals, Policymakers, Think Tanks and NGOs from Europe and the rest of the world.