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Treasury’s Voluntary Principles for Private Sector Net-Zero Efforts are Strong, but Leave Large Loophole

New guidelines set best practices for meeting net-zero commitments, but leave a major gap on carbon offsets

WASHINGTON, D.C. — The U.S. Department of Treasury today published a series of best practices for financial institutions to carry out their net-zero commitments. The Principles for Net-Zero Financing & Investment will be the subject of Treasury Secretary Janet Yellen’s speech in New York this afternoon. In response, David Arkush, director of Public Citizen’s Climate Program, issued the following statement:

“Net-zero commitments need credible action plans. We appreciate and commend Treasury’s leadership in providing guidance for financial institutions on making those plans. These principles suggest financial institutions need to do significantly more to carry out net-zero commitments than they are doing at present.

“The principles outline many significant features of credible net-zero plans, and they have many strengths, including suggesting firms:

  • set credible short- and medium-term targets with credible metrics and aim to limit global warming to 1.5°C;
  • include all emissions, including Scope 3, and have action plans for when clients fail to make adequate progress;
  • account for environmental justice impacts;
  • adopt governance processes to make sure their plans are implemented; and
  • provide enough transparency for external stakeholders to hold them accountable.

“They also suffer from major shortcomings. Offsets are a loophole large enough to drive most carbon pollution through. The principles should follow leading authorities and state that firms need to meet their commitments by cutting emissions, not buying offsets. Offset markets are riddled with fraud and integrity issues. No one has fixed those problems for decades, and at present there is no evidence they can be fixed. The principles suggest firms using offsets should disclose ‘sufficient detail’ on their ‘nature and integrity.’ But no amount of disclosure is sufficient at present, and the principles should make that clear.

“The principles also fail to identify transition plans as a critical tool for mitigating climate-related financial risk to individual institutions and financial stability. Regulators worldwide increasingly expect financial institutions to engage in credible planning for how they will manage and participate in the rapidly hastening clean energy transition. Treasury’s principles should have advised firms to consider risk mitigation in crafting their plans and integrate their plans into their risk management systems. That type of guidance is particularly apt given the Treasury Secretary’s role as Chair of the Financial Stability Oversight Council.”

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