Treasury issues guidelines for banks with net-zero carbon goals.
The Treasury Department Unveils New Guidelines for Financial Institutions with Net-Zero Carbon Emissions Goals
The Treasury Department has unveiled a new set of guidelines for financial institutions with net-zero carbon emissions goals as the Biden administration continues to promote its green energy agenda.
The new voluntary guidelines were announced by Treasury Secretary Janet Yellen during a speech at the Bloomberg Transition Finance Action Forum in New York on Sept. 19.
During her speech, Ms. Yellen said the “physical impacts of climate change are impossible to ignore” and pointed to recent “record-breaking heatwaves” and “unprecedented storms and wildfires” across the globe.
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“Such events impose significant economic costs. Global economic losses from natural disasters amounted to almost $200 billion during the first half of this year. Households face increasing challenges, and firms have assets and business models that may be at risk in a world with substantial climate damage,” Ms. Yellen said.
The Treasury secretary went on to note that there are “significant global economic opportunities” related to climate change, citing research estimating that the transition to a carbon-neutral economy will create $3 trillion in global investment opportunities every year between now and 2050.
“In the U.S. this means hundreds of billions in investment opportunities to enhance power generation and the electrical grid, retrofit buildings, and make advancements in agriculture, manufacturing, and transportation,” she said.
Financial Institutions Risk Being Left Behind
In recent years, more than 100 financial institutions in the United States have made independent voluntary net-zero commitments, according to the Treasury Department.
“There is extensive evidence showing that the changing climate has significant financial impacts,” Ms. Yellen concluded. “Without considering these factors, financial institutions risk being left behind with stranded assets, outdated business models, and missed opportunities to invest in the growing clean energy economy.”
Guidelines Will ‘Almost Surely Be Enforced’
The new guidelines were not welcomed by everyone.
In a statement, House Financial Services Committee Chairman Patrick McHenry (R-N.C.) said the guidance would “politicize capital allocation” and advance the Biden administration’s “progressive climate priorities at the expense of sound economic management.”
“Regulators should be focused on immediate risks to our financial system—not climate policy beyond their expertise and statutory authority,” the lawmaker said. “With only a thin veil of setting ‘voluntary standards,’ these so-called principles will almost surely be enforced as though they are laws by unelected federal regulators and Treasury officials who continue to overreach.”
Mr. McHenry further claimed the Treasury Department’s intention is to “direct credit to politically favored activities in order to appease far-left climate activists.”
“The House Financial Services Committee will hold the Administration accountable for its continued efforts to force their political priorities through our financial system,” he concluded.
How do these guidelines encourage financial institutions to analyze and disclose the greenhouse gas emissions associated with their portfolios and investments?
, we have a unique and powerful opportunity to lead in this area,” she said. “By setting ambitious goals and providing clear guidelines, we can encourage financial institutions to align their investments with our net-zero carbon emissions goals and drive sustainable economic growth.”
The voluntary guidelines outlined by the Treasury Department aim to provide a framework for financial institutions to assess and address the risks posed by climate change and work towards achieving their own net-zero carbon emissions targets. The guidelines cover various aspects including risk management, lending and investment strategies, and disclosure requirements.
Under these guidelines, financial institutions are encouraged to analyze and disclose the greenhouse gas emissions associated with their portfolios and investments. This will enable investors and stakeholders to make informed decisions and allocate capital in a way that supports a low-carbon economy. The guidelines also call for financial institutions to integrate climate-related risks into their risk management processes, ensuring that potential climate impacts are considered when assessing the resilience and sustainability of their investments.
The voluntary nature of these guidelines is an important aspect, as it allows financial institutions to tailor their approach to their specific circumstances and risk profiles. This flexibility ensures that businesses of all sizes can participate in the transition to a net-zero carbon economy, regardless of their current emissions levels or sector of operation.
The announcement of these guidelines comes as part of the Biden administration’s efforts to address climate change and promote sustainable economic growth. In addition to the voluntary guidelines for financial institutions, the administration has implemented a range of initiatives and policies aimed at reducing greenhouse gas emissions, promoting clean energy, and creating green jobs.
By providing clear guidelines for financial institutions, the Treasury Department is encouraging private sector action and investment in the transition to a net-zero carbon economy. This will not only help mitigate the physical and economic risks associated with climate change but also create new opportunities for businesses and investors to thrive in a sustainable future.
It is worth noting that while these guidelines are voluntary, financial institutions that proactively align with them are likely to benefit from increased access to capital and improved reputation among investors and stakeholders. In an era where environmental, social, and governance (ESG) considerations are becoming increasingly important, financial institutions that demonstrate a commitment to sustainable practices are well-positioned to attract investment and build long-term resilience.
The Treasury Department’s unveiling of these guidelines is a significant step towards achieving the Biden administration’s goal of net-zero carbon emissions. By mobilizing the financial sector and promoting sustainable investments, the administration is paving the way for a greener and more prosperous future.
Sources
- https://www.reuters.com/business/sustainable-business/yellen-treasury-unveil-voluntary-guidelines-financial-institutions-net-zero-2023-09-19/
- https://www.bloomberg.com/news/articles/2023-09-19/yellen-issues-climate-code-for-wall-street-ahead-of-g-20-summit
- https://www.treasury.gov/resource-center/climate/Documents/Climate-Crisis-Voluntary-Guidelines.pdf
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