FOR IMMEDIATE RELEASE
September 20, 2023
Contact: Jackie Fielder, firstname.lastname@example.org
Climate groups respond to Treasury’s principles for climate transition plans
WASHINGTON D.C. – Yesterday, Treasury Secretary Janet Yellen unveiled Principles for Net-Zero Financing & Investment and received a range of disappointed responses from members of Stop the Money Pipeline coalition.
In the spring, a substantial portion of shareholders at Goldman Sachs, Wells Fargo, Bank of America, and JP Morgan Chase voted in support of a resolution calling on banks to generate transition plans to meet their 2030 and 2050 climate goals. The climate groups asked Treasury to issue guidance on transition plans that:
- include a phaseout of all financing for existing fossil fuel projects and companies, as advised by the International Energy Association in 2021;
- align to credible scientific scenarios, not just to the needs of the institution creating the plan;
- include a complete exit from sectors such as coal mining, coal power, tar sands oil, extractive industries in the Arctic and Amazon, fracked oil and gas, offshore oil and gas, and liquified natural gas;
- do not rely on forest offsets, unproven carbon capture and storage technologies, and removal and trade schemes to “compensate”–falsely–for a lack of emissions reductions;
- relate not only to their own transition risks, but also to risks banks pose to the health of our planet–health necessary for the health of other financial entities and the financial system;
- adhere to a precautionary approach to managing climate-related financial risk, as the uncertainty inherent in the effects of the climate crisis make it unsuitable for managing via risk modeling and quantification alone;
- adopt strong, binding policies to respect Indigenous peoples’ right to sovereignty and self-determination which includes Free, Prior, and Informed Consent, an internationally recognized standard;
Of all these demands, only one was fully met: aligning to credible scientific scenarios.
Phaseout of fossil fuels
The principles do not call for a phase-out of all financing for existing fossil fuel projects and companies, and do not include a complete exit from high-emitting fossil fuel sectors. Instead, the principles take a passive stance on phaseout, not noting that the fossil fuel sector needs to be the biggest subject of this practice, but rather noting phase-out among three “practices important for effective commitments.” The principles only go so far as saying “managed phaseout can help avoid the stranding of assets while reducing global emissions.” It should be noted that managed phaseout is the only method for avoiding stranded assets, as noted by the IEA in 2021 when it called for a phase-out of all financing for existing fossil fuel projects and companies.
Other issues: Offsets, Risk, and Indigenous rights
The principles omit any mention of carbon offsets, which many financial institutions dubiously include in their net zero transition plans. As our partners at Public Citizen have said, “Offset markets are riddled with fraud and integrity issues.” The principles do suggest financial institutions issue transition plans that account for risks that financial institutions pose to “employment, quality of life, affordability, rights, and access to resources, particularly for Tribes, indigenous peoples, and disadvantaged communities,” and “the environment, including nature and biodiversity.” However, they stop short of recommending any phaseout or industry or company exit if those risks have been realized or significantly raised by communities ahead of a financial decision. The principles simply recommend that financial institutions “demonstrate an understanding of how transition planning activities may impact” these issues. Lastly, the principles do not recommend a precautionary approach and do not recommend banks account for how their transition plans impact the financial sector as a whole.
Members of Stop the Money Pipeline coalition issued the following quotes:
“In the absence of regulation, the financial sector has become a Wild West of voluntary climate pledges with little government oversight. Through its new principles, the Treasury Department is sending a message to the biggest financial market in the world, and adding to the growing chorus emphasizing the importance of financial firms following through on their climate goals,” said Ben Cushing, Campaign Director for Fossil-Free Finance at the Sierra Club. “Though these principles are a key step forward, the Treasury unfortunately has not provided detailed recommendations that will improve the efficacy, comparability, and transparency of financial sector net-zero plans, leaving the sector mostly to its own devices to determine best practices.
“Net-zero commitments need credible action plans. The principles lay out important guidance and rightly suggest that financial institutions need to do significantly more to carry out net-zero commitments than they are doing at present. But the principles also leave open a major loophole on offsets—one potentially large enough to drive most carbon pollution through. Offset markets are riddled with fraud and integrity issues, and there’s no fix in sight. The principles should follow leading authorities and state that firms need to meet their commitments by cutting emissions, not buying offsets,” said David Arkush, director, Public Citizen’s Climate Program.
“Standards must be based on absolute emission reductions and transparent plans that are clear, enforceable, and time bound with these transition goals. Anything else is reshuffling the deck chairs on the Titanic when it comes to pivoting investments away from fossil fuels. We have a real chance for leadership that aligns with science; this action must be taken now,” said Ernesto Archila, Strategy and engagement manager at Rainforest Action Network.
Member organizations of the coalition have had meetings with staff experts at Treasury in the past. Read the November 2022 letter to Treasury on climate principles.