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Four Key Financing Strategies Of GFANZ Net-Zero Transition

Highlights:

  • The role of transition finance
  • Strategies in GFANZ framework
  • Emphasis varies by component
  • Overarching accountability structures
  • Managed phaseout is vital

Table of Contents

The Role Of Transition Finance And Four Key Financing Strategies

  • Transition finance is investment, financing, insurance, and related products and services that are necessary to support an orderly, real-economy transition to Net-Zero, as described by the four key financing strategies, which are: Climate Solutions, Aligned, Aligning, Managed Phaseout.
  • The four key financing strategies provide a lens through which every financing opportunity can be viewed, rather than a prescriptive taxonomy. These strategies aim to make clear that transition finance is about driving decarbonization in the real economy.

How Are The Strategies Embedded Within The GFANZ NZTP Framework?

  • The four financing strategies are at the heart of transition planning and should inform considerations across the entire development process.
  • Financial institutions are encouraged to apply all strategies to their organization, but emphasis on specific components may be more helpful when considering particular key financing strategies.
  • Foundations, Metrics and Targets, and Governance are equally relevant for all financing strategies, as they are overarching accountability structures.

Why Is The Managed Phaseout Of High-Emitting Assets Crucial To The Global Transition To Net-Zero?

  • Many financial institutions have chosen to divest from high-emitting assets to reduce portfolio emissions, but divestment does not directly reduce real-world GHG emissions.
  • A managed phaseout approach allows the stewardship of emissions out of the economy, instead of simply passing them to someone else.
  • The approach also accounts for the fact that some high-emitting assets are often still needed in the near term, but they need to be retired within their normal design life to stay within the carbon budget.

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