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How can net zero finance best drive positive impact in the real economy

The paper develops a framework of impact management and highlights 2° Investing Initiative’s (2DII) Climate Impact Management System as an approach to getting started on the impact journey. 2DII’s research has highlighted the urgency of financial institutions’ disclosures to align with GHG Protocol Scope 3 guidance that requires rebaselining. In separate research, a review of PCAF disclosures shows that despite PCAF guidance requiring that financial institutions disclose their rebaselining approach, less than 5% of 50 reviewed PCAF disclosures make a reference to the issue in their disclosures.

Key points

The paper highlights the need for net zero targets and performance metrics to explicitly distinguish ‘alignment’ from impact generation. Specifically, it highlights three types of measurement approaches designed to better distinguish real world impact from virtual emissions reductions as a result of portfolio reallocation. These are:

  1. Rebaselining of emissions / alignment disclosures to distinguish ‘virtual’ changes from real world outcomes;
  2. Disclosure of primary vs. secondary market transactions to better understand the extent to which direct financing is provided;
  3. Full disclosures of the universe of climate actions and impact case studies to better understand actions taken by the financial institution to realize impact outcomes and to inform academic research on the topic.