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GFANZ wants to enhance and converge on PAMs ahead of COP27

© Shutterstock / amgunDigital world map showing climate change.

GFANZ opens public consultation on guidance document assessing portfolio alignment with net zero targets for the financial sector, but accurate measurement of climate risks remains an obstacle for the sector. That makes agreement on, and standardisation of, portfolio alignment metrics (PAMs) critical to achieving net zero.

GFANZ issues a guidance document for consultation with the aim to enhance, converge, and adopt international best practices for portfolio alignment metrics (PAMs).

There is currently a proliferation of PAMs being used, which impedes on the financial sector’s ability to accurately assess the progress and risk of their portfolios in the context of net zero and climate change.

Improving climate risk analysis will be crucial to inform financial firms to optimise their portfolios for a future impacted by climate change.

The world’s largest coalition of financial institutions committed to transitioning the global economy to net zero, the Glasgow Financial Alliance for Net Zero (GFANZ), has proposed new guidance on measuring the alignment of financial institutions’ investment, lending, and underwriting activities with net zero targets.

Guidance on portfolio alignment metrics (PAMs) developed by the crowd

The guidance document released by GFANZ was developed based on input from “net zero stakeholders”, including financial institutions, financial data providers, and civil society.

It aims to increase convergence on methodological best practice approaches to be adopted by financial institutions and metric providers, as well as increase transparency on the underlying assumptions used to evaluate the net zero progress of portfolios.

“If financial institutions are to deploy the capital required to usher in the net zero transition, they need a way to measure whether their financing activities align to their ambition” said GFANZ’s vice chair Mary Schapiro.

She claims that the new report offers financial institutions the metrics needed to “assess whether their portfolio companies are 1.5 degrees Celsius-aligned or need resources to transition”.

GFANZ seeking consultation and responses

The new report is seeking consultation from relevant stakeholders on the alignment metrics used today and how to enhance critical inputs for measuring portfolio alignment. The consultation is open until September 12 2022.

The final report is due to be published ahead of COP27 in Egypt this fall, and could be an important milestone for the financial sector to enhance, converge, and adopt a set of best practices and common methodologies when it comes to assessing the progress of their portfolio companies on the road to net zero.

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