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Sullivan & Cromwell Discusses Treasury Department Principles for Net-Zero Financing and Investment

On September 19, 2023, the U.S. Department of the Treasury released nine principles for net-zero financing and investment by financial institutions.[1] The Principles focus on “scope 3” financed and facilitated greenhouse gas emissions (i.e., indirect emissions included in a company’s value chain) and advocate that financial institutions making credible net-zero commitments should develop transition plans with clear practices, targets, and metrics, and should support their clients and portfolio companies adopting their own transition plans. Although the release states that use of the Principles is “wholly voluntary” and that the Principles “do not impose legal requirements on any activities or institutions,”[2] financial institutions that have made net-zero commitments—or are considering making net-zero commitments—should consider reviewing the Principles to better understand how Treasury is approaching issues related to net-zero commitments and climate change more generally.


The release also identifies areas where gaps exist and further clarification on approaches and methodologies would be helpful. For example, with respect to transition finance, the release encourages financial institutions to “work to overcome barriers to integrating sectoral pathways and client and portfolio company scope 3 emissions data into measurement and target-setting efforts.”[26] In addition, the release notes that there are “gaps in available and fit-for-purpose methodologies for assessing client and portfolio alignment, and a need for continued improvement of target-setting methodologies.”[27] Accordingly, the release urges financial institutions to consider how to work with relevant stakeholders to improve methodologies and approaches.[28]


Although the Principles do not create any new legal or regulatory obligations, they represent Treasury’s view that credible net-zero commitments require thorough transition planning, as well as Treasury’s efforts to begin the benchmarking of existing practices against the “emerging best practices” identified by Treasury.

In remarks accompanying the release, Treasury Secretary Janet Yellen stated that if financial institutions do not monitor shifting consumer preferences and new technologies and assess the “significant financial impacts” of climate change, they “risk being left behind with stranded assets, outdated business models, and missed opportunities to invest in the growing clean energy economy.”[29] She also stressed that financial institutions’ activities in support of their net-zero commitments “need to be rigorously managed,” but noted that the Principles were designed to be flexible and that a “one-size-fits-all approach won’t work.”[30] To this end, she acknowledged that “[h]ow smaller firms apply the Principles may look quite different than how larger ones do”[31] and that “[a]pproaches will vary depending on business model, client base, products and services, and jurisdiction.”[32]

In connection with the release, Treasury also highlighted several announcements from civil society organizations. To support the policy objectives underlying the Principles, several philanthropic organizations—including Bezos Earth Fund, Bloomberg Philanthropies, Climate Arc, ClimateWorks Foundation, Hewlett Foundation, and Sequoia Climate Foundation—committed $340 million for the continued development of research, data availability, and technical resources intended to help financial institutions develop and execute robust, voluntary net-zero commitments.[33] Further, additional organizations announced plans to “generate tools and technical work needed to facilitate the execution of net-zero commitments.”[34] For example, the Glasgow Financial Alliance for Net Zero (GFANZ) launched a 45-day consultation on its work to further refine the definitions of its transition finance strategies and support financial institutions in forecasting the impact of these strategies on reducing emissions. GFANZ expects to release a final report at the 2023 United Nations Climate Change Conference (COP28) later this year.[35] As another example, the Partnership for Carbon Accounting Financials (PCAF) announced its plan to publish its standard for facilitated emissions later this year, which will cover capital markets transactions.[36]


[1]           U.S. Department of the Treasury, Principles for Net-Zero Financing & Investment (Sept. 2023), available at

[2]           Id. at 2.

[3]           Id. at 4.

[4]           Id. The release explains that the term “transition plan” refers to either or both (i) any internal-facing processes, documents, communications, or resources that outline and guide a firm’s transition plan goals, actions, and accountability mechanisms, and (ii) any external-facing communications meant to inform stakeholders of this information. Id. The release recognizes that, in many cases, such internal-facing processes, documents, communications or resources will be different from what is publicly shared. Id.

[5]           Id. at 5.

[6]           Id.

[7]           Id.

[8]           Id.

[9]           Id. at 6.

[10]         Id.

[11]         Id.

[12]         Id.

[13]         See id.

[14]         See id. at 7.

[15]         Id. at 8.

[16]         See id. at 9.

[17]         Id. at 10.

[18]         See id. at 11.

[19]         See id.

[20]         See id.

[21]         See id. at 12.

[22]         Id.

[23]         Id.

[24]         Id.

[25]         See id. at 13. The release warns that voluntary carbon markets “remain relatively small and face challenges related to market transparency and credit integrity,” but notes that these markets “represent potentially important channels for unlocking significant capital to climate-impactful investments that can help limit the increase in the global average temperature to 1.5°C.” Id.

[26]         Id. at 8.

[27]         Id. at 11.

[28]         See id.

[29]         Remarks by Secretary of the Treasury Janet L. Yellen in New York, New York on Treasury’s Principles for Net-Zero Financing & Investment (Sept. 19, 2023), available at (“Secretary Yellen Remarks”).

[30]         Id.

[31]         Neither Secretary Yellen’s remarks nor the release define the terms “larger” or “smaller.”

[32]         Secretary Yellen Remarks.

[33]         Press release, “Treasury Releases Principles for Net-Zero Financing & Investment, Applauds $340 Million Philanthropic Commitment and Other Pledges” (Sept. 19, 2023), available at

[34]         Id.

[35]         See id.

[36]         See id.

This post comes to us from Sullivan & Cromwell LLP. It is based on the firm’s memorandum, “Treasury Department Releases Principles for Net-Zero Financing and Investment,” dated September 22, 2023, and available here.

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