Areas of Focus

  • Decarbonizing Sectors
  • Steel
  • Poseidon Principles
  • Alignment Insights
  • State of the Market

Decarbonizing Sectors

The Center works with financial institutions to help decarbonize high-emitting sectors in the real economy by addressing common barriers to sectoral decarbonization, such as:

  • Conflicting sectoral decarbonization pathways
  • Insufficient data
  • Confusing climate performance methodologies
  • First-mover disadvantage
  • Inadequate supply of investable low-carbon assets

Working directly with financial institutions and their clients, suppliers, and regulators, the Center helps to create climate-aligned finance agreements that establish common sectoral decarbonization roadmaps and assessment methodologies.

As a Supporting Partner of the Mission Possible Partnership (MPP), the Center is leading finance work within net-zero sector platforms for:

Steel

Aluminum

Aviation

Cement & Concrete

Chemicals

Trucking

Steel Climate-Aligned Finance Working Group

Steel production is heavily coal-dependent and lacks existing cost-competitive low-carbon alternatives. Globally, the steel sector emits roughly 7% of energy emissions—equivalent to the annual emissions of India.

The sector’s carbon intensity raises expectations of and from financial institutions to support its decarbonization, but to date, common tools to support steelmakers effectively in this regard have been lacking.

As a result, leading lenders to the global steel industry—ING, Citi, Societe Generale, Standard Chartered and UniCredit—are working together to develop a climate-aligned finance agreement to more effectively support the decarbonization of steelmaking.

To forge this framework, several banks have formed the Steel Climate-Aligned Finance Working Group, led by ING and Societe Generale, and facilitated by RMI’s Center for Climate-Aligned Finance. CRU is participating in the Working Group's Expert Committee.

The Working Group will apply best efforts for multi-stakeholder engagement through:

  1. Consulting a review group of peer banks to ensure broader representation
  2. Seeking consensus from their steel sector clients to enable industry support
  3. Collaborating with other initiatives on the Expert Committee to invite technical guidance from experts in the field

The Working Group ultimately aims to set global best practices on climate for financial institutions that facilitate steelmaking. Towards this end, we intend to enroll other banking signatories in a final climate-aligned finance agreement to be released in early 2022.

This Working Group on climate-aligned finance is one of several workstreams within the Net-Zero Steel Initiative (NZSI). NZSI comprises some of the world’s largest steel producers and suppliers, under the umbrella of the Mission Possible Partnership.

If you are interested in learning more, please contact Lucy Kessler at [email protected].

Worlds First Climate Alignment Agreement for Financial Institutions

The Poseidon Principles, launched in June 2019, are a framework for responsible maritime shipping finance and have established a model for how the financial sector can kick-start sectoral decarbonization.

They provide a way quantitatively assessing whether financial institutions’ ship finance portfolios are in line with the climate targets agreed by the International Maritime Organization (IMO), the United Nation’s body that oversees international shipping.

Under the Poseidon Principles, signatories commit to assess and disclose the climate alignment of their shipping portfolios and work to bring their portfolios in line with climate targets. Signatories use the Principles to engage their clients when emissions hotspots are identified.

Only one year after launch, European signatories to the Principles structured over $1.2 billion in Poseidon-linked facilities. These loans tie the cost of capital to climate-aligned GHG performance.

Learn more at the Poseidon Principles website, and read about the first year of reporting here.

Alignment Insights

The Center’s Alignment Insights Lab convenes leading financial institutions, climate experts, service providers, and representatives of alignment platforms to help implement the many promising climate-alignment commitments made to date by:

  1. Continually clarifying what climate alignment looks like in practice for different types of financial institutions
  2. Identifying and sharing best practices to support financial institutions as they integrate climate alignment across operations and business units
  3. Identifying and addressing barriers to climate alignment
  4. Coordinating with existing alignment platforms to support and consolidate efforts where appropriate

Following convenings, the Center publishes key findings in best practice reports for finance practitioners. These reports are designed to accelerate the exchange of alignment solutions in the financial sector. Publications also identify and recommend solutions for key stakeholders, including:

Financial Institutions

Regulators

Service Providers

Alignment Platforms and Initiatives

State of the Market

Assessing How the Financial Sector is Making and Implementing Climate Alignment Commitments

The Center measures how many of the world’s largest financial institutions (LFIs) have committed to using their levers of influence to move the global economy toward net-zero emissions. This is important for:

  1. highlighting momentum in the market,
  2. identifying where gaps are emerging, and
  3. understanding the direction of travel toward climate alignment.

Our July 2021 analysis covered the 119 firms with $500 billion or more in total assets, surveying banks, asset managers, asset owners, and insurers. We found:

Net-Zero Commitments are Mainstream but not Universal

Almost 40 percent of LFIs have made 2050 net-zero (or equivalent) commitments.

Lack of Common Language Makes It Difficult to Track and Assess Commitments

Commitments’ scope and transparency vary significantly. For example, some cover the entire business, while others focus on specific portfolios or business units.

Interim Targets are Helpful but Should Be Followed by Action

Robust target-setting should be followed up with actions that drive the real economy toward a 1.5°C future.

Download the full Coming into Alignment report for more insights.

Percentage of LFIs with net-zero commitments vs. total assets controlled by all LFIs

For further information on this analysis and our ongoing work, please contact Lizzy Harnett: [email protected]

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