Financial institutions committing to net zero should appropriately label sustainability-linked products and services as well as disclose their environmental and social impacts in compliance with local regulations. Where no such regulation exist, credible financial institutions should fully disclose the underlying scenarios and methods used to align their financial products and services to the science-based pathways.
This article presents UNEP FI’s ninth recommendation on credible net-zero commitments as outlined in a UNEP FI input paper to the G20. The eleven recommendations, alongside this series of articles, aim to support policymakers in understanding the progress in net-zero finance to date and how to scale up the global transition to a net-zero economy.
Transparency as prerequisite
Fostering trust in sustainability-linked products and services is an essential prerequisite for reorienting the financing needed to drive the transition towards a net-zero economy. Financial institutions that make a net-zero commitment have started to disclose sustainability information related to their financial products and services. To be credible, these disclosures should reflect how the financial products and services align with the science-based pathways. To support voluntary best practise, regulatory requirements for sustainability disclosures can reinforce the transparency and integrity needed for the financial market to truly redirect financing and enabling the net-zero transition.
Regulation empowering sustainable investment
In the past few years, various regulatory initiatives emerged with the common goal of improving the transparency of sustainability information for investment decision-making. For example, the Sustainable Finance Disclosure Regulation (SFDR) in the EU or the proposal for Sustainability Disclosure Requirements (SDR) in the UK.
These examples of regulatory initiatives are crucial in empowering investors to access a diverse range of financial products while ensuring they can make well-informed decisions based on transparent sustainability factors. Financial institutions, policymakers and standard setters must work together to develop and implement uniform requirements and transparent reporting standards on metrics, underlying scenarios and methods that can be used to classify financial products as sustainable.
In conclusion, harmonised requirements can ensure that sustainability disclosures are available and consistent for investors to reorient financial flows in support of the net-zero transition. Policymakers across jurisdictions should therefore support financial institutions in comprehensively labelling sustainability-linked products and services and appropriately disclosing the sustainability impacts of such products and services.