Introducing the IMPACT+ Principles for Climate-Aligned Finance

In the wake of COP26 and a record-breaking year of climate commitments from the financial sector, there has never been greater attention on what financial institutions do next to translate their words into action. With the carbon budget running down and no time to waste in this decisive decade for climate action, it is essential that financial institutions take impactful, strategic, and ambitious steps toward a 1.5°C future. As climate action accelerates in 2022, financial professionals responsible for developing and implementing climate alignment strategies must navigate a constantly evolving landscape of climate initiatives and changing stakeholder expectations. In the absence of a one-size-fits-all approach to climate action, the financial sector needs to orient its next steps around the end goal of achieving real-world transformation.

Today the Center for Climate-Aligned Finance is launching the IMPACT+ Principles for Climate-Aligned Finance to help guide private-sector financial institutions in focusing their alignment efforts on what matters most to deliver real-economy decarbonization.

What are the IMPACT+ Principles? Why Did We Write Them?

The IMPACT+ Principles are concise recommendations for designing impact-oriented alignment approaches.  

The principles were developed in consultation with financial institutions, NGOs, and climate activists to ensure that they are ambitious and actionable principles that can enhance the impact of financial institutions in working with a range of stakeholders.

• Influence real-economy decarbonization through financial and nonfinancial activities.
• Measure, steer, and report against transition targets on a sector-by-sector basis.
• Prioritize actions to expedite progress and maximize impact across key sectors, asset classes, and geographies.
• Adopt transition-relevant data and metrics to guide decision-making, without using a lack of data as an excuse for inaction.
• Collaborate to accelerate system-wide alignment.
• Transparently communicate alignment approaches and progress to all relevant stakeholders.
• + Develop holistic oversight to minimize negative impacts.

Instead of serving as a “tick-the-box” how-to guide, or a framework that only addresses specific parts of the financial sector, the IMPACT+ Principles are intended to act as a starting point for any private financial institution seeking to understand the essential parameters and priorities for an ambitious, impact-oriented alignment strategy.

In particular, the principles highlight the need for a sectoral approach to alignment, recognizing that financial institutions will need to prioritize their activities based on their unique influence, expertise, and exposure. Focusing on where there is the greatest potential for impact in the real economy will allow financial institutions to effectively deploy limited resources where they are needed most, first, while contributing to collaborative efforts that can accelerate systemic change.

The strategies developed by financial institutions in the coming months will shape the scale, speed, and focus of climate-related lending and investment in the next decade, with significant implications for the required global transition to a net-zero future. Collectively, we cannot afford to get these next steps wrong.

Why Is Impact-Oriented Climate Alignment So Important?

As the enabler of nearly all real-economy activity, it is essential that the financial sector transform its practices and priorities to focus on delivering a rapid, just, and inclusive transition. While urgent action is required, it is increasingly apparent that not all actions are equally relevant or impactful across different financial institutions, sectors, asset classes, and geographies. Without an impact-oriented focus, it is possible for financial institutions to begin to align their portfolios with net-zero futures without contributing to decarbonization of the real economy. Such an outcome would significantly hinder crucial progress on climate action and increase both the individual and systemic climate-related financial risks that financial institutions face.

The IMPACT+ Principles therefore outline how and why a financial institution’s responsibility to climate alignment is equal to the maximum influence that the firm can wield in facilitating the transition to a 1.5°C future. This will involve a focus on an impact-oriented approach across both financial activities, such as increasing lending and investment in low-carbon solutions, as well as nonfinancial mechanisms such as engagement with portfolio companies to encourage transition plans or working with policymakers and regulators to create an enabling operating environment.

While implementing impact-oriented climate alignment will look different for every financial institution, the IMPACT+ Principles are intended to act as a north star that can guide senior management and sustainability teams within financial institutions as they develop impact-oriented climate alignment strategies and efficiently allocate resources to facilitate decarbonization.

What Comes Next?

In addition to guiding the alignment work of financial institutions, the IMPACT+ Principles will help shape the Center’s work plan as we continue to support the financial sector in transitioning the global economy toward a zero-carbon, 1.5°C future.

To further expand on the application and adoption of the IMPACT+ Principles, the Center is launching an Alignment Forum. The Alignment Forum will expand the financial sector’s understanding of how the IMPACT+ Principles can be implemented across different sectors, geographies, and portfolios through events such as workshops, case studies, briefings, and more.

To express interest in attending or helping to shape the Alignment Forum, or for more information on how the Center can help you implement the IMPACT+ Principles, please contact us.