The FINZ debate: unrealistic ideal or opportunity for private equity?
Last year, the Science Based Targets initiative (SBTi) released its Financial Institutions Net Zero (FINZ) Standard. FINZ is the SBTi’s first dedicated net zero framework for financial institutions. Its aim is to help them set credible, science-based net zero targets.
In a recent article for GRESB, Verco’s Myles Tatlock (co-author of the Private Equity Sector Science Based Target Guidance) explains what the Standard calls for, how the industry feels about it and how it provides opportunities for profit and reduction amidst a changing landscape.
You can find a summary of the article’s key points below or read the full article on the GRESB website here.
Assessing the pros and cons
While the FINZ Standard is easier for private equity to work with than the consultation drafts that came before it, it remains demanding. It calls for fossil fuel phase-out, heavy industry emissions reduction, stronger climate governance, and end to deforestation and more. The greater greenhouse gas exposure a portfolio has, the faster the firm is expected to act.
Of course, this means that some are asking whether investors, whose portfolios are often complex and global, can meet FINZ targets without sacrificing returns.
On the other hand, many are also asking whether failure to act will risk stranded assets and products, along with regulatory penalties and loss of investor confidence.
Making the most of FINZ as an opportunity
Whether or not a private equity firm chooses to adopt FINZ, the standard is set to reshape expectations across the market.
For those wondering how to translate ambition into measurable action, Myles recommends:
- Using a decarbonisation software platform that goes beyond carbon accounting. These platforms can identify the highest-return actions, then track both financial and emissions performance in real time across entire portfolios.
- Working with expert advisors and engineers. The next wave of decarbonisation will be more challenging, with fewer obvious returns at first glance. It demands innovative engineering and financing solutions that deliver implementation that truly stands out.
We can help with this - our MyVerco software brings all relevant data into one place, so you can track performance, run different scenarios, and discover which projects drive the best returns. The Verco team of subject matter experts can also advise you on how best to refine your strategy, and provide the specialist innovation you need to power towards your goals. For an example of the support we offer, you can read our detailed guide to FINZ for Asset Managers here. Please don’t hesitate to get in touch if you’d like to find out more.
“It’s about the future of capital allocation,” says Myles. “The leaders who act now will protect asset value, win investor trust, and stay ahead of regulation. The rest risk being left behind, both in valuation and in reputation.”
The firms executing FINZ well will see stronger returns, rising asset value, and reduced risk in a volatile world. Ultimately, those who can show credible, science-based progress will attract the most competitive capital.