Q&A

About us

The Net Zero Financial Service Providers Alliance (NZFSPA) is a global group of service providers[1] committed to supporting the goal of global net zero greenhouse gas emissions by 2050 or sooner, in line with the ambition to limit the global temperature increase to 1.5°C above pre-industrial levels.

We recognise the significant risks associated with climate change and delaying the transition to a net zero economy. This includes financial risks, such as the risk of stranded assets and loss of earnings for organizations with operations not aligned with this transition. By signing the Net Zero Financial Service Providers Commitment (the Commitment) we commit to aligning with a net-zero economy and support our clients’ transition to net zero.

[1] Service Providers may include organisations that offer products or services to asset owners and/or investment managers.  Service Providers include index, research and data providers, credit rating agencies, stock exchanges, accounting firms, investment advisers and proxy voting providers.

The signatories are a range of service providers from around the world who are committed to raise the urgency of net zero alignment and integrate net zero alignment into the products and services we offer capital market participants. These signatories are representatives from credit ratings agencies, index providers, auditors, stock exchanges, ESG, data and proxy research advisers.

The NZFSPA is designed to enable and accelerate the role that service providers play in providing clients, including institutional investors and their managers, with products and services that recognise their need to align their assets, products, services and investment strategies with a just transition to a net zero and resilient economy.

We are the only global alliance specifically focused on service providers. The NZFSPA is endorsed by the Race to Zero Campaign and supported by the Principles for Responsible Investment (PRI). To the extent permissible under global competition and anti-trust laws and regulations, we will collaborate with each other and other stakeholders via such alliances so that capital market participants have access to best practice, robust science-based approaches and methodologies, and improved data and research, through which to deliver on these commitments.

Several service providers have already taken actions that relate to this commitment. Service providers will have to report on their actions bringing transparency and accountability for following through on their commitments.

Our commitment is made in the expectation that governments will follow through on their commitments to ensure the objectives of the Paris Agreement are fulfilled. In addition, the private sector needs to play its part in driving forward the transition to net zero.

The Net Zero Financial Service Providers share an ambition with the Net Zero Asset Owner Alliance, Paris Aligned Investment Initiative and the Net Zero Asset Managers Initiative. We expect to work in partnership with signatories of other net zero Alliances. The Net Zero Service Providers Alliance is accredited by the UN Race to Zero campaign and is a member of the Glasgow Financial Alliance for Net Zero (GFANZ). In line with the GFANZ requirements, our products and services will be based on TCFD and/or science-based net zero guidelines, we will cover all emissions scopes in our reporting, include 2030 interim targets and commit to transparent reporting in line with the UN Race to Zero criteria.


What Service Providers Do

What do they do

Credit rating agencies assess the creditworthiness of an issuer, issuance or financial program, with respect to their ability to meet principal and interest payments on their debts. The credit ratings they  assign expresses their   opinion of the obligor’s capacity and willingness to meet its financial commitments as they come due and/or the loss in the event of default.  Credit rating agencies enable investors to evaluate and understand the credit risk of borrowers. Their customers include companies and government entities among others.

Impact on GHG emissions:

Areas credit rating agencies can have most impact on global GHG emissions:

  • Considering and assessing as appropriate, in accordance with their applicable credit rating methodologies:
    • The impact on credit risk of an entity’s commitment to net zero alignment
    • The impact of climate risks on credit risk

A net zero commitment would mean that credit rating agencies will consider net zero alignment, as appropriate pursuant to their applicable credit rating methodologies, when assessing the credit risk of companies and governments.

What do they do

An index provider creates and calculates market indices and licenses its intellectual capital as the basis of market benchmarks and investment products such as ETFs and passive funds. Benchmarks are also used as a basis to measure the performance of active funds relative to the returns of the market as a whole. Financial professionals and investors worldwide depend on indices for real-time information about market performance and use index data as inputs for investment and economic decisions, big and small. Their major clients are asset owners and investment management groups.

Impact on GHG emissions:

Areas index providers can have most impact on global GHG emissions:

  • Index provider services
    • Main indices used by investors being aligned to net zero means that capital flow  moves in line with a 1.5C transition
    • Clients are able to make informed decisions on net zero due to increased availability of data and information

With alignment to net zero, index providers can create indices which integrate ESG, Sustainability and Climate Change factors. For example, providing net-zero aligned indexes as alternatives to conventional benchmarks to enable asset owners and asset managers to align their investment decisions with a 1.5C transition pathway at scale; provide salient climate data across key index universes to enable market participants to help adequately assess climate risks and opportunities and allow investors to effectively integrate this in investment decision making.

What do they do

Auditors carry out audits of financial statements which are designed to give reasonable assurance on whether those financial statements are free from material misstatement.  Misstatements can arise from fraud or error.  Auditors issue audit reports which include their audit opinions on financial statements.  Reasonable assurance is a high level of assurance, but it isn’t a guarantee that an audit will always detect a material misstatement when it exists. 

The addressees of an audit report (usually the company’s shareholders) benefit from audits as the audit opinion may increase their level of confidence in the financial statements.  Overall, audits help increase trust in the corporate reporting ecosystem.

Impact on GHG emissions:

Areas where auditors can have most impact on global GHG emissions:

  1. Taking GHG emissions and alignment to net zero asserted by a company into account in auditing the company’s financial information if material
  2. Highlighting material discrepancies between companies’ net zero commitments and strategies made outside of the financial statements (in company documents or in widely-read publications) to the financial information to which the auditor’s opinion relates

What do they do

A stock exchange is a marketplace where securities, such as equity securities, funds , bonds ETFs, ETPs, and derivatives, are bought and sold. All  products that are listed on an exchange are subject to certain disclosure and transparency requirements as outlined by the listings authority/securities market regulator of the respective jurisdiction. Depending on the structure of the market  the exchange may impose additional requirements.

Impact on GHG emissions:

Areas where stock exchanges can have most impact on global GHG emissions:

Exchanges can play a role in supporting a reduction in GHG emissions through both a market focus and an exchange focus. These activities often go hand-in hand and include[i] (for example):

  1. Leading by example in committing to net zero as an exchange and disclosing how the exchange is managing climate-related risks and opportunities such as climate-risk exposures of industries that make up a significant portion of the exchange’s listings.
  2. Influencing the market through education on the importance of net zero commitments and relevant frameworks and tools they can use to meet such commitments.
  3. Encouraging or requiring disclosures that allow providers of finance and others to assess the issuer’s performance on climate change.
  4. Providing products and services that support a transition to net zero, such as data products that enable performance evaluation or listings segments that support the listing of products aligned with net zero.

 

What do they do

Shareholder voting research providers, sometimes called “proxy voting agencies” or “Proxy advisors” provide shareholder voting services to institutional investors, i.e. asset owners such as pension funds and fund managers. Their services include researching companies, providing voting guidance or recommendations together with software and tools for managing their voting and stewardship responsibilities

Impact on GHG emissions:

Areas proxy advisors can most impact on global GHG emissions:

  • Proxy advice
    • Considering a company’s net zero alignment when electing companies’ directors and signing off on accounts
    • Considering a company’s net zero alignment when voting on shareholders resolutions requesting special motions to address climate change as well as many other considerations that may impact net zero transitions

With alignment to net zero, shareholder voting and stewardship can undertake the following within their research and voting guidance:

  1. Analyse quality of corporate climate change disclosures
  2. Elect company directors with ESG, sustainability or climate change competencies
  3. Approval of sign off on accounts which align the companies to net zero transitions
  4. Approval of executive remuneration which creates appropriate climate-related incentives
  5. Vote on climate-specific resolutions addressing address climate change as well as many other considerations that may impact net zero transitions

 

What do they do

Assess companies, securities, funds / financial instruments, governments and portfolios on ESG and climate characteristics, leveraging available data and internal analyses. Collect and analyse climate, sustainability and ESG data in relation to investments and financial products and securities. This can include assessments of companies, governments, properties, commodities and projects.  Data may be sourced through information reported by assessed entities, derived using predictive analytics or through third parties including publicly available sources, specialized data sources, media, online sources, regulators and through alternative sources of information such as satellites.

Impact on GHG emissions:

Areas where ESG research, sustainable rating and data providers can most impact on global GHG emissions:

ESG research, sustainability rating and data providers services:

  • By providing sufficient disclosure of the methodology for assessing climate characteristics and application of data, so that investors can better assess the impact of the company, or other evaluated entity’s, net zero alignment strategy

With alignment to net zero, ESG research, sustainable rating and data providers will be able to systematically apply climate considerations in accordance with their methodologies during their research and ratings process, and within their data provision. For example, providing climate data and analytics that enable investors and providers of finance to account for climate in their financial allocations, decision making and engagement with the users of capital (eg companies and governments); providing transparency, rigour and global application to enable the finance and investment community to align both their capital allocations and their engagement with net zero pathways.

 

What do they do

Gives advice or recommendations to clients on investment decisions, such as advice about asset allocation, portfolio performance and manager selection. Investment advisors owe a fiduciary duty to their clients as with other providers. They role is to dive independent advice on investment options and the asset managers responsible for the investment funds for the benefit of their clients.

Impact on GHG emissions:

Areas investment advisors can most impact on GHG emissions :

  • Investment advisor services
    • Providing consistent advice on climate solutions and proactive response to net zero alignment investment demand, instead of proactively providing tailored financial solutions aligned to net zero.  

 


Our Commitment

The NZFSPA sets out a range of actions that service providers will take to support the goal of net zero greenhouse gas emissions by 2050 or sooner, with a maximum average global temperature rise of 1.5°C above pre-industrial levels.

View the commitments by service provider

These actions will aim to effect change when carried out at the scale by the Alliance signatories.

The Commitment recognises the vital role of financial service providers in supporting the transition to net-zero emissions, but we will only succeed in achieving this objective if our clients and other stakeholders commit to, and help facilitate, these objectives. With this union of service providers, it is a joint commitment to do the utmost in their individual responsibility to integrate net zero aligned advice, recommendations, research, solutions and data in order for the market participants, which are companies and investors, to make informed decisions on net zero.

Signatories are required to support efforts to decarbonize the global economy by ensuring our services and products are aligned with our clients’ commitments to prioritize real economy emission reductions, reflecting a fair share of the 50% of the global emissions reduction target from 2010 levels by 2030 or sooner, as identified by the IPCC special report on global warming of 1.5°C.

Products and services must cover all greenhouse gas emissions, including Scope 1, 2, and 3 where data availability allows them to be measured sufficiently.


Draft Guidance: Application of the Commitment


Rating Agency

Refers to the incorporation of net zero principles to the extent relevant and/ or applicable[3].


Stock/Securities Exchange

Refers, to the extent relevant and appropriate, to disclosure, market participation and/ or listing interventions or requirements and issuer tools and support.

Currently stock exchanges do not all consistently apply principles around disclosure. This commitment could mean:

– exchanges provide guidance to all market participants on climate disclosures;

– where relevant and possible, exchanges should incorporate disclosure standards in listing rules

– committing to develop and offer green products and services with the aim of aligning all relevant products over time to net zero

– to promote the visibility of such green products e.g. through labelling or dedicated platforms.


Index Provider

Refers to the maintenance of existing and addition of new net zero aligned indices

Currently there is no obligation to offer indices that are Paris-aligned. This commitment could mean that index providers  would be expected to provide net zero aligned indices for   main  regions. Going further, such net zero aligned indices can become the global benchmark or standard against which the market assesses investment risk/returns


ESG Research, sustainable rating and data providers and stewardship providers

Increased transparency regarding incorporation of net zero implications in their research, rating and data products

Currently, some providers do not systematically disclose how they incorporate net-zero into their assessment of companies, securities, and governments. This commitment could mean that these providers would need to make clear to their users/customers how they incorporate net-zero considerations into their data, assessments and rating methodologies to make informed decisions. This commitment means proxy research providers would integrate net zero commitments made by companies into the voting research, guidance and recommendations


Investment Adviser

Net zero aligned investment provision offered systemically to asset owners

Currently there is no obligation to offer net zero aligned options in advice; this commitment could mean that investment advisers would be required to put forward net zero aligned options in their advice. Advisers should also proactively highlight net zero aligned options as desirable where applicable, to ensure net zero is a priority consideration in product/services recommendations.


Auditor

Plan and perform audits in accordance with professional standards and related guidance issued by standard setters, including as they relate to climate-related matters, and commit to discharging obligations under professional standards as external auditors with quality, integrity, and independence.

Climate-related risk is required to be accounted for and/or disclosed in financial statements only if considered by a company to be material in the context of those financial statements as a whole. This commitment means that auditors will:

– consider if relevant regulators’ and standard-setters’ guidance and materials on climate risks and materiality have been applied by management and others at the company

– assess the sufficiency of companies’ disclosures in the financial statements related to material climate risks

– assess if a company’s wider climate commitments (for example external commitments to achieve net zero by a point in time) have been appropriately incorporated into the assumptions underpinning the financial statements

All

Providers should work with others where relevant, allowable and appropriate given competition and anti-trust laws and regulations, to identify where existing best practice methodologies can be applied e.g. SBTi, PAII, AOA; and where there are gaps or new methodologies required for their specific provider type, proactively working to address these requirements.

All

All subsectors – meaningful targets to 2025 to be set within 12 months which are pertinent to each sub sector. The target should reflect the way in which the action taken will help to reach the interim target of a fair share of the 50% global reduction in carbon emissions needed by 2030. This point refers to target setting by the organization.

Providers should work with others where relevant, allowable and appropriate given competition and anti-trust laws and regulations, to create a framework for target-setting that identifies: what a pertinent target would be in the context of the provider type; how progress against this target would be measured; and how this target would help reflect a fair share of the 50% global reduction in carbon emissions needed by 2030.

This will need to be tailored to the provider(s): in some cases providers do not offer specific ‘products’; in other cases the regulatory conditions and professional standards for a type of provider constrain it from being able to set an interim target for services in a direct way. In these cases, providers could consider targets around implementation, building capability, supporting and elevating net-zero aligned products and services, and how their services provision could support net zero in a broader sense.

All

As described and in line with the SBTi framework


Rating Agency


Stock/Securities Exchange

Listed companies, market participants and relevant securities

Promote ‘green dialogue’ – facilitate dialogue between issuers and investors on green finance; promote and engage in policy discussions on green finance and green standards.


Index Provider

Investors using the indices


ESG Research, sustainable rating and data providers and stewardship providers

Issuers and investors as permitted by the principle of independence and mitigation of conflicts of interest.


Investment Adviser

Asset owners


Auditor

As described


Rating Agency

Refers to the evidence of incorporation of net zero principles and climate scenario analysis to the extent relevant and/or applicable


Stock/Securities Exchange

Demonstrate how disclosure, financing and other interventions are being aligned to appropriate net zero paths and sustainable solutions


Index Provider

Demonstrate how the net zero transition, using best available climate science where applicable, is reflected in relevant indices


ESG Research, sustainable rating and data providers and stewardship providers

Take into account the best available climate science where applicable, including credible emissions reduction pathways to net zero, and reflect in the evaluation of the relevant end products.


Investment Adviser

Assess and monitor investment products and asset managers on the integration of climate risks and opportunities in their investment decisions and stewardship and reflect this evaluation in client recommendations


Auditor

As described

All

As described

All

Reporting format will be defined by the targets set for each sub-group to be developed within the next 12 months.

Providers should work with others, where allowable and appropriate given competition and anti-trust laws and regulations, to define general frameworks against which individual firms could set targets, measure progress and provide reports.


Implementation & Monitoring

Service provider signatories should set measurable targets and report regularly on progress to invest in the level of specialist resources dedicated to this area, including expansion of products and services where applicable, and with regular and appropriate climate-specific training for staff.

Signatories will commit to report publicly on actions being taken and their progress against interim and long-term targets, at least annually.

The commitment recognises the vital role of service providers in supporting the transition to net-zero emissions, but we will only succeed in achieving this objective if our clients and other stakeholders commit to, and help facilitate, these objectives.

The commitment recognises that service providers are subject to legal, regulatory, professional and ethical standards in their respective industries; the commitment does not exempt those providers from meeting those obligations.

We remain committed to integrating and reporting on a range of environmental, social and governance issues. This pledge specifically addresses our commitment to net zero emissions. This is not at the expense of our other ESG/sustainability commitments. Indeed, good governance and the social factors for a just transition are integral to the successful achievement of net zero.