GFANZ can resurrect index guidance by addressing greenwashing concerns

4 March 2025 (IEEFA) | The Glasgow Financial Alliance for Net Zero’s (GFANZ) restructuring gives the group breathing room to strengthen its guidance on “transition-informed” indexes and better protect against greenwashing risk.  

New research from the Institute for Energy Economics and Financial Analysis (IEEFA) calls on GFANZ to amend its recommendations for transition-informed indexes to prevent unnecessary carbon lock-in and solidify investor support.  

A GFANZ consultation on the development of these indexes closed in January 2025. It proposed an inclusive approach to benchmark construction that is based not on historical emissions profiles but on the assessment of an entity’s net-zero alignment credentials.  

“Transition-informed indexes overcome some of the criticisms levelled at existing climate benchmarks. But without well-defined guardrails, they carry significantly elevated greenwashing risk that will put off many investors,” said Alasdair Docherty, author of the report and a sustainable finance and data analyst at IEEFA.  

Less than a month after the consultation deadline, GFANZ put the development of the indexes on pause while the alliance is restructured.  

“It would be surprising for GFANZ to simply scrap transition-informed indexes given their alignment with the alliance’s new strategic direction,” said Docherty. “The restructure gives GFANZ the chance to encourage greater stakeholder urgency and caution. To do so will likely reduce eligible investment universes by slightly more than initially envisaged, but curbing greenwashing risk should bolster investor support.”  

To reduce greenwashing risk and prevent extending support for companies showing no clear or credible timeline for net-zero alignment, the report recommends future transition-informed index guidance incorporates the following: 

• Red lines for fossil fuel developers. To protect against misaligned use of proceeds, fossil fuel developers should be excluded from all fixed-income transition-informed indexes.  
• Skip to “transition-engaged” offerings. Given the lead times expected before transition-informed indexes become commercially available, guidance should flesh out the case for transition-engaged indexes, bypassing the “transition-potential” category.  
• Stronger guardrails including mandatory transition plans. By 2027, when transition-informed indexes might be expected to gain wider momentum, a transition plan should be the minimum bar for inclusion. Guidance should strongly suggest quantitative guardrails to protect against over-inclusivity. 
• Transparency on lobbying. IEEFA recommends that guidance adds corporate lobbying transparency to the qualifying criteria for any transition-engaged index.  

“GFANZ hasn’t quite got the balancing act right. An inclusive approach to benchmark design will be attractive to investors, but setting the bar too low risks transition-informed indexes not being taken seriously,” said Docherty.  

“GFANZ voluntary guidance currently lacks urgency and adequate emphasis on guardrails. But if it addresses some of the greenwashing concerns, transition-informed offerings stand a good chance of displacing climate-agnostic indexes in core investment processes. If this feat can be achieved, the environmental benefits could be substantial.” 

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The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. www.ieefa.org