November 3, 2021: UN climate finance envoy Mark Carney’s Glasgow Financial Alliance for Net-Zero only brought together a highly-touted US$130 trillion in global financial clout over 30 years by assuring participating institutions they could set their own pathways to achieving net-zero, with or without a commitment to end fossil fuel investment, then counting on sustained public attention to keep them on track.
The rules guiding the formation of the Glasgow Financial Alliance (GFANZ) make no explicit mention of a fossil investment phaseout “because the rules are outcome-specific rather than process-specific,” a spokesperson told The Mix. “The overall commitment is to reduce your emissions in line with a 1.5°C trajectory, and it’s up to individual banks to do that.” But “there’s not a rule about fossil fuel financing because it’s up to individual banks how to get to that trajectory.”
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At a news conference Wednesday morning organized by Climate Action Network-International, a panelist said some GFANZ signatories had approved new fossil fuel investments since joining the alliance.
The alliance spokesperson said the initiative’s underlying assumption is that “no one knows a bank’s portfolio like they do.” It’s also been “really tricky to get these banks onboard,” he told The Mix, with key decision-makers within major financial institutions worried about their fiduciary duty and responsibility to shareholders.
That cautious, incremental tone was nowhere to be found in the triumphant announcements that marked yesterday’s Finance Day sessions at COP 26.
“Today,” GFANZ said in a release, “over US$130 trillion of private capital is committed to transforming the economy for net zero. These commitments, from over 450 firms across 45 countries, can deliver the estimated $100 trillion of finance needed for net-zero over the next three decades.”
“It’s a mammoth transition,” Carney, a former governor of both the Bank of Canada and the Bank of Canada, told CBC in Glasgow. “We have banks, asset managers, pension funds, insurance companies from around the world,” so “one of the key messages of this COP is: the money is there.”
Last week, Carney had joined GFANZ co-chair and billionaire philanthropist Michael Bloomberg in an op ed that spotlighted the scope of the challenge. “Ramping up adoption of clean energy and other sustainable infrastructure fast enough to avoid the worst impacts of climate change will require trillions of dollars in new investment—likely in the ballpark of $100 trillion,” they wrote. “Most of that will have to come from the private sector, especially after the enormous toll that the pandemic has taken on governmental budgets.”
But the GFANZ release said that work is already in motion. “Firms are turning ambition into action that will align their portfolios with 1.5°C,” with more than 90 of the alliance’s founding members—including 29 asset owners and 43 asset management firms—already committed to 2025 or 2030 emission reduction targets. The spokesperson said new members of the alliance get 12 to 18 months to set their initial emission goals, with the expectation that they’ll continue ratcheting those targets down in five-year increments.
“To support the deployment of this capital, the global financial system is being transformed through 24 major initiatives for COP 26 that have been delivered for the summit,” the release added. “This work has significantly strengthened the information, the tools, and the markets needed for the financial system to support the transformation of the global economy for net-zero.”
But the results of all that activity will still depend on decisions by each individual GFANZ member. Under the alliance rules, “each institution will find the proper way forward, rather than trying to fit into a common standard,” the spokesperson said. After that, the purpose of the public accountability process built into the GFANZ mandate “is that their progress is there for the world to see.”
The spokesperson acknowledged that approach could put a lot of pressure on financial institutions that are searching for reliable guidance, at a time when fossil companies are reassuring them about unproven carbon capture technologies that ultimately delay clean energy investments and distract from ever-louder calls to rapidly phase down fossil fuels. “That’s a really good question,” he said, but alliance organizers ultimately opted to “give them an outcome to deliver on, and be scrutinized for it.”
Alliance members will have access to an advisory board that provides “independent perspectives” on net-zero pathways, including a wide variety of environmental non-profits, the spokesperson added.
And none too soon, with Bloomberg Green warning yesterday that the bankers committing to net-zero targets don’t agree on what the concept means.
“‘Net-zero’ has quickly become part of the lexicon on Wall Street and in the City of London, but there’s no consensus on what it means, laying the foundation for misrepresentation and confusion,” writes Bloomberg reporter Alastair Marsh. The Science-Based Targets initiative (SBTi), itself a target of concerns about standard-setting and potential greenwash, “published a report on Wednesday aimed at providing a foundation for reaching consensus,” Marsh writes, but it’s just a first step in developing a “science-based net-zero standard” for financial institutions.
That work matters because the “lack of consistent principles, definitions, metrics, and evidence of effective strategies to meet the targets limits the ability of financial institutions to support the reduction of emissions in the real economy that is needed to stabilize temperatures at 1.5°C above pre-industrial levels,” the SBTi report said.
The inconsistency around what net-zero even means “allows for financial institutions to claim they are doing more than they are and makes verification of any claims impossible,” said SBTi technical director and founding partner Cynthia Cummis.
Some of those concerns were at play in the skeptical response the GFANZ announcement received from some of the civil society groups monitoring the COP 26 talks. A release from Global Witness cited its own recent report that showed global banks and investors pocketing US$1.74 billion in income from agribusiness investments.
“Banks and financiers are the lifeblood of the fossil fuel companies and destructive agribusinesses fuelling the climate crisis—so it’s right that focus should be on them at COP 26,” said Veronica Oakeshott, the organization’s head of forests policy and advocacy. “However, today’s announcement by banks risks amounting to more greenwashing if it’s not legally binding.”
“Global leaders can no longer trust financial institutions to regulate themselves,” Oakeshott added. “Banks will not stop funding deforestation unless there is strong and binding legislation that makes it illegal for them to do so.”
A report released this week by Reclaim Finance criticized the Carney initiative for failing to address fossil fuel expansion or drive reductions in absolute emissions. “Employing weak metrics, ducking the hard questions of offsets and absolute emissions, and resolutely ignoring the elephant in the room that is fossil fuels, these financial alliances are failing to address the urgency of the climate crisis,” said Senior Analyst Patrick McCully. “If this really is the ‘finance COP’, Mark Carney & Co. need to lead from the front.”
“This announcement yet again ignores the biggest elephant in the room, fossil fuel companies,” added Stand.earth Climate Finance Director Richard Brooks. “There is no mention of the ‘F words’ at all in this new declaration from the net-zero clubs. We cannot keep under 1.5° if financial institutions don’t stop funding coal, oil, and gas companies, particularly those actively applying for and building new fossil fuel infrastructure like coal mines, tar sands pipelines, and deep sea drilling.”
Billionaire e-commerce operator, philanthropist, and space travel hobbyist Jeff Bezos also came in for criticism after committing $2 billion for nature restoration. “A billionaire addresses a climate change conference on his self-funded space flight as representatives from sinking countries look on is not a thing I thought I’d write this week #COP26,” tweeted Agence France-Presse correspondent Patrick Galey.
