The Glasgow Financial Alliance for Net-Zero (GFANZ) is keeping emission reduction commitments voluntary for the banks and asset owners whose climate behaviour it aims to influence, after a flurry of reports that major banks were either planning to quit the alliance or were at risk of being kicked out.
The news has Netherlands-based Banktrack warning that the Mark Carney-inspired alliance, announced with great fanfare at last year’s COP 26 climate summit with US$130 trillion in world-wide assets onboard, is “quiet-quitting” the Race to Zero Campaign, a UN effort to rally businesses, cities, regions, and investors around a 2050 net-zero target.
“GFANZ member alliances are encouraged, but not required, to partner with the Race to Zero,” a spokesperson said in an email this week. “GFANZ and the sector-specific alliances will continue to note the advice and guidance from Race to Zero, as well as other international bodies.” But the change in approach “will help ensure GFANZ’s recommendations reflect regional contexts, and the supervisory, regulatory, and legal obligations unique to the financial sector, as we continue to support net-zero implementation.”
That statement heralds a return to the more flexible, voluntary approach that the alliance announced last year as it tried to bring big financial institutions onboard for Carney’s announcement during the Glasgow COP last fall. But it’s a major step down from the more rigorous standard—with expectations for actual, real-life emission reductions—that Race to Zero has been circulating in recent months.
More Transparency in Ottawa?
In Ottawa, meanwhile, two cabinet ministers aren’t ruling out new transparency and financial disclosure rules after a report by three environmental groups concluded that Canadian banks had poured C$900 million into fossil fuels since 2015, the year of the landmark Paris climate conference, CBC reports.
“Nothing is off the table,” Natural Resources Minister Jonathan Wilkinson said Tuesday. “At the end of the day, we want to make sure Canadians have transparency when it comes to financial institutions.”
“We are looking at regulating when we need to,” agreed Environment and Climate Change Minister Steven Guilbeault.
But it may be a stretch for the federal government to amass the regulatory clout to deliver on those promises. Canada has been lagging on climate risk reporting and sustainable finance for years. And earlier this year, when the Office of the Superintendent of Financial Institutions (OSFI) invited public comment on new guidelines for the sector, its emphasis was on “supporting” banks on climate risk rather than holding them accountable for actual emission reductions. Reading between the lines, the new draft rules called for laggards in the financial sector to receive stern letters from the regulator, or if all else failed, be summoned for a good talking-to in a scheduled meeting.
A spokesperson declined at the time to speculate on more rigorous measures, and weeks later, OSFI is still considering a request for a follow-up interview.
‘Banks Know Best’
The same sense of deep caution seems to be guiding GFANZ’ decisions and actions.
A year ago to today (as it happens), The Energy Mix reported that UN climate finance envoy Mark Carney only managed to bring together so many trillions of dollars of global financial clout 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 GFANZ’ formation made no explicit mention of a fossil investment phaseout “because the rules are outcome-specific rather than process-specific,” a spokesperson said at the time. “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.”
The guiding assumption, he added, was that “no one knows a bank’s portfolio like they do.” The spokesperson admitted it had been “really tricky to get these banks onboard,” with key decision-makers within major financial institutions worried about their fiduciary duty and responsibility to shareholders.
One motivator for banks to sign up was to gain access to negotiations during what was expected to be a momentous, historic COP in Glasgow. But the original intent was always to toughen the criteria for GFANZ membership, with participating companies given about 18 months to come up with credible net-zero pathways.
The ‘Great Climate Backslide’
By mid-February, Bloomberg News was declaring a “Great Climate Backslide”, with data that showed banks pouring trillions of dollars into fossil fuels and clean energy stocks “taking a hammering”. But through late summer, with Race to Zero toughening its criteria, there was talk that Canada’s biggest banks might be pushed out of GFANZ, and that big international lenders like JPMorgan Chase & Co., Morgan Stanley, Bank of America, and Santander Bank were considering leaving the alliance.
Those institutions “have said they feel blindsided by tougher UN climate criteria and are worried about the legal risks of participation,” the Financial Times wrote in late September. “The potential loss of some of the world’s biggest and most influential banks would be a serious blow for Carney’s GFANZ group.”
Now, Banktrack says GFANZ is accommodating those concerns by “quiet quitting” the Race to Zero Campaign, “following discussions about the risks of breaching antitrust law and resistance against some of its fossil fuel phaseout criteria.”
GFANZ and its various constituent alliances are still members of Race to Zero, and will still require financial institutions “to adopt science-based transition plans with measures to support the phaseout of the coal, oil, and gas industry, starting with an end to all support for fossil fuel expansion,” Banktrack writes.
But GFANZ’ second annual report, released October 27, “is notable for carrying a legal disclaimer and repeatedly stressing that all its guidance is voluntary and that each of its seven sectoral alliances ‘are independent initiatives subject only to their individual governance structures’,” the group says. “Any mention of the change to the Race to Zero’s status is notably absent from GFANZ’ press release on its new progress report.”
Julie Segal, senior manager of Environmental Defence Canada’s climate finance program, said the new distance between GFANZ and Race to Zero “suggests the member financial institutions will not make the trek to net-zero without new ground rules from policy-makers,” showing that voluntary commitments won’t get the job done.
“The alliance was supposed to be a club that turned net-zero criteria into results,” she added in a release. “Now it appears that the Race to Zero’s red lines restricting investment in new oil, gas, or coal expansion are too much for mainstream financial institutions to give up voluntarily. Dozens of financial institutions signing up to GFANZ shows tacit approval for net-zero commitments becoming a new baseline in the economy, but we clearly need better measures for accountability.”