Real Climate Targets May Push Big Banks Out of Net-Zero Alliance

Several major banks are considering withdrawing from Mark Carney’s highly-touted Glasgow Financial Alliance for Net-Zero, fearing legal jeopardy as GFANZ toughens its requirements for climate action.

In “tense meetings in recent months,” American GFANZ members like JPMorgan Chase & Co., Morgan Stanley, and Bank of America along with Europe’s Santander Bank “have said they feel blindsided by tougher UN climate criteria and are worried about the legal risks of participation,” the Financial Times reports. “The potential loss of some of the world’s biggest and most influential banks would be a serious blow for Carney’s GFANZ group,” after 450 members representing US$130 trillion in assets signed on during last year’s COP 26 summit in Glasgow.

“I am close to taking us out of these global green commitments—I’m not going to allow third parties to create legal liabilities for us and our shareholders. It is immoral and irresponsible,” one senior U.S. banker told the Times. “What if we get it wrong, make a mistake, or someone lies? Then the bank can be sued. That is an unacceptable risk.”

The news story chronicles “extremely tense”, hour-long discussions triggered by a new set of standards released in June by the UN’s Race to Zero initiative. At the time, news reports indicated that Canada’s five biggest banks might be kicked out of GFANZ. While the Glasgow alliance “was designed as a big tent to bring together as many new members as possible,” the Times wrote, participating institutions will be expected to comply with the tougher criteria by next June.

But the banks can’t claim to be surprised, given the ample warning they received that more specific, ambitious targets were a part of the plan.

When Carney and colleagues triumphantly announced GFANZ in the early days of last year’s COP 26 climate summit in Glasgow, a spokesperson told The Energy Mix that its terms of engagement made no explicit mention of a fossil investment phaseout “because the rules are outcome-specific rather than process-specific,” leaving it up to individual banks to chart their own “1.5°C trajectory”. GFANZ’ underlying assumption was that “no one knows a bank’s portfolio like they do,” he said, adding that it had been “really tricky to get these banks onboard”.

But in a subsequent interview, the spokesperson said financial institutions would be expected to get more specific and ambitious in their climate commitments over time, with a deadline of 12 to 18 months after joining the alliance to get their targets in place. Now those timelines are starting to run down, even if many banks would evidently prefer to manage GFANZ as a PR exercise, rather than a prompt to rethink their investment priorities.

Now, “the banks’ biggest concern is over strict targets on phasing out coal, oil, and gas” that could expose them to direct action from GFANZ or expulsion from the alliance, the Times says. “Banks’ legal departments are particularly anxious about tougher U.S. Securities and Exchange Commission rules around climate risk disclosures and commitments,” proposed last February by Chair Gary Gensler.

Those new rules “will soon require formal disclosures in annual reports about governance, risk management, and strategy with respect to climate change. Companies will also have to disclose and be held accountable for any targets or commitments made, with detailed plans on how to achieve them.”

The Times has more on financial institutions’ continuing pushback on the momentum GFANZ is trying to establish, including their observation that no banks from China, Russia, or India have signed on to the alliance.