Mark Carney’s US$130-trillion Glasgow Financial Alliance for Net Zero (GFANZ) has lost two pension funds and a consulting company in recent weeks, and some large U.S. and Canadian banks are threatening to withdraw because of new membership criteria requiring a fossil fuel phase-down.
GFANZ, which made international headlines and represented one of the planet’s best hopes for meaningful climate action a year ago, is facing growing discontent within its membership of global banks, insurers, investment managers and consultants, and asset owners. The displeasure, especially by large North American banks, threatens to rupture the increasingly fragile alliance.
“Those are some of the biggest players on Wall Street, and if they leave does that cause some kind of domino effect, giving the impetus to other parties to say, ‘Hey, if they left why can’t I leave?” says Baltej Sidhu, an analyst with National Bank of Canada, in an interview with The Globe and Mail.
Carney, the former governor of the Bank of England (and Canada) established GFANZ with billionaire Michael Bloomberg at the COP26 UN climate summit last November in Glasgow. Under the initiative, more than 400 financial institutions from 45 countries managing assets of US$130 trillion agreed to the goal of net-zero portfolio emissions by 2050, as well as interim CO2 reductions.
But in the last 12 months, there has been heavy criticism over the lack of climate action by GFANZ’s leading members, most notably U.S. and Canadian banks and large investment managers.
Former U.S. vice-president Al Gore, the co-founder of sustainable investment firm Generation Asset Management, tells Bloomberg the commitments by GFANZ members are “very welcome,” but “it’s become apparent that some who made impressive pledges did not immediately begin to put in place a practical plan to fulfill those pledges.”
While a potential rupture in the membership could weaken the massive global alliance, some insiders and critics say this could be a good thing.
Those are some of the biggest players on Wall Street, and if they leave does that cause some kind of domino effect?
-Baltej Sidhu, an analyst with National Bank of Canada
James Vaccaro, a former renewables banker who sits on GFANZ’s advisory board, says the departure of “quarter-hearted” members would “unlock a little more enthusiasm and energy from those who do want to race to the top.”
This is a sentiment shared by Richard Brooks, climate finance director for Stand.earth, a climate- and forest-protection NGO.
“Good riddance,” Brooks tweeted about the disaffected banks. “If you [departing signatories] won’t meet minimum standards in line with the climate science and bodies like the [International Energy Agency] who said we don’t need new fossil fuel infrastructure, then quit and stop ruining these bodies for other banks who are taking responsibility.”
Matthew Kiernan, who has been involved in sustainable finance since the early 1990s, says the huge influx of mainstream finance into ESG (environmental, social and governance issues) in recent years has diluted its meaning, and only about half the assets tagged by networks like GFANZ and the UN-supported Principles for Responsible Investment (PRI) fit the sustainability label.
“I’d guesstimate that only 50 to 60% of the $100-plus trillion in sustainable assets under management claimed by the PRI could reasonably be called ‘sustainable’ by any remotely rigorous definition of the term,” says Kiernan, who co-founded Innovest Strategic Value Advisors, which became part of the massive ESG rating service of MSCI. “Greenwashing is truly a clear and present danger.”
Earlier this year, Race to Zero, a grassroots network established to oversee bodies making net-zero commitments under UN rules, upped the ante for the GFANZ signatories, establishing a rule that signatories would not be able to finance any more coal projects or unabated oil and gas projects and they would need to plan to phase down unabated fossil fuel portfolio emissions.
“We want to be unequivocal on this point: there is no rationale for financing new coal projects,” Carney and Bloomberg said in a joint statement, endorsing the Race to Zero ban on coal investments.
While Race to Zero has subsequently loosened the criteria to give institutions more flexibility, Fiona Macklin, Race to Zero’s campaign manager, asserts that the amended rules still require members to phase down and phase out all unabated fossil fuels, including coal.
If you won’t meet minimum standards in line with the climate science... then quit and stop ruining these bodies for other banks who are taking responsibility.
-Richard Brooks, climate finance director for Stand.earth
The Race to Zero rules caused two pension funds – Australia’s Cbus and Austria’s Bundespensionskasse AG – to leave the alliance, saying they lacked the internal resources to continue. U.S.-based investment consultant Meketa has also left GFANZ, according to Capital Monitor.
A number of U.S. banks, including JPMorgan, Morgan Stanley and Bank of America, threatened to leave the alliance, citing risks of lawsuits under Securities and Exchange Commission rules if they are also required to meet the stringent Race to Zero policies. The European Central Bank also noted that GFANZ commitments raise a risk of lawsuits against banks if they make the pledges and fail to deliver.
Although unnamed, a group of Canadian banks have also threatened to leave GFANZ, according to The Globe and Mail, quoting anonymous sources saying the banks have legal concerns, as well as fundamental issues with the requirement to withdraw funding from fossil fuel companies.
Brooks says many of the GFANZ signatories never intended to live up to their commitments.
“They signed up as a defensive tactic to buy them some green cover that comes with being associated with Mark Carney, anything called net-zero and a peer group,” he says via email. “It’s a classic duck and seek cover amongst ‘friends’ response.”
Kiernan argues that climate action must move from voluntary commitments to regulatory and legal requirements, a point underlined recently by a group of Canadian NGOs in a public policy roadmap on climate regulation for financial institutions.
Kiernan envisions a smaller core of financial institutions making and keeping strong climate commitments voluntarily, while the larger pool of financial institutions would be required to reduce emissions through regulation.
“In the end what we need is government regulation with consequences,” says Brooks, adding this will be encouraged by investor-driven lawsuits against banks failing to meet their climate pledges.
“I think the goal should be to use some combination of pressure from asset owners, activists and regulators to force the laggards to either raise their game or quit making duplicitous claims about the sustainability of their investment processes and products,” says Kiernan. “My distinct preference would be for the former.”
Eugene Ellmen is a former executive director of the Canadian Social Investment Organization (now Responsible Investment Association). He writes on sustainable business and finance.
