The Glasgow Financial Alliance for Net Zero (GFANZ) released several new papers on November 1. We provide here brief comments on a report on Financial Institution Net-Zero Transition Plans, and on a Call to Action aimed at G20 governments. The transition plan report contains many helpful recommendations which GFANZ and its leadership should urge the sectoral alliances to incorporate into their guidelines. The Call to Action, however, fails to send a clear message on the need for governments to stop support for fossil fuel expansion including through ending subsidies, and wrongly emphasizes the role of carbon markets and carbon pricing in the transition.

In light of GFANZ’s recent decision to downgrade its ties with the UN Race To Zero Campaign, it is positive to see co-chairs Michael Bloomberg and Mark Carney, and vice-chair Mary Schapiro, stressing the need to halve CO2 emissions by 2030 in the foreword to their detailed report giving guidance on financial institution net-zero transition plans. This 50% by 2030 cut is a key part of the Race to Zero’s criteria, and is what the IPCC says is necessary to limit warming to 1.5°C. (1) The need to halve emissions is also mentioned in the body of the report. It is also positive to see GFANZ stress the need for financial institutions to take immediate and meaningful action. The report says:

“GFANZ urges financial institutions to be aggressive when developing their net-zero strategies, as the next few years are crucial for the state of climate change. Without deep emissions reduction by 2030 across all sectors, the IPCC warns that it will be impossible to limit global warming to 1.5 degrees C.” (p.12)

Don’t develop stranded assets

The report mentions “priority sector” policies that exclude financing for companies expanding coal, oil and gas (p.54). It also states that fossil fuel finance should be consistent with 1.5° pathways and should not support “the development of assets that will be stranded” (p.12). It states that:

“Bodies such as the IEA and IPCC agree that the rapid shift away from fossil fuels is critical to achieving net zero, with widely used pathways projecting a significant decline in the use of coal, oil, and gas through 2050.” (p.52)

A key weakness of many current GFANZ member targets is that they are based only on emissions intensity, so it is encouraging that GFANZ says here that:

“Ultimately getting absolute emissions to zero is the end goal, and both absolute and intensity metrics should be considered together to measure progress of different pathways to net zero.” (p.79)

The guidelines of GFANZ’s sectoral alliances are generally weak on the issue of requiring clients/investees Scope 3 emissions be included in their targets. It is good to see clarity here that net-zero commitments should cover clients/investees Scope 3 emissions “in sectors that are significant climate change contributors or where Scope 3 emissions are material and can be incorporated based on data availability.” (p.18)

Engagement with teeth

The report sends mixed messages on the issue of divesting from high-emission companies. The Executive Summary mentions divestment only as something to avoid in the case of companies that need capital to transition (p.xii). The text of the report, however, rightly notes that successful engagement with clients and investees requires “an escalation process with consistent and transparent criteria”:

“When clients or portfolio companies show little or no response to the engagement, a financial institution should consider using the business levers available to it according to its business relationship. These levers will differ and include stewardship actions such as proxy voting, shareholder resolutions, and voting to remove directors who have failed in their accountability; financing levers such as more onerous/costly lending conditions and refusal to engage in new business; and, as a last resort, cessation of the relationship either as a service or product provider, or opting to divest. (p.62)

GFANZ needs to insist that its member alliances incorporate the recommendations in this report into their guidelines and it must name and shame those that refuse to do so.

Call to (In)action on fossils

In contrast to the clear language on fossil fuels in the transition plan document, GFANZ’s Call to Action to the G20 governments is mealy mouthed about the central role played by the fossil fuel industry in causing the climate crisis.

The Call to Action rightly calls on the G20 governments to raise their climate ambition; to develop transition plans that phase-out high polluting sectors while supporting fossil fuel-dependent communities; and to ensure finance, including via the multilateral development banks, for the transition in the Global South.

But it fails to repeat the clarity of the August “No New Coal” statement from Carney, and it makes no mention of the International Energy Agency’s finding that there is no room for new fossil fuel supply projects in a 1.5°C carbon budget. The Call to Action also fails to emphasize the need for governments to remove their subsidies and other forms of support for fossil fuels.

Moreover, the Call to Action focuses on promoting carbon markets and carbon pricing, measures which decades of experience have shown to be at best ineffective and a distraction from meaningful action, and often harmful both for climate mitigation and the rights of local communities and ecosystems.

In the context of the recent controversy over GFANZ’s relationship with the Race to Zero, it is encouraging to see GFANZ produce some thoughtful recommendations on financial institution transition plans. The key now will be whether GFANZ and especially Carney, Bloomberg and Schapiro will highlight these recommendations and push for their implementation, or whether the transition plans report will get lost in the ocean of documentation that the alliance is producing. Indeed the weak language relating to fossil fuels in the G20 Call to Action and its focus on carbon markets and pricing raises concerns about what the priorities for GFANZ’s public messaging might be.

 

Notes :

  1. The 50% cut in CO2 emissions by 2030 was originally described in the IPCC’s 2018 special report on 1.5°C. The 2022 Sixth Assessment Report Working Group III describes a 50% reduction in CO2 2019-2030 (and 45% reduction in Kyoto-GHGs) as a “key characteristic” of “mitigation pathways with immediate action towards limiting warming to 1.5°C” (IPCC AR6 WGIII, Technical Summary, Table TS.2, p.TS-31).