‘Fundamentally flawed’: Campaigners slam financial sector net zero alliances ahead of COP26 finance day
Reclaim Finance publishes scathing assessment of various financial sector alliances – including UN-backed Net Zero Asset Owners Alliance – arguing groups are failing to act fast enough to curb investment in fossil fuels
Campaigners have today called on major financial players to step up their collective climate action, branding the various high-level climate alliances that have swept the global financial sector as “not fit for purpose” and “toothless”, noting that they have failed to stop major investment firms supporting new fossil fuel projects.
In a damning report published this morning, Reclaim Finance has warned the various banker, investor, asset owner, and insurer coalitions grouped under the Glasgow Financial Alliance for Net Zero (GFANZ) banner are “failing badly” to deliver tangible climate action, warning the schemes “eschew tangible measures on fossil fuels and emissions reduction” in favour of target-setting.
However, the UN Environment Programme’s finance initiative and Principles for Responsible Investment group, which have helped to convene GFANZ and a number of the alliances in question, were quick to hit back at the criticism, arguing the coalitions had already prompted financial players to change their investment approach and engage more effectively with emissions-intensive companies in their portfolios.
Reclaim FInance said the groups, which represent a sizeable chunk of the global economy, bringing together institutions with assets of around $90tr, are yet to mandate that members to stop investing in new fossil fuel infrastructure, in line with net zero scenarios set out this summer by the International Energy Agency (IEA).
GFANZ, which brings together the Net Zero Asset Owner Alliance, the Net Zero Asset Managers Initiative, the Net Zero Banking Alliance, the Net Zero Insurance Alliance, the Net Zero Investment Consultants Initiative, and the Net Zero Financial Services Providers Alliance, also fails to set limits on how heavily members can rely on offsets to meet their emission reduction targets, according to the group.
Supporters of the financial sector climate coalitions would counter that all firms that join the coalitions must vow to reach net zero emissions by 2050 and set science-based interim targets, goals that rely on institutions ramping up clean investments while taking significant action to curb emissions across their portfolios. They would also argue that engagement with high-carbon firms is a more effective means of accelerating the net zero transition than divestment, which does not necessarily prompt firms to high carbon firms to take steps to decarbonise.
But Reclaim Finance has warned that long-term net zero targets mandated by the net zero alliances must be matched with much tougher criteria focused on short-term emissions reduction. Despite the IEA’s warning that no new fossil fuel exploration should take place to cap global temperature rise at 1.5C, the financial institution alliances have not folded this warning into their entry criteria, it said.
The report argues the net zero coalitions suffer from a lack of urgency, noting that members of the Net Zero Banking Alliance are given four years from signing up to set and explain new 2030 emissions targets, while firms in the Net Zero Asset Managers Initiative are technically able to wait until 2050 to set climate targets for their full portfolio.
Even the Net Zero Asset Owner Alliance (NZAOA), which has been touted by the UN Secretary-General Antonio Guterres in the past as the “gold standard” for financial sector coalitions, does not explicitly mandate members to implement policies to end investment in coal mines and power plants, Reclaim Finance said.
Despite a call from the NZAOA for an end to investment in coal mines and power plants, just four of the 58 institutions in the NZAOA have a “robust” coal policy, it said, with at least 34 still lacking policy to restrict investments in coal developers.
“The financial sector talks a big game on climate, but this report reveals its flagship initiatives to be fundamentally flawed,” said Patrick McCully, author of the report and senior analyst for Reclaim Finance. “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.”
Reclaim Finance has urged financiers and UK green finance advisor Mark Carney – the former Bank of England governor who launched GFANZ earlier this year – to reorient the financial sector’s climate efforts towards a “rapid wind-down” of fossil fuel financing.
“COP26 must signal a turning point for GFANZ and its members: away from foot-dragging and towards an end to financial support for fossil fuel expansion,” McCully said. “If this really is the ‘finance COP’, Mark Carney and co need to lead from the front.”
Climate campaigner and co-founder of 350.org Bill KcKibben pointed out that GFANZ made no mention of fossil fuels at all in its entry criteria and argued the omission undermined the group’s claim to be a climate leader.
“An alliance on climate with no mention of fossil fuels is like an anti-smoking coalition which doesn’t refer to cigarettes,” he said. “For as long as the financial sector fails to heed the IEA’s call to end support for new oil, gas and coal projects, its claims to climate leadership should be laughed out of the room. That begs the question: What are these alliances for, if not to genuinely coordinate emission reductions?”
Reclaim Finance has also warned the alliances’ lack of provision for enforcement against companies that failed to meet their emissions reduction commitments rendered the groups “toothless”.
But Gunther Thallinger, the chair of the NZAOA, countered that demanding that firms signed up to the alliance stop investing in oil and gas immediately would reduce the chances of a transition that was fair to workers and communities.
“The transformation way from fossil energy is driven by [these] science-based pathways,” he said. “Such an approach allows for not only a viable, but also a just transition. A simple ‘no investment in fossil energy – especially oil and gas’ would create social and economic inequities, and thus would ultimately slow down the crucial transition into renewable energy.”
Thallinger noted the raft of net zero climate alliances had already driving significant change across the financial sector, stressing that investors were now engaging with their portfolio companies on the net zero transition and stepping up climate finance.
“Alliance members are already changing their investment decision-making, enabling them to work effectively with others on the transformation at the beginning of this decisive decade,” he said. “With science-based short-term targets for portfolio emission reductions; sector emission intensity reductions; company engagement; and financing the transition, plus neutral target-monitoring established in the form of a UN-led secretariat, we have made robust first steps.”
A UN spokesperson also argued is was “misleading” to suggest that members of the Net Zero Banking Alliance had a four year window to set targets, noting that the alliance’s criteria required banks to set science-based decarbonisation targets in “priority GHG emissions sectors” within 18 months of joining. They added that it was in signatories’ interest to set targets as soon as possible to give themselves a long window in which to achieve them.
It is a debate that in many ways encapsulates the core challenge the COP26 Climate Summit is striving to resolve. On one hand campaigners fear net zero targets are insufficiently ambitious and credible, on the other companies and governments insist that if the net zero transition is to accelerate it needs to engage with carbon intensive sectors and ensure financial flows are redirected in ways that do not lead to economic dislocation and public backlash. The problem is that, in a way, they are both right.
