Can a $130tn finance coalition help tackle climate change or is it ‘greenwashing noise’?

All eyes are cur­rent­ly on Glas­gow and the COP26 sum­mit, where world and busi­ness lead­ers are attempt­ing to show their com­mit­ment to halt­ing cli­mate change.

Today (3 Novem­ber) it is the turn of finance to demon­strate it is seri­ous about tack­ling the cli­mate cri­sis. The head­line announce­ment is that 450 finan­cial firms, rep­re­sent­ing more than $130tn in assets, are poised to help fund the green tran­si­tion.

The coali­tion of banks, asset man­agers and insur­ers, which rep­re­sent 40% of glob­al finan­cial assets, is being led by ex-Bank of Eng­land gov­er­nor and UN spe­cial envoy Mark Car­ney under the Glas­gow Finan­cial Alliance for Net Zero (GFANZ).

Car­ney claims that the his­toric Paris cli­mate agree­ments were fol­lowed by “dis­ap­point­ment” as coun­tries failed to imple­ment the poli­cies they promised, only a lim­it­ed num­ber of com­pa­nies intro­duced net-zero plans and in finance cli­mate change was “viewed as an issue of CSR, not a strate­gic imper­a­tive”.

Speak­ing at COP26, he said: “Right here, right now is where pri­vate finance draws the line. The $130tn announced is more than what’s need­ed for the net-zero tran­si­tion glob­al­ly. A pool of that cap­i­tal has been carved out for the tran­si­tion in emerg­ing and devel­op­ing economies, and not at some dis­tant point in the future, but for this decade.”

Car­ney was fol­lowed onto the con­fer­ence stage by Indone­sian finance min­is­ter Sri Mulyani, who under­scored the impor­tance of lever­ag­ing cap­i­tal to help devel­op­ing economies tran­si­tion to net zero. “We know there is a huge financ­ing gap,” she says. “We are esti­mat­ing that our com­mit­ment [net zero by 2060 or soon­er] will cost us $270bn, we don’t need $130tn. It is need­ed because our state bud­get only cov­ers 21.3% of the cli­mate mit­i­ga­tion and financ­ing needs, the rest must come from the pri­vate sec­tor.”

What is GFANZ? 

When it first launched in April this year, the GFANZ totalled 43 mem­bers with $28.5tn in assets. Its cur­rent mem­ber­ship includes insur­ers such as Allianz, AXA and Zurich; San­tander, Bank of Amer­i­ca and HSBC from the bank­ing sec­tor; and asset man­agers such as Black­rock.

JP Mor­gan Chase and Gold­man Sachs both ini­tial­ly hes­i­tat­ed to join the ini­tia­tive. Per­suad­ing the two US bank­ing giants to sign up to the alliance in Octo­ber rep­re­sent­ed some­what of a coup for Car­ney. The total num­ber of sig­na­to­ries now stands at 450 finan­cial insti­tu­tions from 45 dif­fer­ent coun­tries.

As mem­bers, they must com­mit to sci­ence-based tar­gets to reach net zero by 2050 and align with the UN-backed Race to Zero cam­paign, which is aim­ing for a 50% reduc­tion in glob­al emis­sions by 2030 and requires trans­par­ent annu­al report­ing.

UK chan­cel­lor Rishi Sunak describes GFANZ as “an his­toric wall of cap­i­tal for the net-zero tran­si­tion around the world”. Along­side the GFANZ com­mit­ments, Sunak set out plans to make the UK the “first ever net-zero aligned finan­cial cen­tre”. Under the pro­pos­als, finan­cial insti­tu­tions and list­ed com­pa­nies will be required to pub­lish net-zero tran­si­tion plans, which demon­strate how they will decar­bonise by 2050. 

But cli­mate experts and cam­paign groups believe the alliance of finan­cial insti­tu­tions, which have his­tor­i­cal­ly invest­ed tril­lions of dol­lars in the fos­sil fuel indus­try, are unlike­ly to live up to today’s claims.

Is finance really decarbonising?

Despite the scale of the com­mit­ment and the huge sums involved, French NGO Reclaim Finance claims the net-zero alliances that make up GFANZ don’t make it manda­to­ry for sig­na­to­ries to halt invest­ments in fos­sil fuel expan­sion and there­fore ques­tions its com­mit­ment.

Daniela Gabor, pro­fes­sor of eco­nom­ics and macro finance at the Uni­ver­si­ty of the West of Eng­land, also has con­cerns, call­ing the announce­ments dis­ap­point­ing and adding that they “show the lim­its to the vol­un­tary decar­bon­i­sa­tion approach that has dom­i­nat­ed the cen­tral bank­ing world”.

She adds: “We know that we urgent­ly need a cred­i­ble plan to decar­bonise pri­vate finance, shrink its car­bon foot­print and reverse its sys­temic green­wash­ing. None of the mea­sures announced today will achieve that. Manda­to­ry dis­clo­sure of net-zero tran­si­tion plans are the weak­est mea­sure in the reg­u­la­to­ry tool­box.”

Gabor claims that the $130tn fig­ure is “pure green­wash­ing noise” because much of this fig­ure rep­re­sents loans to fos­sil fuel com­pa­nies and oth­er busi­ness­es involved in eco­log­i­cal­ly destruc­tive prac­tices. She says that, instead, today’s finance announce­ments should have focused on “con­crete plans for cen­tral banks and reg­u­la­tors to penalise dirty lend­ing and to green their own bal­ance sheets”. 

Oth­ers are con­cerned that the new finan­cial rules, out­lined by Sunak, will achieve lit­tle. Green­peace UK’s head of pol­i­tics Rebec­ca New­som says: “These new rules seem to allow plen­ty of wig­gle room for finan­cial insti­tu­tions to con­tin­ue with busi­ness as usu­al, rather than ‘rewiring’ the sys­tem as the chan­cel­lor claims. Tran­si­tion path­ways must be gen­uine­ly sci­ence-based, not deter­mined by what indus­try par­tic­i­pants in cozy alliances con­sid­er best prac­tice at any giv­en time.”

In an inter­view with Bloomberg, Car­ney claimed finan­cial insti­tu­tions “are going to mark their own home­work” when it comes to report­ing their client’s emis­sions. Cli­mate cam­paign­ers will ques­tion whether they can be trust­ed to do so.