Financial institutions that signed up to Mark Carney’s industry alliance to tackle climate change could be kicked out for failing to hit targets by a new independent panel, under plans set to be made public this year.
Beefed-up checks by the UN on whether finance groups meet new criteria on ending coal financing and phasing out fossil fuels from portfolios could be announced at New York Climate Week in September and launched at the COP27 climate talks to be held in Egypt in November, according to Race to Zero, the UN group behind the plans.
More than 450 finance companies accounting for $130tn of assets have joined the Glasgow Financial Alliance for Net Zero. The initiative, which was announced with great fanfare at last year’s COP summit, is spearheaded by former Bank of England governor and Brookfield Asset Management executive Carney, alongside ex-New York mayor Michael Bloomberg and former Securities and Exchange Commission chair Mary Schapiro.
Ganz’s aim is to galvanize the world’s most powerful finance companies to commit to achieving a net zero global economy by 2050. Members are required to meet standards set by the Race to Zero, an UN-led campaign.
While the Glasgow alliance was designed as a big tent to bring together as many new members as possible, the Race to Zero recently updated its rules to make them more onerous.
It introduced tougher criteria in June, including a bar on support for new coal projects. Existing corporate members will be required to comply with the latest criteria from June next year.
Several people with knowledge of the campaign’s plans said it was in the process of setting up an independent accountability body where civil society groups, including non-governmental organizations, could report financial institutions for not following Race to Zero’s criteria.
Under the plans, the body would have the authority to expel financial institutions from Gfanz from the start of 2023. The plan is still contingent on securing the necessary funding, according to one person with direct knowledge of the situation.
“Race to Zero is setting up an inspector general office to police the alliances and other individual commitments,” said one person closely involved in Ganz. “Carney is all carrot and Race to Zero is creating a stick.”
Financial institutions that signed up to subsidiary groups under Gfanz’s umbrella – which cover industries including banking, asset management, insurance, and advisory work – now face the embarrassing prospect of being removed if they fail to stick to the Race to Zero criteria.
The rules introduced in June require all signatories to phase “down and out all unabated fossil fuels” – projects that are not offset by carbon capture – by 2050 at the latest. It also requires them to stop financing new coal projects and meet interim 2030 net zero emissions targets. The deadline for meeting the rules is June 2023 for existing members, while any who join will need to comply immediately.
Several people with knowledge of the situation told the Financial Times that some large US banks were especially resistant to setting stricter targets.
“We’ve always said implicitly members should be aligned with science-based targets, which means no new coal [financing],” said Thomas Hale, a public policy professor at Oxford University and co-chair of the Race to Zero’s expert peer review group. “Making it explicit will hopefully help those people at the back who are a bit hard of hearing.”
“We absolutely welcome Race to Zero’s new compliance mechanism . . . to identify and remove members who fail to meet its criteria,” Gfanz vice-chair Schapiro told the FT.
“This mechanism, along with the clarified criteria that require members to disclose their transition plans, will help enable transparency and accountability around financial sector strategies and activities, and help clarify what financing is truly in furtherance of the net zero transition rather than obscuring business as usual financing or attempts at greenwashing.”
Carney is due to be questioned by UK politicians on October 24 as part of a parliamentary inquiry into the role finance companies play in climate change.
The UK’s Environmental Audit Committee will hold a series of hearings this autumn as it investigates the effectiveness of the Gfanz initiative and how important the UK’s finance sector is in achieving Paris climate goals.
Carney is expected to be asked about repercussions for Gfanz members that veer away from the alliance’s aims. Alongside his work at Gfanz and other climate initiatives, he was this month named as incoming chair of Brookfield Asset Management, the $750bn Canadian fund manager, where he is currently vice-chair and head of the transition investing.
Nigel Topping, co-leader of both Race to Zero and Gfanz, told the FT there was an urgent need for mandatory rules rather than voluntary initiatives to monitor the financial industry’s role in climate change. “It’s insane for the world to rely on underfunded NGOs to police capital markets,” he said. “Governments need to step up.”