A bump in the road for GFANZ – Financial Services

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The Glasgow Financial Alliance for Net Zero, or GFANZ, was launched to much fanfare at COP26 last year, but there are signs of discord in the ranks.

Financial institutions representing staggering US$130 trillion in assets have joined GFANZ, a global coalition of leading financial institutions committed to accelerating the decarbonization of the economy. However, according to reports, some banks are concerned about the threat of litigation stemming from pressure from GFANZ for its members to accelerate their decarbonization efforts.

A few thoughts from me:

1. Any climate- or sustainability-related commitments made by financial institutions (through GFANZ membership or otherwise) will (rightly) be subject to scrutiny. And this scrutiny can lead to litigation and/or reputational risk for institutions that fail to meet their commitments. It is therefore normal for institutions to think carefully about what they are committing to. The conundrum for them is whether the publicity of GFANZ’s withdrawal is more damaging than the threat to remain a member.

2. Making commitments is easy. Putting them into practice is difficult.

3. At COP26, the feeling was that, for the first time, the climate agenda was driven by corporations/financial institutions, rather than governments alone. The launch of GFANZ was central to this narrative. However, the latest reports on GFANZ suggest that there may be a rebalancing of private versus public engagements ahead.

The potential loss of some of the world’s largest and most influential banks would be a blow to Carney’s Gfanz group, which was formed last year and took center stage at the climate talks in COP26 in Glasgow in November.

More than 450 finance companies representing $130 billion in assets have joined Gfanz, which is co-led by the former Canadian governor of the Bank of England and current head of Brookfield Asset Management.

The banks’ biggest concern are the tough coal, oil and gas phase-out targets introduced over the summer by the UN’s Race to Zero campaign, a net zero standards body led by the United Nations. UN which accredits the promises made by the alliance of Carney.

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