GFANZ’s decision to drop Race to Zero requirements sparks concerns

The GFANZ was established ahead of COP26 last year in what was regarded as the global financial sector’s biggest collaboration on the net-zero transition. Ever since its foundation, it has faced calls to clarify how it plans to get members to reduce their financed emissions in a science-based manner.

This week, the GFANZ posted its first annual progress report. It revealed that there are now more than 550 organisations participating in GFANZ, up from 160 when it was first founded. These organisations collectively manage some $153trn of assets.

The report also stipulates that GFANZ has dropped a requirement for its members to sign up to the UN-backed Race to Zero campaign. The campaign announced earlier this year its plans for increasing its minimum participation requirements, raising questions about whether financial sector participants would be able to increase the level of detail and ambition in their climate plans accordingly. Concerns were raised by organisations including ShareAction, Global Witness, Sierra Club and 350.org over the continued support for fossil fuels of many major players in the finance sector, out of alignment with the new Race to Zero requirements.

GFANZ has stated that, going forward, members will be “encouraged, but not required, to partner with the Race to Zero”. Its progress report emphasises that it wishes to continue working closely with the UN. The UN climate body, UNFCCC, has seen its chief Simon Steill added to its ‘Principals Group’. The Group’s purpose is to set and oversee the strategic direction of GFANZ. It also assists with work to push for net-zero-aligned policymaking in the 55 nations and states where the Alliance operates and to facilitate targeted collaboration.

Back in August, GFANZ published its own guidance on how investors can measure the climate impact of their investments and lending, and transition portfolios in line with net-zero.

Responding to this week’s report, ShareAction’s head of banking Jeanne Martin said the organisation is “extremely concerned”.

Martin said: “Financial institutions have a vital role to play in powering our transition to a low carbon world, and we urge the sub-alliances and members to live up to their responsibilities to support the phasing out of fossil fuels in line with a 1.5C aligned pathway.

“It’s clearer than ever that voluntary initiatives alone aren’t enough to drive the urgent action needed to secure a liveable future. Governments should step up with tougher regulation of financial institutions that continue to fund fossil fuel expansion.”

Reclaim Finance’s senior analyst Paddy McCully has accused GFANZ of “giving in to their Wall Street members who have been reported as threatening to quit the alliance if they are expected to actually pull back on their finance for fossil fuels”. These reports have been circulating for a few weeks now. Mark Carney, who co-founded and co-chairs GFANZ, recently denied these reports in a meeting with MPs at the UK Parliament.

GFANZ did recently see two pension funds leaving its collaboration. Australia’s Cbus and Australia’s Bundespensionskasse departed, stating that data tracking and reporting requirements were too complex and would require too much resource.