The umbrella group of global financial institutions co-founded by former Bank of England governor Mark Carney is in urgent talks to review the terms of oversight by a UN climate change body, according to people familiar with the group.
The wrangling indicates the scale of the challenge faced by global leaders next week at annual meetings of the IMF and World Bank and at the upcoming COP27 UN climate summit, as they seek to corral climate action in the face of acute concerns about energy security.
Banks in the US including JPMorgan have suggested that they may withdraw from the so-called Glasgow Financial Alliance for Net Zero (Gfanz), citing concerns they could be at risk of breaching antitrust laws in the US if they took guidance on investment decisions from the UN campaign.
The UN body called Race to Zero sets criteria to ensure that business groups put forward credible climate change targets and plans in exchange for its stamp of approval.
Gfanz has previously said that adhering to UN strictures was a necessary condition for subgroups representing the banking, asset management, insurance and pension sectors to join and remain part of the alliance.
On Saturday, it said that it had “received no indication” from its members that they were preparing to leave the group, but noted that financial institutions were independent and “managed by and subject only to their own governance structures.”
“Any updates to the nature of their commitments rest with the alliances as outlined by their respective governance processes,” it said.
This effectively allows for some of the world’s biggest financial institutions to be released from the binding UN restrictions placed over their investments and financing of fossil fuel assets.
In the US, Republican politicians and officials have singled out Gfanz and its members, including BlackRock, which sits on the alliance’s steering committee, for criticism that fiduciary duty could be compromised by concerns about environmentally-conscious investing.
The re-examination by Gfanz of its oversight structure linked to the UN body is intended as an offering to ensure the ongoing support of all its members, according to those appraised of the discussions.
The Race to Zero campaign previously said it could eject financial institutions if they did not comply with a requirement issued in June to “restrict the development, financing and facilitation of new fossil fuel assets”.
This wording was subsequently weakened last month, to drop an explicit “no new coal” guidance preventing members from financing or investing in new coal projects, after a backlash from some Gfanz parties as well as legal advice that its own staff could fall foul of competition law as a result of the binding language.
A broad church financial climate movement crystallised under the umbrella of Gfanz when it was founded in April last year. It boasted some $130tn in assets by the time of the COP26 UN climate conference in Glasgow in November, designed to act as a forum for some of the world’s biggest banks, asset managers, insurers and pension funds to co-ordinate efforts to reduce carbon emissions.
Co-led by Carney, now vice-chair of investment group Brookfield Asset Management, as well as businessman Michael Bloomberg, it has until now relied on the Race to Zero to set high-level rules on how swiftly and how rigorously to transition away from fossil fuels and which methodologies to use for climate risk disclosures. Individual sectoral groups within Gfanz, including the Net Zero Banking Alliance, make policy within these parameters and are individual “partners” of the Race to Zero with their own separate relationships to the group.
Aside from the legal concerns that are cited, the shifts by Gfanz members are also a sign of entrenched differences among scientists and civil society groups and financial institutions over whether investors should divest polluting assets and whether to deny debt financing to new high-emitting projects.
Since joining Gfanz, US banks have continued to extend financing to companies that build new coal power plants and infrastructure, including Japanese power giants Mitsubishi and Marubeni Corp, according to the NGO Reclaim Finance.
JPMorgan Chase is the biggest financier of fossil fuel projects since the 2015 Paris agreement, data from the RAN climate campaign shows, extending a total of $382bn.
“Banks were happy to sign up to a big pageantry contest at COP26 and get a bunch of applause”, Justin Guay, director of climate finance strategy at the Sunrise Project campaigning network, told the FT. “But when they realised the world expected them to make good on what they said they would do they have looked for convenient excuses to wiggle out of that responsibility.”
Race to Zero declined to comment.
Source: Financial Times