The looming fight over net zero

It’s been a long summer for some of the world’s finest regulatory brains, who have been thrashing out complicated climate disclosure standards in air-conditioned boardrooms.

The Securities and Exchange Commission, the UK’s Transition Plan Taskforce and the European Commission’s sustainable finance work stream are among those drafting beefed-up rules to root out greenwashing.

But voluntary corporate initiatives are also playing a role in the push for net zero — and those setting the standards for them are not always in agreement.

This week we look at a difference in philosophy emerging between the Glasgow Financial Alliance for Net Zero (GFANZ), whose members manage or advise on an estimated $130tn worth of assets, and the UN’s Race to Zero body, which sets the basic standards for corporate net zero initiatives.

The guidelines put forward by each group are at odds over whether their members should be made to stop financing new coal investment.

Yesterday Mark Carney, the former central banker and Goldman Sachs executive, was promoted to chair of Brookfield Asset Management, the Canadian group’s investment arm. Alongside other external roles, he’s also one of three people leading GFANZ — and may have to prove he can effectively juggle his growing portfolio of responsibilities. (Kenza Bryan)

Investment in developing countries is essential to tackling climate change and global inequality. Yet for ESG investors, social challenges, governance flaws and poor data can be obstacles to including emerging market companies in investment portfolios. This is the topic of our next Moral Money Forum report. In your ESG investment strategies, are you directing less capital to emerging market companies — or avoiding them altogether? What are the obstacles to allocating more capital to companies in these markets? And what compelling research and data have you seen that might inform our reporting? Share your thoughts here.

Inside the divide over decarbonisation

Significant differences of approach are emerging between the financial sector’s largest climate coalition, the Glasgow Financial Alliance for Net Zero, and its accrediting body, the UN’s Race to Zero.

GFANZ’s entry criteria clearly state that its voluntary alliances — made up of more than 450 individual financial institutions with a total of $130tn under management — must abide by Race to Zero’s guidelines on going green.

Yet a difference in emphasis between the groups became apparent this summer when Race to Zero came out with new requirements, which said members should phase out their financing of “unabated” fossil fuel consumption — that is, without carbon-capture technology — and stop support for new coal projects altogether.

Responsible investing and campaigning groups say Race to Zero’s new rules are far ahead of GFANZ’s current guidelines, which do not explicitly rule out new coal financing and investment.

A moment of reckoning could be looming ahead of next June, when Race to Zero has said it will start enforcing its new membership criteria. The UN body has said it will be prepared to kick out non-conforming financial institutions from its umbrella group.

In practice, however, this will take time, as the Race to Zero’s 25-strong expert peer review group must vet more than 10,000 members.

“The new Race to Zero position is a gigantic step forward, but it is a toothless tiger,” said Lucie Pinson, chief executive of the campaign group Reclaim Finance. “It is down to the Glasgow alliance to push its members to adopt the exclusion and sanction criteria . . . if it does not bring in coal-excluding criteria within its first year, GFANZ will definitely have become a greenwashing alliance.”

And there are some notable differences of emphasis within the leadership of GFANZ itself. While Mike Bloomberg’s own philanthropic ventures have campaigned against coal funding, his fellow GFANZ co-chair Mark Carney has stressed that cutting off financing to carbon-intensive industries is unrealistic in the foreseeable future, particularly given the energy shortages caused by the war in Ukraine. Standard Chartered chief Bill Winters, who is head of GFANZ’s banking sector alliance, has said divesting from fossil fuels is “ridiculous and naive”.

Across GFANZ alliances, there’s spotty adherence to efforts to phase out coal financing. One of the alliances, comprising asset owners such as pension funds, has imposed a block on members’ financing of new coal projects. But as we’ve written previously, another of the GFANZ industry groups — the Net-Zero Insurance Alliance — has said it is not able to introduce an exclusion policy on coal, citing legal advice that such a move in concert by its members could fall foul of competition law.

Only 11 of the 240 largest GFANZ members rule out all financial service provision to companies building new coal mines, plants and related infrastructure, and only 60 have any kind of exclusion policy on new coal projects, according to evidence submitted to the UK’s environmental audit committee by the campaign group ShareAction in June.

Six of the eight top holders of stocks and bonds in the global coal industry at the end of last year were GFANZ members, it said. The asset manager BlackRock, named in last week’s Moral Money as the second-largest owner of bonds from companies producing, shipping or burning coal, is a member of GFANZ’s steering group and held $34bn of investments in companies developing new coal infrastructure last year.

Another example: a recent climate strategy document issued by Barclays, a founding member of GFANZ’s Net-Zero Banking Alliance, doesn’t target a phaseout of all thermal coal financing until 2035.

A letter co-signed by GFANZ’s three most senior figures expressed support last week for halting the financing of new coal projects. “New coal capacity . . . is inconsistent with achieving net zero and limiting global warming to 1.5 degrees C,” wrote Bloomberg, Carney and former SEC head Mary Schapiro.

Yet while their letter suggests GFANZ could bring in new rules on divestment and exclusions of high-emitting assets, it is signed by the three in a personal capacity only.

On the topic of existing holdings, the letter argues that pushing energy groups to retire oil, gas and coal projects earlier than planned could be a “more effective approach” than the Race to Zero’s emphasis on phasing out coal assets from portfolios altogether. It warns that divesting or withdrawing finance from high-emitting assets could lead to “higher real world greenhouse gas emissions” if sold to the wrong buyers.

When contacted by Moral Money, GFANZ did not comment on whether it would officially ban members from financing or investing in new coal or on whether it planned to exclude members who breach UN criteria. GFANZ said it supported its members by developing the tools and frameworks that would help them make good on their net zero commitments in accordance with Race to Zero criteria. (Kenza Bryan)

Smart read

• In a recent edition we highlighted the confusion around the green credentials of Drax, the UK energy company that burns wood pellets for power. This pithy piece from the FT’s Lex column weighs in on the subject, slamming the “bonkers” model of shipping wood from the US to be burnt in Europe.