‘Brutally honest’ Bank of America equivocates on GFANZ

The Bank of America wants to be brutally honest with us. They want to be so brutally honest that Abyd Karmali, the bank's managing director of climate finance, said so three times in a brief presentation he gave at the World Forum on Enterprise and the Environment last week.

Brutal honesty from the banking sector is always welcome because, let’s be brutally honest, they’re not exactly famous for it.

“Let’s be brutally honest”, Karmali said, “the transition is more likely to be disorderly than we expected.”

The war in Ukraine and the ensuing supply-chain fallout in the energy markets have led to a surge in high-carbon asset investments to the profound disappointment of anyone who gives a flying fig about the environment, the transition or existential threats to humanity. Apparently, that’s not all of us.

“Liz Truss was in New York yesterday and was talking about ramping up our defence spending” said Karmali, “governments will actually have less capital to allocate to climate action.”

You can see where this is going. A lot of money – $6tn a year or so to stay Paris-aligned – is needed, but we’ve got massive spending commitments (like funding tax cuts and propping up the pound, in Liz’s case) that are taking priority. Well, it is only the future of the species; let’s not get ahead of ourselves.

Private vs public sector

Anyway, Karmali had only just got started. “I think the private sector is more committed to net zero [than the public sector]at this stage, and why is that?”, he asked. “We don’t have the luxury of prevaricating on our commitments.” You mean banks are more committed than governments?

The banking sector, argues Karmali, already has to publish its sector-specific targets, across all scopes, for 2030, which are “showing some pretty significant reductions in emissions in the portfolio”. Governments on the other hand, he says, well we’ve not heard too much from them since COP26 in Glasgow.

The commitment by governments to devise enhanced national strategies, or NDCs (Nationally Determined Contributions), is not going well, he claims. “I think it’s fair to say that only Australia, India to some degree, and UEA just last week, have come up with genuinely material enhancements to their NDCs.” The United Arab Emirates is at the vanguard of combating climate change? Please tell me you’re kidding. If the gallows humour is starting to wear thin, then look away.

The one refrain you’re guaranteed to hear at every climate (and investment) conference this year is “finance can’t do this without the backing of policy makers”. So, if policy makers can’t deal with the world’s biggest threat, then what chance do any of us have? And how far away are we from the level of investment that’s going to keep us aligned to Paris? Nowhere near it turns out.

“No one is really investing in accelerated coal phase out …nobody is really investing in avoiding deforestation.

“We need to see something closer to a 10x leveraging of capital than the less-then-one [1x] we’re seeing today, in terms of public to private [investment)]”

This is starting to sound like a canoeing trip without paddles on (or up) our least favourite creak. Hit me with the good news. Give us a silver lining here, Bank of America. What should we be doing to get this canoe back home safe again? And what are you going to do about it all?

Well, Karmali has a personal plea. “We need to be more inclusive in our discussions about the transition. And the first thing is: inclusiveness about technology.”

Inclusive discussions about technology … Hmmm, I’ll be honest, I was holding out for something with a bit more oomph, but let’s work with this.

Carbon capture and storage

“It’s always amazing to me that some of the technologies like carbon capture use and storage, and nuclear, can’t really find space to generate ideas and discussions. And we see at COP… all those COP meetings, nuclear is often shunned, which is amazing because the last time I checked it was a zero-carbon source [of energy].”

Carbon capture and storage (CCS) is a favourite subject of the self-styled “Angry Clean Energy Guy”, Assaad Razzouk who describes the technology in episode 64 of his podcast as: “an elaborate and insidious excuse to keep pumping more oil and gas and worsen the climate crisis, while almost always using other people’s money: yours.”

I’m guessing that isn’t the sort of inclusivity Abyd Karmali is looking for, and, to give him his dues, he comes well decorated and much lauded in the field of climate and sustainable finance.

I know this for sure: one of them is wrong and it would be really useful to know which one. Here is an open invitation to anyone with a science gong and no skin-in-the-game to give us chapter and verse, in a blog, on CCS: arguments for andagainst. The same goes for nuclear energy.

So was there any other good news, and what about the Glasgow Financial Alliance for Net Zero (GFANZ) – the home of a gazillion trillion assets pointed squarely at the climate crisis and which the FT reported on September 20, the Bank of America amongst others is poised to leave?

“This is an interesting one because most of the models we see don’t have much growth in emissions anticipated for most lower- and middle-income countries. There is this assumption that the available carbon budget is gobbled up by OECD and the larger developing countries and I think that’s terribly unrealistic …”

GFANZ exodus?

But what about GFANZ? The session moderator, Pilita Clark, associate editor of the Financial Times, wasted no time when the Q&A arrived:

“Are we about to see the exodus of a number of the most important members of GFANZ as climate commitments get tougher?” Good question.

“So, look, I mean, and I have to be very candid here. I can’t publicly comment on something where we haven’t publicly commented. So, you know, I think, perhaps, we’ve been a little bit surprised to see what’s been reported. I think it’s fair to say there’s a healthy debate going on within GFANZ …”

But Clark wasn’t done there. Referring to the idea that, by backing GFANZ, banks may be opening themselves up to future litigation, she asked: “Is it possible that’s almost a smokescreen, an argument that’s being deployed because banks don’t want to have to forsake fossil fuel clients earlier than they might otherwise have to?” Another good question.

“I think there’s a healthy debate going on about what credible transition plans look like,” came the reply. “We as a global financial institution are likely to be touching those clients in different ways and I think we have to be absolutely clear that we can provide the financing that’s required to make sure the transition is happening in a smooth way, not a disorderly way.”

Two things: firstly, that is quite obviously not an answer to the question and, secondly, Karmali, remember, wants to be brutally honest with us that “the transition is more likely to be disorderly than we expected”.

Perhaps it’s unrealistic to expect this debate to play out in public and most us will want GFANZ to keep everyone inside the tent. But, if the banks do bail on the group, and it does spark an exodus of sorts, they will, I assume, not mind hearing some brutal honesty about their choice of direction from the rest of us?

Peter Findlay is the publisher of Net Zero Investor.

Image credit: John Cairns