GFANZ members no longer ‘required’ to partner with UN’s Race to Zero initiative
Critics say the decision to drop requirement makes the coalition, headed by Mark Carney, ‘less meaningful and credible’.
The Glasgow Financial Alliance for Net Zero (GFANZ), a coalition of financial institutions launched in April 2021 by UN Special Envoy on Climate Action and Finance Mark Carney, will no longer require its members to sign up to a key United Nations net-zero initiative.
GFANZ was established in partnership with the UN’s Race to Zero campaign, “to coordinate efforts across all sectors of the financial system to accelerate the transition to a net-zero global economy”. Race to Zero members must agree to 'phase out development, financing and facilitation of new unabated fossil fuel assets including coal”.
However, a spokesperson for GFANZ said in a statement that members of its sector-specific alliances are now “encouraged, but not required, to partner with the Race to Zero”.
Hortense Bioy, Morningstar’s director of global sustainability research, said: “Dropping the requirement for its members to sign up to the Race to Zero campaign makes GFANZ less meaningful and credible as an umbrella organisation. It’s now up to each sub-alliance to decide what to do with regards to Race to Zero criteria.”
The coalition comprises seven net-zero alliances, including the Net-Zero Asset Owner Alliance, Net-Zero Asset Managers initiative (NZAMI) and Paris Aligned Asset Owners.
Reclaim Finance, a think tank and NGO, pointed to the change to GFANZ’s wording in its second annual Progress Report.
According to Reclaim Finance, the coalition’s first Progress Report, issued last November, stated that “all GFANZ members must align with the Race to Zero criteria”, but noted that the latest report has no mention of any requirements for its members related to the UN’s campaign.
Its senior analyst Paddy McCully accused the coalition of “quiet quitting” Race to Zero. “Clearly, they are 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,” McCully said.
Dropping the requirement for its members to sign up to the Race to Zero campaign makes GFANZ less meaningful and credible.
Implications for asset managers
The spokesperson for GFANZ stated: “GFANZ and the sector-specific alliances will continue to note the advice and guidance from Race to Zero, as well as other international bodies, such as the UNFCCC, IPCC, IEA, the G20’s Financial Stability Board, and the UN’s High Level Expert Group on net zero.”
They added that the changes will help ensure GFANZ’s recommendations reflect regional contexts, and the supervisory, regulatory and legal obligations unique to the financial sector, “as we continue to support net-zero implementation”.
Morningstar’s Bioy said that GFANZ’s decision to distance itself from Race to Zero “raised questions about the implications for NZAMI”.
“Apparently, since then, NZAMI has said it will remain aligned to the Race to Zero criteria – although I am not sure how this is going to work,” she added.
“Right now, NZAMI's guidance is neither prescriptive nor stringent. NZAMI signatories are only expected to adopt fossil fuel policies with the assets they commit to manage in line with net zero. They're currently not expected to have firm-wide fossil fuel phase-out policies.”
Bioy said this is why some members, including BlackRock and Vanguard, have said they have no intention of adopting firm-wide policies related to fossil fuel phase-out.
Varying AUM commitments to net zero
In July this year, Morningstar released research showing that, among asset managers, there were significant variations in levels of commitment in terms of what it called “assets destined for net-zero alignment and interim emission reduction targets”.
Its analysis of more than 40 asset managers’ net-zero commitments and the challenges they face to set interim targets, based on the NZAMI, found that assets committed by the 43 managers in the second progress report varied from 4% to 100%.
Only nine asset managers committed 100% of their assets under management and 15 committed less than 50%, according to Morningstar.
Invesco, Lazard, MFS, State Street and Vanguard were among the 10 asset management firms identified at the time as having no firm-wide policy on coal and other fossil fuel investments.
GFANZ will be attending COP27, the 2022 UN Climate Change Conference which runs from 6 to 18 November in Sharm el-Sheikh, Egypt.
