GFANZ sets out guidance for FIs to reduce real-economy emissions

The Glasgow Financial Alliance for Net Zero (GFANZ) has set out four approaches financial institutions (FIs) should take to support “real-economy” greenhouse gas emissions reductions, in its report entitled Recommendations and guidance: financial institution net-zero transition plans.

In this interim report, published on 15 June, the coordinating alliance of 450 firms representing $130trn in assets and advisement, said financial institutions should be: financing the development of net-zero technologies to replace high-emitting sources; increasing support for companies already aligned to a 1.5°C pathway; enabling companies to align business activity consistent with a 1.5°C pathway for their sector; and accelerating the “managed phaseout” of emissions-heavy assets.

The report has been criticised by environmentalists such as Bank on Our Future who pointed out to The Guardian that the alliance had yet to ban the financing of coal companies building new coal-based power stations.

Shortly after the alliance launched, reports highlighted that member banks had arranged $4trn of loans, including bonds, for high-emitting sectors since the Paris Agreement.

Cancellation of new coal projects

GFANZ outlined in its guidance on implementation strategy that the Net Zero Asset Owners Alliance (NZAOA) stance on coal is that “other than coal plants currently under active construction, no further thermal coal power plants should be financed, insured, built, developed or planned.”

“There should be an immediate cancellation of all new thermal coal projects, including thermal coal plant, coal mines and related infrastructure that are in pre-construction phase,” it said.

Joy Williams, GFANZ executive director of financial institution transition planning, told Net Zero Investor: “We have really tried to keep in mind what financial institutions will need to know when implementing a transition plan. Everything should be implementable into the core functions of a financial institution.

“To reduce emissions in the real world, these are the four essential steps institutions should take and this is where finance needs to go.”

According to the report, transition plans should translate net-zero commitments into robust strategies with objectives and actions “aimed at reducing real-economy greenhouse gas emissions against which progress can be assessed”.

It also stated that in the absence of clear rules in place that enable transparency, financing for high-emitters and assets should be “vigorously scrutinised” to ensure alignment with net zero.

Publication is accompanied by a six-week public consultation, running until July 27 2022.