Mark Carney’s ambitious $ 130 trillion Glasgow financial alliance for Net-Zero

UN Special Envoy Marc Carney has made a huge difference when it comes to getting financial services firms to align their lending and investing activities with the net zero goals of the Paris Agreement. During an acronym-rich session of COP26 on November 3, Carney revealed that the total assets of the combined companies committed to achieving net zero emissions had risen to $ 130 trillion, from $ 5,000 billion at the start. of the year.

Known as the Glasgow Financial Alliance for Net-Zero (GFANZ), chaired by Carney, a consortium of more than 450 financial companies in 45 countries is committed to aligning their own businesses, but most importantly their loans and investments, with zero net goals. This is good news, as it can make significant strides towards financing the estimated $ 150 trillion price tag required to mitigate the worst impacts of climate change.

The significance of GFANZ’s commitment is that it leverages the power of large financial institutions to align with the Paris 1.5 degree Celsius target. This is not about completely withdrawing funding from carbon-intensive industries. Instead, GFANZ members should engage climate experts, the NGO community and governments, to develop ‘sector pathways’ or roadmaps to net zero for key sectors, to better advise and support their corporate clients in their own transition plans. Governments must also do their part in ensuring clarity and coordination of policies for an orderly transition to net zero.

Carney, a former Governor of the Bank of England and former Chairman of the Financial Stability Board, is in many ways the ultimate climate insider, and his previous job well prepared him for his current leadership role. Starting with its landmark address on climate risk at Lloyds of London reinsurance syndicate in 2015, “Breaking the Tragedy of the Horizon – Climate Change and Financial Stability,” Carney successfully argued that financial markets need climate-related disclosure in order to ” properly assess risks and opportunities.

With billionaire Michael Bloomberg, Carney co-founded the Climate-Related Financial Disclosure Task Force (TCFD). TCFD disclosure recommendations elevated climate-related disclosure from the obscure realm of “corporate social responsibility” to a strategic imperative.

GFANZ signatories commit to making TCFD disclosures, which include climate stress tests of their own companies, and science-based transition plans. Asset owners need to align their portfolios with net zero; and implement liquidations of blocked assets. So far, few banks and asset managers have disclosed or even measured the global warming trajectories of their credit or investment portfolios.

Climate-related disclosure is on the way to becoming mandatory. Following Carney’s speech on GFANZ, Erkki Liikanen, president of the International Financial Reporting Standards Foundation (IFRS), the international accounting standards body, whose standards are used in 140 jurisdictions around the world (but not in United States and China), announced the creation of a new International Sustainability Standards Board (ISSB). The role of the ISSB will be to develop a coherent and globally verifiable sustainability reporting framework for financial markets, in the same way it has done for financial accounting standards.

Ashley Alder, President of the International Organization of Securities Commissions (IOSCO), the international body that sets standards for the securities industry, spoke after Liikanen, and said IOSCO will work closely together with the ISSB, and that IOSCO approval would help accelerate the adoption of mandatory climate-related disclosure.

The main implementation issues surrounding GFANZ remain. Most notably, a lack of agreed metrics to measure the alignment of GFANZ’s portfolio with the Paris Agreement. Under GFANZ, signatories must measure all the ‘scopes’ of their greenhouse gas emissions, including their share of emissions generated by the companies to which they lend and, in the case of asset managers, the their portfolios’ emissions trajectory – and publish a plan showing how they will halve emissions in all three scopes by 2030 and reach net zero by 2050.

The GFANZ progress report note: “A key step in the decarbonization of finance is to develop common industry standards and best practices on how to measure alignment with the Paris 1.5 ° C target and subsequently catalyze the adoption among financial institutions. Currently, there is no consensus on which tools and measures to use or how and when to apply them. However, they are essential to provide a forward-looking view of a counterparty’s future issuance and its level of alignment with net zero.

This lack of agreed upon tools is a problem. The same is true of the fact that non-state enterprises or state-controlled enterprises are less likely to give in to pressure from institutional investors and private sector banks. Speaking on the same day, Larry Fink, CEO of Blackrock, the world’s largest asset manager, said: “We are lying if we think we can do it just by asking banks and financial services companies, public companies, to comply with TCFD Reporting. We create the biggest capital arbitrage of our life. We see more and more hydrocarbons moving from public entities to private entities. ” Speak EconomistIn total, listed companies that are not controlled by the state represent only 14 to 32% of global emissions.

China is another question mark. Only one company on the list of GFANZ signatories is from China, although Yi Gang, the governor of the central bank of China, addressed COP26 via video to say that the People’s Bank of China and the Union European Union would soon provide a common definition of what constitutes a green investment.

The goal of GFANZ is a financial system in which every lending and investment decision takes the climate into account. It is ambitious and far from easy to achieve. At best, GFANZ will bring transparency and accountability to the financial system. This may push more companies to prioritize decarbonization in order to avoid climate chaos.

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