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Financial institutions to ensure alignment with climate

Financial institutions

In the initiative, 160 companies will set targets to cut the carbon content of their assets by 2030, in line with an overall goal of net zero emissions by 2050

Banks and financial institutions with more than $70tn assets have pledged to cut their greenhouse gas emissions and ensure their investment portfolios align with the science on the climate.

In the initiative, chaired by Mark Carney, the former governor of the Bank of England, 160 companies, including 43 banks from 23 countries, will set targets to cut the carbon content of their assets by 2030, in line with an overall goal of net zero emissions by 2050.

The forum, the Glasgow Financial Alliance for Net Zero, aims to encourage the financial sector to divert investment towards low-carbon infrastructure and technologies, and to discourage high-carbon investments, ahead of Cop26, the vital UN climate talks to be hosted by the UK in Glasgow this November.

Janet Yellen, the US Treasury secretary, and John Kerry, the US special presidential envoy for climate, are backing the alliance. The White House is holding a virtual summit on the climate on Thursday, with 40 world leaders invited to discuss fresh commitments on cutting emissions in the next 10 years.

Kerry said: The largest financial players in the world recognise that energy transition represents a vast commercial opportunity as well as a planetary imperative. As countries around the world move to decarbonise the large sums these institutions are dedicating to climate finance also reflect a growing understanding of how critical a low-carbon global economy is to their business models.

HSBC, Lloyds, Barclays, Citi, Morgan Stanley and Bank of America are among the banks signed up, along with insurers including Axa, Munich Re, and Swiss Re.

Carney, who is advising Boris Johnson on climate finance as well as acting as UN special envoy for climate action and finance at Cop26, said: This is the breakthrough in mainstreaming climate finance the world needs. GFANZ will be the gold standard for net zero commitments in the financial sector.

He and other officials said the alliance would not allow banks to “greenwash” their commitments. Many banks have claimed to be “Paris compliant” or to follow the principles and aims of the 2015 Paris climate agreement, which binds countries to hold global temperature rises to below 2C pre-industrial levels, and preferably no more than 1.5C above.

However, since the signing of the Paris agreement in 2015 banks have poured at least $3.8tn into fossil fuel financing, a recent report stated.

David Barmes, economist at campaigning group Positive Money, said: It’s difficult to take these net zero pledges seriously when the world’s biggest private sector banks have financed fossil fuels to the tune of £2.7 trillion since the adoption of the Paris agreement.

Mark Carney leading the initiative is not very reassuring either, as he recently appeared unclear what net zero means. More voluntary alliances filled with repeat greenwashing offenders is not enough – we need urgent action from regulators such as central banks to ensure the entire financial system is aligned with the legally binding environmental targets governments have committed to, he said.

Banks signing up to GFANZ would be required to show “credible plans” for reducing their investment in high-carbon assets, but would not face a deadline for exiting fossil fuel investment.

Important:

This article is for information purposes only.

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.