Ex-BoE chief calls for “radical new approach” to mobilising investment in emerging and developed markets; also warns of stranded assets.
The Glasgow Financial Alliance for Net Zero (GFANZ) is “ready to work” with other stakeholders on a “more granular breakdown” of finance’s role in fossil fuel expansion, replacement and reduction, UN Special Envoy on Climate Action Finance, Mark Carney, said yesterday.
The alliance, of which Carney is Co-Chair, will also work with public sector partners as part of an extensive programme aimed at using private-sector finance to address climate risks globally.
Carney was speaking at the Net Zero Delivery Summit, organised by the City of London Corporation, in association with COP26 Presidency UK and GFANZ. The summit marked the halfway point between COP26 and COP27 in Sharm El-Sheikh, and addressed progress on key priorities of financial players agreed in Glasgow in November.
Both the need for a smooth transition to renewable energy sources and Russia’s invasion of Ukraine made required “limited and targeted” new investment in fossil fuels in the near term, he said. This would lead to more stranded assets in the medium term, waned the former Bank of England governor, requiring “a more granular breakdown of the use of proceeds of new fossil fuel financing.
“In parallel, governments must set the right incentives so that the expected life of every new project is consistent with the transition,” he added.
Focus on emerging markets
Carney said GFANZ is focusing particularly on connecting the Nationally Determined Contributions (NDCs) of UN member states with private finance. “Given the enormous resources of GFANZ, a radical new approach to mobilising private capital investment in emerging markets and developing economies can be developed,” he said.
The initiative includes over 450 major financial institutions from 45 countries who have committed to managing their balance sheets in line with 1.5°C net zero transition. They total over US$130 trillion in assets, around 40% of private investments globally.
“GFANZ has called for new country platforms that deploy blended finance at scale and with high multipliers, connect private finance with ambitious country NDCs, channel technical assistance, and manage the wind-down of stranded assets, such as coal generation,” he said.
“We have been developing specific proposals and financing commitments consistent with this approach (including catalytic initiatives such as Climate Finance Leadership Initiative (CFLI) and Fast Infra). We welcome the launch of new Just Energy Transition Partnerships (JETP), and are dedicating significant resources to support private-sector mobilisation under them.”
GFANZ has faced criticism from various climate stakeholders since its launch at COP26, specifically that members have not made enough progress with regards to fossil fuel financing and net zero targets, despite the stated aims and commitments of the organisation and its subgroups.
The alliance is the coordinating body for a range of sector-centric net zero initiatives, including the Net Zero Banking Alliance (NZBA) and the Net Zero Asset Managers initiative (NZAM). It is also a member body of the UN’s Race to Zero Campaign.
GFANZ members are required to set regularly renewed science-based targets to map their path to net zero emissions by 2050 at the latest.
French think tank Reclaim Finance released a report in November last year which argued that GFANZ commitments were not likely to achieve emission reduction goals, and that the alliances were “falling into the trap of analysis paralysis”.
“The alliances’ approach to target setting is based on their members calculating the financed emissions of their portfolios,” it said. “This requires a complex years-long and opaque process that makes it difficult for outside analysts to monitor progress at meeting targets.
“While these approaches are needed in the longer term, they don’t replace the imperative for immediate and transparent action on the biggest polluters.”
Turning commitments into action
Carney said in his speech that GFANZ is committed to real world decarbonisation, not just the decarbonisation of investment portfolios, via a work programme aimed at turning commitments into action across seven workstreams.
The programme involves 100 practitioners from 60 member institutions working with 40 members from the GFANZ, as well as the sector-specific alliances, and 30 expert advisors from NGOs and the academic sphere.
He said the work programme covers key areas to aimed at translating pledges to action: transition-consistent energy financing, transition plan framework for financial institutions, guidance for real-economy company transition pathways, guidance on decarbonisation pathways across sectors, guidance on portfolio alignment, frameworks to phase out high-emission assets, and JETPs for transition financing in emerging markets and developing economies.
GFANZ will also be launching a series of publications, including frameworks on and guidance for, the financial sector to build a net-zero financial system, one of which is a new globally applicable net zero transition framework for financial institutions, which sets out the attributes of credible plans that support real-world reductions.
Carney said it was supporting the development of an open data solution to further transparency, adding this would be “essential” for stakeholders to assess global progress.