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Ready, set, Gfanz

Ready, set, Gfanz

At Cop26 last year, financial institutions made a $130 trillion promise to save the planet. How’s it going so far?

It was the Cop showstopper: 450 financial institutions responsible for $130 trillion of assets pledged their commitment to rapid decarbonisation. The UN’s climate champions said these companies could deliver 70 per cent of all the investments needed to reach net zero by 2050. Mark Carney, co-chair of the Glasgow Financial Alliance for Net Zero (Gfanz), called the coalition a breakthrough.

Really? There was a bucketload of scepticism about the $130 trillion figure, which exceeds the value of all the world’s stock markets combined. But in 2022 the Gfanz promises could start to look like progress. Here’s why:

  • Gfanz gears up. Last year the coalition was run out of a unit in the UK Treasury but in 2022 it will have its own secretariat run by Mary Shapiro, former chair of the US Securities and Exchange Commission. A hiring spree is underway, with jobs in London and New York and plans for a physical presence around the world. “There’s a sense of rolling up sleeves,” says Kate Levick, Associate Director of Sustainable Finance at E3G.
  • Ambition is high. To transform promises into practice, Gfanz has to work out a) how financial institutions can decarbonise themselves, and b) how they can influence high-carbon clients to go green. “It’s a level of transformation which is just extraordinary to conceive,” says Mark Campanale, founder of the Carbon Tracker Initiative. But the coalition is, he says, asking the right questions about how to decarbonise high-carbon sectors like steel and aviation without encouraging companies to offload carbon-intensive assets to less transparent parts of the market. And Gfanz is working on robust metrics to measure not only the current environmental cost of what is being financed but future impact too.
  • Companies see decarbonisation as good business. Gfanz membership is likely to grow because financial institutions increasingly realise it’s risky to hold onto assets – like oil and gas reserves – which may end up being worth less than they thought. “There’s a sense of inevitability,” Campanale says. “If an asset manager or bank continues to lend to or invest in industries which are declining or dying, they are putting themselves at greater financial risk by ignoring the transition.”
  • … and regulators agree. “Regulation really helps push in that direction in a really strong way,” says Danae Kyriakopoulou, Senior Policy Fellow at the Grantham Research Institute on Climate Change and the Environment. In December, the Office of the Comptroller of the Currency, a US federal regulator, advised banks to build climate risks into their planning to protect themselves and the financial system. That said, Gfanz is global and policy tends to be local. A win in one jurisdiction isn’t a win across the world.

The headcount at Cop26’s own secretariat is being cut by a third despite the scale of its post-conference workload, so the fact that Gfanz is scaling up is welcome compensation. But it’s still more about words than action:

  • Firms are hanging onto fossil fuels. Gfanz members must have UN-aligned science-based targets – but that doesn’t mean they are green yet. In December, Bloomberg reported that JP Morgan Chase, a Gfanz member, underwrote $2.5 billion in bond deals for companies including fossil fuel giants Gazprom and Continental Resources. 
  • And accountability mechanisms are opaque. Sub-groups within Gfanz assess members’ progress on climate targets every year, and can remove them from the coalition if they don’t meet standards – but there are no other clear penalties. Whether Gfanz fulfills its promise will depend on what Campanale says is ultimately a very simple question: are the financial institutions still putting up finance for big fossil fuel expansion? The answer right now is that they are. 
  • Wait for Sharm El-Sheikh. No big progress announcements are expected from Gfanz before the next Cop in Egypt this November – but many more of its members’ emissions targets should be known (they have 18 months from joining to share specific plans). Given the urgency of action, however, and the fact the financial sector prides itself on moving fast, one has to wonder whether Gfanz could go any quicker.

science and technology

Marine hitchhikers
120 years ago this week, Robert Falcon Scott, Ernest Shackleton, and the crew of the Discovery landed in Antarctica, ushering in an age of Antarctic exploration. According to scientists at the University of Cambridge and the British Antarctic Survey, their successors may now be responsible for sullying pristine ecosystems isolated for 15-30 million years. Researchers have identified 1,581 ports with links to Antarctica and warned that mussels, barnacles, crabs and algae could hitch a lift to the icy continent on the hulls of trade or research vessels, threatening established species. Creatures used to the cold temperatures may already be able to migrate from pole to pole, but the team of scientists are also calling for better biosecurity measures – inspecting and cleaning clothing and equipment – to stop hitchhikers in their tracks.


eco-nomics

Funding fission
The UK government wants what ministers call a “new renaissance for nuclear energy”. The Nuclear Energy (Financing) Bill, which passed its third reading in Parliament last night, by 458 votes to 53, will enable private investment in otherwise public projects to build nuclear power stations without depending on overseas investors. Six nuclear power plants currently supply around 16 per cent of the UK’s electricity, but most must be shut down before 2030. In 2018 Toshiba abandoned plans to build a nuclear plant in Cumbria, and in 2020 Hitachi scrapped plans for one in Wales. Under the system approved last night, electricity companies could instead be charged to fund the build, and are expected to then pass on the cost to consumers. “New nuclear is absolutely essential if we are going to have the security of energy supply and diversity to ensure resilience,” said Kwasi Kwarteng, the energy secretary. But nuclear is increasingly expensive compared with renewables. “We need to get to net zero by 2050 at the latest. Do we need nuclear power to get there, and is nuclear energy a fair deal for our consumers?” asked Wera Hobhouse MP. Fair or not, Brexit Britain seems to have fallen in line with the new EU taxonomy, which classifies nuclear as green.


policy

Gas tax
Could the rising cost of heating homes be the thread that unravels Boris Johnson’s premiership? A YouGov poll at the weekend found that 83 per cent of the public want him to get rid of VAT on energy bills, while 33 per cent think their bills will rise to more than they can afford this year. In contrast to Tory infighting on the issue, Labour’s Rachel Reeves has proposed a windfall tax on North Sea oil and gas profits to cushion the expected price rise in April, calculated to save around £200 per household. Today, they’re encouraging dissenting Tories to vote with them on scrapping the 5 per cent VAT on home energy bills for a year. By itself, it’s undoubtedly a blunt instrument. But research from the Resolution Foundation shows that targeted revenues from the windfall tax could spare the worst for a lot of families. Of course, the ideal situation would be one where the grid runs on green energy and British homes are well-insulated – currently, they lose heat up to three times faster than neighbours in Europe.


activism and engagement

Manchin in the middle
There are two ways of looking at Senator Joe Manchin’s rearguard action in West Virginia on behalf of coal: as the devil’s work, or as a case of doing President Biden’s dirty work for him. Jeff Goodell in Rolling Stone – along with the rest of the American Left and the entire environmental movement – takes the former view. His piece opens with a trip to the giant John Amos coal-fired plant on the banks of West Virginia’s Kanawha River, which emits 13 million tons of CO2 a year and which he blames for most of America’s wildfires, extreme weather events the world over, the crack-up of Antarctica and spiking infectious diseases in Nepal and Kenya. Science and reason are on Goodell’s side. The case for incandescent rage is hard to answer. So what is Manchin doing? He’s using his Senate vote to hold a de facto veto over passage of Biden’s Build Back Better bill, which includes the biggest climate-friendly federal investment package in US history. America and the planet need this package. But what if it would lead directly to electoral disaster for the Democrats in the midterms and the loss of control of both houses of Congress. What then? 

Thanks for reading.

Ellen Halliday
@ellen_halliday


Additional reporting by Barney Macintyre and Giles Whittell.


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