Financial companies from Canada and 44 other countries that collectively manage $130-trillion have agreed to focus their investments on achieving net zero carbon emissions, but stopped short of promising to divest from fossil fuels.
Mark Carney, the United Nations special envoy on climate action and finance, said at the COP26 summit in Glasgow, Scotland, on Wednesday that more than 450 companies have now joined a coalition he is leading that will apply science-based targets for shifting to a low-carbon economy in efforts to counteract climate change.
The task set for the members of the Glasgow Financial Alliance for Net Zero (GFANZ), is massive and complex. Despite the huge value of assets under management by the banks, insurance companies, asset management firms and pension funds, just a tiny fraction is invested in ventures that will contribute to meeting the target of net zero by 2050. It all comes amid a worldwide debate over whether to use capital to decarbonize fossil-fuel-based industries or divest from them and move the money into renewable and clean technologies.
A GFANZ news release said that as part of their commitment, the members aim to cut their “fair share” of the 50 per cent of global emissions that must be reduced this decade to stay on track to keep the average temperature increase from preindustrial levels to 1.5 Celsius.
In addition, they commit to adopting climate-related corporate disclosures and risk management for their own businesses, and to focusing on making capital available to developing economies for the transition to green energy.
“Make no mistake: The money is now there if the world truly wants to address climate change,” said Mr. Carney, the former governor of the Bank of Canada and the Bank of England.
The scale of the membership is large enough to make US$100-trillion available for investing in clean-energy technology, said Mr. Carney, who also co-manages an energy transition impact fund for Brookfield Asset Management.
The members’ commitments will reshape their business practices, he said. They will set detailed, five-year emissions reduction plans for their companies and assets invested, and report their progress annually.
The massive amount of private money represents the total value of assets managed by the GFANZ members, and not capital that is currently invested, or ready to invest, in decarbonization and clean energy. Decisions by major investors and lenders will determine which sectors attract the money necessary to achieve emissions targets, and which ones are left out of the energy transition.
“With the best in finance stepping up, there are new opportunities for companies and countries to raise their ambitions,” Mr. Carney said. “To tackle deforestation, to end the use of coal and phase out fossil fuels and to dramatically reduce methane.”
GFANZ does not prescribe specific investment strategies for its members. There is no prohibition, for example, on investing in or lending to companies that produce fossil fuels, said Sagarika Chatterjee, head of climate change at Principles for Responsible Investment, a UN-sponsored investor network involved in the development of GFANZ.
Canada’s big banks took several months to sign on to the coalition, weighing what it would mean to them as providers of capital in an economy that produces and exports natural resources. Most have set net-zero goals, but favour using their capital and expertise to help oil and gas companies decarbonize rather than cut ties with them over their current emissions.
The Globe and Mail
The International Energy Agency and Intergovernmental Panel on Climate Change released reports last summer that spelled out the need to sharply curtail use of fossil fuels to prevent the worst effects of global warming, such as more severe storms, floods, droughts and wildfires.
“There is no word – not a single word – about fossil fuels in the press release,” said Lucie Pinson, executive director of Paris-based Reclaim Finance, which advocates for decarbonization of the financial industry. “It’s 1,322 words and they don’t even mention the main driver of climate change. … So you can see that they are in complete denial of what climate science is telling us is needed.”
Ms. Pinson suggested that Mr. Carney placed too much focus on announcing a large number of members and a huge dollar figure at the expense of setting strong criteria that would produce results.
However, Ms. Chatterjee said the group’s requirements and commitments will evolve as the financial sector figures out such things as the boundaries between government policy and private-sector action. “What you’ve got with GFANZ, and I think more broadly in the finance sector, is they’ve gone over the start line with this,” she said.
As it stands, less than 0.5 per cent of global fund assets are currently aligned with the Paris Agreement ambition of keeping the temperature rise to well below 2 C, according to a recent study by CDP, formerly the Carbon Disclosure Project.
Mr. Carney said governments have a major role to play by setting predictable and credible policies to allow the private money to flow efficiently.
Finance Minister Chrystia Freeland told reporters the Liberal government is doing its part in that regard by setting a carbon price that will rise to $170 a tonne by 2030 from $40 today. She also cited Prime Minister Justin Trudeau’s announcement this week of a cap on emissions from oil and gas production. Alberta Premier Jason Kenney did not greet that move warmly, saying his government in the energy-producing province was not consulted.
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