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Brookfield Asset Management Vice Chairman and former Bank of England Governor Mark Carney speaks during a panel discussion at the headquarters of the International Monetary Fund during the Annual Meetings of the IMF and World Bank in Washington on Oct. 13.JAMES LAWLER DUGGAN/Reuters

The world’s banks had to realize that joining a club whose sole objective is to drain carbon out of the financial system would lead to certain expectations. One of them is that they would live up to their commitment.

Since Mark Carney’s Glasgow Financial Alliance for Net Zero (GFANZ) made a splash at last year’s big climate summit, some of its members appear to be getting cold feet. Banks in the United States and Canada have expressed worries that adhering to the group’s guidelines for decarbonization will land them in legal trouble. Now, those banks are being told from within GFANZ to be calm – they may not have to adhere fully.

All of this calls into question the effectiveness of voluntary measures when it comes to doing what’s needed to reach the Paris Agreement target of net zero for greenhouse gas emissions by 2050. Environmental activists warned from the start that only government regulation will ensure compliance. The recent cracks in the GFANZ membership do nothing to dispel that notion.

Recall that Mr. Carney, the former governor of the Bank of Canada and the Bank of England, led the formation of GFANZ, and at the UN COP26 confab in 2021 heralded the start of a new era for the financial sector in prioritizing climate considerations in investment decisions. The alliance has since grown to 500 members that collectively manage US$140-trillion in assets.

Last month, JP Morgan Chase, Morgan Stanley and Bank of America signalled they could quit GFANZ and its subgroup, the Net Zero Banking Alliance (NZBA), over fears of legal action stemming from antitrust concerns if they are required to divest from some high-emitting sectors in the imperative to decarbonize. Canada’s big banks, meanwhile, have expressed their own worries about legal and governance risks tied to the net-zero banking group.

One concern among financial institutions is GFANZ’s guiding criteria, which are set out by Race to Zero, a UN campaign that leads decarbonization initiatives for entities below the national government level. In the case of banks, the biggest source of emissions stem from the companies and projects they finance. Their worry is that the Race to Zero targets suggest a requirement to pull financing from fossil fuel producers at some point.

Canadian banks have all said that, as part of their net-zero plans, they aim to help oil and gas clients with decarbonization efforts rather than cut off funding. These companies, after all, remain a major part of the country’s export-focused economy. Many green groups decry this philosophy, saying it will keep Canada from meeting its international emission-reduction targets. They are pushing for divestment.

Things got messy this summer, when Race to Zero published updated text that included explicit requirements to “phase down and out” development and financing of new fossil fuel assets, and to make no new coal investments. After the banks got their backs up over that wording, Race to Zero issued a clarification, saying each member will undertake an approach based on the best available science to proceed with fossil fuel phase-down and elimination.

Mr. Carney conceded in September that the guidelines went too far. He said banks cannot have “legally binding strictures” about who they can finance and stay on side of antitrust concerns.

This week, in an open letter to members, Tracey McDermott, chair of the NZBA steering committee, said the group will independently consider the updated Race to Zero criteria alongside other changes in global markets and lessons that banks have already learned implementing net zero commitments. It will decide on its own where to make any changes to the guidelines for membership.

“It is important for members to understand that [Race to Zero] does not have the ability to impose requirements either on the NZBA as a whole or on individual members,” Ms. McDermott wrote.

She also said GFANZ, the umbrella organization, has no decision-making authority over NZBA members.

Of course, one big change in global reality is the energy crisis that is raising supply fears across Europe and costs for North American consumers as winter arrives. It is clear the world is nowhere near ready to abandon fossil fuels yet in favour of renewables.

But does that mean the banks get a pass on climate goals that were set just last year, and fine-tuned in June, lest members start dropping out? With the next climate summit set to start next month in Egypt, Mr. Carney will have some explaining to do to a public that was told the financial sector’s path to net zero was well on its way to being finalized.

If he can’t persuade decision makers this is a temporary setback that can be solved, calls for governments to step in with mandatory measures will only become louder.

Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. E-mail him at

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