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Multi-trillion dollar financial group unveils voluntary net zero guidelines

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GFANZ, a UN-backed umbrella group of leading financial firms established ahead of last year’s COP26 Climate Summit, said a seven-fold increase in current financial flows amounting to an additional $1trn per year by 2030 was required in clean energy investment in emerging and developing countries alone to reach net zero by 2050 worldwide.

G20 governments as well as leading financial firms have critical roles to play to unlocking the trillions of dollars of investment needed to build a net zero economy over the next 30 years, but an overhaul of both company transition plans and government financial policy architecture is needed to get there, it warned.

To that end, GFANZ – which is co-led by former Bank of England governor Mark Carney – has set out a framework to help its 550 members implement plans to decarbonise their financial activities and drive up green investment in line with a 1.5C global warming pathway.

Carney said GFANZ members had been enhancing their real-world decarbonisation plans as well as boosting accountability over the past year, but that now governments and financial firms both needed “to deepen their efforts to address climate change”.

“The finance is there if the world truly wants to meet its climate goals,” he said. “With today’s transition planning framework, we can accelerate the speed and scope with which these enormous financial resources are put to work to achieve the world’s goals.”

The voluntary guidance aims to provide a best practice approach for major financial institutions signed up to the umbrella group – which is estimated to represent well over $150tr in private capital worldwide – to implement strategies to transition their portfolios and activities to net zero emissions by 2050 .

GFANZ and its seven sector-specific alliances for asset managers and owners, bankers, insurers, consultants, financial service providers, and investment consultants comprise over 550 financial institutions from 50 jurisdictions worldwide. Members include a raft of global brands, such as Santander, Aviva, Macquarie, and Standard Chartered.

All have committed to achieving net zero emissions across their business and investment portfolios by 2050, while also agreeing to develop transition plans to phase out high carbon investments in line with a 1.5C global warming pathway.

In recent months, however, tensions in the umbrella group prompted it to last week ditch requirements for its members to additionally sign-up to the UN’s Race to Zero campaign, after some leading banks pushed bank against the more stringent reporting rules and targets required for firms signing up to the Race to Zero initiative. The revelation prompted accusations from green campaigners that the muti-trillion-dollar financial grouping was seeking to water down its climate ambitions and providing cover for investors who continue to support new fossil fuel projects.

The new guidelines focus on ensuring financial firms’ net zero transition plans are built around four key areas: investing in climate solutions; supporting business models already aligned with a science-based pathway to net zero; engaging with firms which are in the processes of developing credible net zero transition plans; and managing the phaseout of high carbon assets that risk being stranded in the future.

It also recommends GFANZ members apply policies and conditions to high priority sectors “such as thermal coal, oil and gas, and deforestation”, but stops short of calling on members to produce firm timelines for phasing out such investments altogether.

In addition, it encourages transparent disclosure of resulting transition plans in line with the Taskforce on Climate-Related Financial Disclosure guidelines (TCFDs). However, there is no detailed guidance included on these new net zero strategies, leaving financial firms relatively free to determine the nature and frequency of such plans.

“Financial institutions should look to their net zero alliance and other guidance providers for greater detail on how net-zero strategies can be developed and implemented at the level of specific products, services, and transactions,” the guidance states.

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GFANZ also announced that it is developing an open-data facility – dubbed the Net Zero Data Public Utility – to help address data gaps and boost transparency within the initiative, with a view to the first pilot project getting up and running in the second half of 2023.

GFANZ is chaired by a ‘principles group’ that includes figures such as UNFCCC executive secretary Simon Stiell, Egypt’s UNFCC’s high level champion Mahmoud Mohieldin, and Network for Greening the Financial System chair Ravi Menon. The group is chaired by the UN secretary-general’s special climate envoys Mark Carney and Mike Bloomberg.

GFANZ has faced considerable criticism from climate campaigners in recent months, but the group stressed that while the financial sector has an essential role in driving the net zero transition worldwide, its activities “cannot be a substitute for government policy” and that “certain responsibilities cannot be shifted” onto the private sector.

As such, it today urged G20 governments to harness the opportunity offered by COP27 to deliver on their national climate commitments, develop standards and frameworks to enable the net zero transition of the finance sector, help reduce financial sector risks, and upgrade the international financial architecture to lay the groundwork for unlocking trillions of dollars of green investment.

“The financial firms that have signed on to this coalition have all committed to achieving a goal that – without a blueprint or roadmap – will be very difficult to reach,” said Bloomberg, who is also UN special envoy for climate ambition and solutions. “These resources will give firms the guidance and direction they need to turn their commitments into action, speed up global progress on climate change, and reach their destination.”