Hundreds of the world’s biggest banks and pension funds with assets topping $130 trillion have committed to limiting greenhouse gas emissions, the U.K. government announced Wednesday.
But it’s a pledge that does not preclude the continued funding of fossil fuels for the foreseeable future, environmental groups were quick to point out.
The pledge by more than 450 financial institutions in 45 countries is heralded as one of the top achievements by the U.K. hosts of the U.N.’s COP26 summit in Glasgow, an ambitious summit intended to bring firmer commitments by governments and the private sector to limit global warming to 1.5 degrees Celsius, a target first set in at the Paris COP six years ago.
The finance pledge, known as the Glasgow Financial Alliance for Net Zero (GFANZ), will mean that by 2050 all of the assets under management by the institutions who signed on can be counted toward a net-zero emission campaign. Bloomberg New Energy Finance estimates average investment requirements to hit net zero to be between $3.1 trillion and $5.8 trillion per year until 2050.
Unlike companies who emit pollution or tap into a supply chain that does, the bulk of banks’ contribution to climate change is typically linked back to what industries they finance.
Environmental groups said the financial sector’s pledge may better align banks behind low-carbon financing starting now but banks are still free to finance coal, oil
And they’re worried that too much reliance on private-sector decision-making without government mandates will slow the effort to curb emissions.
In 2019, fossil fuels were the source of about 74% of total U.S. human-caused greenhouse gas emissions, the Energy Information Agency says.
“The architecture of the global financial system has been transformed to deliver net zero. We now have the essential plumbing in place to move climate change from the fringes to the forefront of finance so that every financial decision takes climate change into account,” said Mark Carney, former governor of the Bank of England, now a U.K. and U.N. climate envoy. “[This] rapid, and large-scale, increase in capital commitment to net zero, through GFANZ, makes the transition to a 1.5C world possible.”
But such a pledge is only one half of a push toward net zero, say critics.
“The sums committed by the financial sector seem promising, but we need to make sure governments aren’t privatizing the green transition by relying on markets to lead the way,” said Simon Youel, head of policy and advocacy at Positive Money, which tracks the social and economic impacts of central bank and private bank policy.
“A truly fair green transition must be driven by government action, and can’t rely on greenwashing being profitable for private investors,” he said. “Lenders who are supposedly signed up to net zero, like Barclays
are still pouring billions into fossil fuels even this year.”
Released earlier this year, a separate report showed that some 60 of the world’s largest commercial and investment banks have in total put $3.8 trillion into fossil fuels from 2016 to 2020, the five years after the voluntary Paris Agreement was signed.
Also Wednesday, one of the leading efforts to standardize climate reporting issued its own paper, suggesting banks need to better align in defining the role they’ll play in slowing climate change and essentially, subject themselves to tougher rules.
The Science Based Targets initiative, which certifies corporate climate policies and introduced a Net Zero Standard for companies last month, published a report on Wednesday meant to be a “first step” to develop a science-based, net-zero standard for financial institutions, SBTi said.
For financial firms to help align the global economy with the 1.5-degree goal of the Paris climate accord, they should use “their shared influence and responsibility for aligning incentives and eliminating barriers to emission reductions,” SBTi said.
SBTi said it’s exploring three approaches for how financial firms can reach net-zero emissions: reducing so-called financed emissions consistent with the 1.5 °C decarbonization pathways for each sector; aligning all financing activities with relevant net-zero pathways such that each individual asset achieves a state of net zero; and making it possible for financial institutions to contribute to net zero in a way that ensures transition financing for both decarbonization activities and an explicit shift to finance more climate solutions.