By Cynthia A. Williams

In 2021, as part of the COP26 climate negotiations in Glasgow, the Glasgow Financial Alliance for Net Zero (“GFANZ”) was announced. This Alliance of banks, asset managers, and insurance companies, among other financial institutions, with more than $130 trillion of assets under management when announced, was based on a pledge by the participating companies to work towards net-zero status in their businesses by 2050 or sooner. Led by former UK Bank of England Governor Mark Carney, who is now the U.N.’s Special Envoy on Climate, it seemed to have some promise as a “soft law” governance mechanism to develop voluntary industry standards for the constituent entities in reducing the carbon emissions of their businesses and their “financed emissions”—at least such promise in the absence of stronger, enforceable standards.

By 2024, the Alliance seems to be in disarray, at least if media reports are accurate. Efforts to align GFANZ with the substantive standards of the U.N.’s ‘Race to Zero’ have provoked sustained political pushback in the U.S. The Race to Zero standards include limiting financing of new oil and gas and excluding new coal financing. As such, they are in line with the International Energy Association’s views on what is necessary if the world is actually to reach a net zero economy by 2050. Yet, by seeming to make promises to limit fossil-fuel financing, members of GFANZ such as BlackRock, JPMorgan Chase, Citigroup, and Bank of America have been targeted in the United States by Republican state Attorneys General for their participation in “fossil fuel boycotts.” In contrast, BlackRock has been asked by New York City’s Comptroller Brad Lander to explain the disconnect between its public statements purporting to limit fossil fuel investments as part of GFANZ, and its continuing position as the world’s largest investor in fossil fuels. Efforts by the Republican Attorneys General challenging GFANZ participants and requesting information, under oath, follow legislative efforts in oil and gas producing states to exclude state business with, or pension fund investment in, these and other listed banks for their “fossil fuel boycotts.” These state initiatives are starting to have their intended effects, with asset manager Vanguard and insurance companies Zurich Insurance Company and Munich Re, among others, leaving GFANZ-affiliated initiatives, citing antitrust concerns.

Moreover, any suggestion that global banks are pulling back on fossil fuel funding as part of their commitments to GFANZ is a chimera. Since the Paris Agreement was signed, in total global banks provided $4.6 trillion of new fossil fuel finance through 2022. Two of the top four U.S. fossil fuel financing banks—Citibank and Bank of America—are members of the Steering Committee for the Net Zero Banking Alliance (one of seven industry-specific GFANZ alliances). Canadian banks that are also members of GFANZ continue to fund tar sands oil extraction in the province of Alberta, even as many international banks and investors are pulling out of that particular site of extraction. In 2021 each of the five top Canadian fossil fuel funding banks joined the Net-Zero Banking Alliance, an affiliate of GFANZ, even as their tar sands lending doubled.

Source SSRN