London | Pension fund Cbus and Austrian pensions firm Bundespensionskasse have become the first institutions to leave a financial alliance on tackling climate change spearheaded by former Bank Of England governor Mark Carney.
Australia’s Cbus left the Net Zero Asset Owner Alliance recently to focus on “internal climate change activities”, while Bundespensionskasse exited the Paris Aligned Asset Owners group last month. The coalitions form part of the Glasgow Financial Alliance for Net Zero (GFANZ) launched with much fanfare last year.
“We made the difficult decision to focus our resources on our internal climate change activities,” said a spokesman for the $70 billion Construction & Building Unions Superannuation Fund. “We support the important work that the alliance is doing and wish all members the best in their endeavours.”
Investors are increasingly impatient with evidence of potential “greenwashing” amid signs net-zero pledges made by some members of the financial industry are not credible, said former US vice president Al Gore.
Mr Gore, who spoke before Climate Week in New York started last week, said commitments made by members of GFANZ, the No. 1 green club for bankers and investors, are “very welcome” and “not meaningless”.
“But obviously, they have to be followed up,” he said.
GFANZ, which counts roughly 500 members representing more than $US135 trillion ($207 trillion) in assets, was hailed as a milestone at the COP26 climate summit last year. But now “it’s become apparent that some who made impressive pledges did not immediately begin to put in place a practical plan to fulfil those pledges,” Mr Gore said.
“Investors and others are sniffing out greenwashing more readily these days,” said Mr Gore, who chairs Generation Investment Management. “And the pressure is going to grow.”
GFANZ has tried to build credibility while remaining a voluntary alliance without binding rules that might scare members. But as it tries to introduce stricter standards, cracks are becoming visible.
For some members, there’s a growing realisation that they may fail to meet the goals set out by the alliance, while others have expressed fear the organisation’s strict requirements for decarbonisation could make them legally vulnerable.
Last week, it emerged that Wall Street heavyweights JPMorgan Chase, Bank of America and Morgan Stanley were considering a possible exit from GFANZ. That was followed by a clarification of the GFANZ criteria, giving financial firms scope to set weaker fossil finance targets, and ostensibly easing tensions behind the scenes.
For some, the development was a red flag.
GFANZ members appear to be realising that “it requires more than an initial commitment and nice words”, said Rebecca Self, a former HSBC senior banker who runs Seawolf Sustainability Consulting.
“For net-zero initiatives like GFANZ to work well, they require credibility beyond the initial commitment and fanfare,” she said. “This includes transparency such as routine progress reporting and verification, including disclosing the financing of fossil fuels.”
Former Bank of England and Bank of Canada governor Mark Carney co-chairs GFANZ with Michael Bloomberg, the founder of the Bloomberg financial news agency.
Mr Carney plays down the risk of defections and has said that Race to Zero, the UN-backed net-zero project that underpins GFANZ, had gone “too far” with requirements for more stringent decarbonisation targets.
Race to Zero has since updated its language and emphasised that members must “independently find their own route” to the 1.5 degrees-aligned climate goal.
Cbus didn’t cite concerns about legal risks for its departure from GFANZ. Instead, it listed the administrative burden involved in staying. That’s as developing regulations and standards require signatories to meet parallel frameworks.
For some, these hurdles have led them to snub GFANZ from the get-go. Blackstone, Apollo Global Management and KKR & Co are among private equity giants that judged GFANZ membership an unnecessary burden. Insiders, on condition of anonymity, have referred to the near-impossibility of coming up with credible plans to eliminate their carbon footprints by 2050 as reason enough to avoid GFANZ and its sub-alliances.
Ms Self said it’s now “evident the voluntary approach to the climate action will not work”.