Sep 21, 2022
Banks may leave Mark Carney's climate group on legal risks
Banks making good faith efforts on climate goals: Tom Rand
Banks including JPMorgan Chase & Co. and Morgan Stanley may leave the Glasgow Financial Alliance for Net Zero, Mark Carney’s coalition to fight climate change, because they fear the organization’s strict requirements for decarbonization may make them legally vulnerable.
The lenders’ misgivings have been raised in recent GFANZ meetings, people familiar with the matter said, who declined to be identified because the discussions have been private. The Financial Times reported the news earlier. Bank of America Corp. also has considered exiting the coalition, according to a person familiar with the matter.
Climate pledges and ESG mandates have become increasingly contentious in recent months: Regulators are increasing scrutiny of climate-risk disclosures, and Republican politicians and state officials in the US are targeting ESG as an extension of liberal overreach.
Race to Zero, the body behind the criteria that underpins GFANZ, issued a clarification on Friday, updating its guidance around support for the phasing out of fossil fuels and new coal projects. It said it was aware “there may be cause for legal concern” around these areas while reaffirming its members have always been required to phase out coal and align to the goal of limiting warming to 1.5 degrees Celsius.
Spokespeople for JPMorgan and Morgan Stanley declined to comment. Representatives for Bank of America, GFANZ and Race to Zero didn’t immediately respond to a request for comment.
Convened last year in partnership with the United Nations, GFANZ comprises seven groups spanning all corners of the financial industry and has attracted more than 500 member firms. Signatories must commit to use science-based guidelines to reach net-zero carbon emissions by 2050, and to provide 2030 interim goals.
GFANZ is the finance industry’s biggest coalition on climate action. Its success in providing the capital required for greening the global economy and pushing corporate polluters to cut emissions could be instrumental in helping limit global warming. Only a few months ago the group said it was time for financial institutions to “make good on their commitments” to eliminate carbon emissions from their portfolios in line with the timetable scientists say is required to cap the rise in global temperatures at 1.5°C.
Carney said at the UN climate summit in Glasgow last year that firms with assets totaling US$130 trillion now stood behind his climate coalition. He said this means there is sufficient capital available to finance the clean-energy transition. He called the Glasgow event “a watershed.”
Less than a year on, the alliance of banks, asset managers and insurers is anything but stable. In addition to concerns about legal challenges on financing of fossil fuels, banks are also wary about the potential antitrust issues, according to a person familiar with the matter.
Perhaps a more galling concern is GFANZ’s insistence on setting targets aligned with 1.5°C of warming when some of the members believe the war in Ukraine and the global energy crisis put the goals set by the Paris accord essentially out of reach.
“It’s a moment of reckoning for GFANZ and for Mark Carney and the leaders of GFANZ,” said Beau O’Sullivan, a strategist at the environmental nonprofit Sunrise Project. “How are they going to respond to this?”
Carney is scheduled to talk about the Race to Zero at an event in New York later today, hosted by Michael R. Bloomberg, a co-chair of GFANZ and the founder and majority owner of Bloomberg News parent Bloomberg LP.