Carney-led GFANZ under pressure to dispel greenwashing concerns
A giant Earth looms over a meeting hall at the United Nations' COP26 climate change conference in Glasgow, Scotland, on Nov. 2. The financial sector has been playing a growing role in the global push to decarbonize. © Reuters
KYOHEI SUGA,
KYOHEI SUGA,
Nikkei staff writer
November 8, 2021
TOKYO -- Banks, insurers, asset managers and others worldwide have committed more than $100 trillion in private capital to achieving net-zero greenhouse gas emissions over the next three decades as the financial sector takes a leading role in advancing technological and societal shifts.
More than 450 companies and other organizations now aim for net-zero emissions across their portfolios by 2050, according to the Glasgow Financial Alliance for Net Zero. GFANZ was launched in April by former Bank of England Gov. Mark Carney, the United Nations special envoy for climate action and finance.
The framework so far has served mainly to demonstrate a commitment to net zero, an executive at an asset manager said. But with members now responsible for more than $130 trillion in global financial assets -- almost doubling compared with the start -- they face growing pressure to turn talk into action.
Overall, GFANZ holds roughly 40% of the world's global financial assets. Members include some of the world's biggest financial companies, such as Bank of America, BNP Paribas, Citi, HSBC, Morgan Stanley and UBS. Eighteen Japanese institutions have also signed up, including the three megabanks -- Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group -- as well as Nippon Life Insurance and Nomura Asset Management.
Moving forward, members will work toward such goals as reducing emissions by around 50% over 10 years, updating environmental targets every five years and disclosing progress annually. This is expected to put greater pressure on businesses that receive financing or investment from these institutions to disclose their own emissions and reduction plans.
About 30 asset managers that have been with GFANZ from the beginning had already set new interim targets through 2030 as of mid-October. Japan's Asset Management One said it will dedicate more than half of its portfolio to companies that either have or plan to achieve net-zero emissions. It will consider divesting from companies that refuse climate-related engagement.
The International Energy Agency has estimated that the world needs around $70 trillion in investment by 2040 to meet climate targets set by the Paris Agreement. GFANZ assets could provide a major boost.
But whether members of the coalition can truly achieve net-zero emissions across their portfolios by 2050 remains unclear.
Unlike asset managers, which can reallocate money in their portfolios based on what environmentally minded asset owners want, banks will need to engage in careful dialogue to persuade borrowers to accelerate decarbonization efforts.
"We can't take actions that are too disruptive, like just pulling financing from companies," an executive at a Japanese megabank said. Banks account for $66 trillion, or about half, of GFANZ assets.
A quicker transition to net zero will curb climate-related risks. But if financial institutions turn up the pressure too fast, more businesses could give up on decarbonization altogether. "It is extremely difficult to find the right balance," MUFG President and CEO Hironori Kamezawa said.
GFANZ has also faced criticism from the nonprofit sector. In an open letter this October, 90-plus groups raised concerns that "banks and other financial institutions are using 'Net Zero' promises largely as greenwash."
"In fact, many financial institutions, since becoming members of GFANZ, have issued new financing to companies expanding fossil fuel infrastructure," the letter said.
"Financial institutions are playing a greater role in decarbonization," said Takahide Kiuchi, executive economist at the Nomura Research Institute. "These institutions will need to take measures to increase transparency if distrust persists."
TOKYO -- Banks, insurers, asset managers and others worldwide have committed more than $100 trillion in private capital to achieving net-zero greenhouse gas emissions over the next three decades as the financial sector takes a leading role in advancing technological and societal shifts.
More than 450 companies and other organizations now aim for net-zero emissions across their portfolios by 2050, according to the Glasgow Financial Alliance for Net Zero. GFANZ was launched in April by former Bank of England Gov. Mark Carney, the United Nations special envoy for climate action and finance.
The framework so far has served mainly to demonstrate a commitment to net zero, an executive at an asset manager said. But with members now responsible for more than $130 trillion in global financial assets -- almost doubling compared with the start -- they face growing pressure to turn talk into action.
Overall, GFANZ holds roughly 40% of the world's global financial assets. Members include some of the world's biggest financial companies, such as Bank of America, BNP Paribas, Citi, HSBC, Morgan Stanley and UBS. Eighteen Japanese institutions have also signed up, including the three megabanks -- Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group -- as well as Nippon Life Insurance and Nomura Asset Management.
Moving forward, members will work toward such goals as reducing emissions by around 50% over 10 years, updating environmental targets every five years and disclosing progress annually. This is expected to put greater pressure on businesses that receive financing or investment from these institutions to disclose their own emissions and reduction plans.
About 30 asset managers that have been with GFANZ from the beginning had already set new interim targets through 2030 as of mid-October. Japan's Asset Management One said it will dedicate more than half of its portfolio to companies that either have or plan to achieve net-zero emissions. It will consider divesting from companies that refuse climate-related engagement.
The International Energy Agency has estimated that the world needs around $70 trillion in investment by 2040 to meet climate targets set by the Paris Agreement. GFANZ assets could provide a major boost.
But whether members of the coalition can truly achieve net-zero emissions across their portfolios by 2050 remains unclear.
Unlike asset managers, which can reallocate money in their portfolios based on what environmentally minded asset owners want, banks will need to engage in careful dialogue to persuade borrowers to accelerate decarbonization efforts.
"We can't take actions that are too disruptive, like just pulling financing from companies," an executive at a Japanese megabank said. Banks account for $66 trillion, or about half, of GFANZ assets.
A quicker transition to net zero will curb climate-related risks. But if financial institutions turn up the pressure too fast, more businesses could give up on decarbonization altogether. "It is extremely difficult to find the right balance," MUFG President and CEO Hironori Kamezawa said.
GFANZ has also faced criticism from the nonprofit sector. In an open letter this October, 90-plus groups raised concerns that "banks and other financial institutions are using 'Net Zero' promises largely as greenwash."
"In fact, many financial institutions, since becoming members of GFANZ, have issued new financing to companies expanding fossil fuel infrastructure," the letter said.
"Financial institutions are playing a greater role in decarbonization," said Takahide Kiuchi, executive economist at the Nomura Research Institute. "These institutions will need to take measures to increase transparency if distrust persists."
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