The judas moment Mark Carney faced with the leaders of certain global banks is a significant personal knockback. The Bloomberg article by Tom Metcalf, Alastair Marsh, and Natasha White which broke the news, was short. The real story is a little more detailed and confirms months of rumours and whispers circulating within policy circles of the sustainable finance industry of London and New York.
Pushback against Bloomberg
At the time of the announcement at COP26 - UN Climate Change Conference, I was a big fan of the Carney-led project. Over the last year, it is apparent that climate and carbon scientists have been battling with the capital markets side of Glasgow Financial Alliance for Net Zero (GFANZ). Behind the scenes, via the political lobby, the pushback from banks has been to water down the UN Environment Programme ‘race to zero’ requirements. Thus allowing the banking sector to keep coal in their portfolios and remain members of GFANZ. The August 2022 intervention of Carney, Mike Bloomberg and Mary Schapiro was ignored, and banks doubled down on changing the rules.
In a week of contrasts, U.N. secretary-general António Guterres called on the governments of “all developed economies to tax the windfall profits of fossil fuel companies” it appears the financial sector wants to retain the right to provide them fresh capital. If true, there is a significant credibility gap with the financial sector’s commitment and honest desire to fix the climate challenge. If you are serious about climate, you can’t be serious about making money out of coal.
The questions Carney and GFANZ need to answer.
Carney has undoubtedly been sold a kipper. Yet, I believe he has integrity and needs to be supported. What is revealing is how he was hung out to dry by certain sections of 450 global banks representing $139tn of assets which make up the GFANZ consortium. It sets up the questions which need to be asked first of Carney, then of the banking consortium and goes to the credibility of the whole project.
- Should GFANZ be considered a serious solution for solving climate change?
- Who asked or influenced the U.N. to roll back its race for zero and GFANZ membership and target plans, which include a requirement to stop funding coal?
- What tangible evidence can the GFANZ consortium provide demonstrating the reallocation of capital?
- Should we continue to engage with GFANZ and its consultations, or is it just a playbook to delay the climate transition?
Another knock to the integrity of the financial system
2022 has been another bad year for the credibility of the banking industry in the climate space. While some genuine teams and professionals are trying to do good and can be trusted, there are not enough of them. The sector continues to be in the theoretical mode, with promising headlines, while climate requires action. The lack of movement is evidenced by the paltry level of actual climate disclosure any member of GFANZ has publicly made.
The veil has lifted
Tariq Fancy and Stuart Kirk dared to step out of the machine and call out the evident failings. Desiree Fixler went further with the DWS Group greenwashing revelations to lift the veil on the sector’s cognitive barriers. These are significant moments from people I believe will be recognised as contributing more than many of their former colleagues in addressing the capital markets approach to climate change. They can not be ignored as they were inside key institutions. They took on financial loss, personal pressure and professional discomfort to provide greater insight into how the investment and banking communities address climate.
The banking sector has failed with basic assurance
Academics like Daniel Cash, Julian Kölbel Florian Berg and others have long challenged the utility of ESG ratings for having any connection to climate science or impact. The industry has remained silent over the practice of ESG rating agencies. It is widely understood within sustainable finance that ESG ratings are a fallacy. These illusionary reports will never deliver the double dividend of capital and reducing climate impact. They enable market gaming and ‘greenwashing’. Yet ESG ratings remain the primary tool (access point to capital) that GFANZ banks use to construct ‘ESG’ capital transactions, funds and sell ‘green bonds’ to their clients. On the plus side, there have been some “greenwashing raids” and litigation cases by regulators on certain financial institutions. Still, the collective silence from GFANZ members on these crucial issues remains dense.
It’s a capital, not a legal decision.
Most people know the next part, but it’s essential for the record. The excuse of ‘concerns around’ legal issues is a diversion and an insult to the informed. The bank’s calculations are based on the cost of ‘stranded assets and the loss of capital returns from coal. If the sector is to achieve any of the GFANZ net zero or U.N Race to Zero goals, the industry needs to wean itself off the current boom of fossil fuel extraction. High inflation, the energy crisis, increasing interest rates and a falling stock market are straight-line profit decisions. Put simply; there is more profit and less risk in fossil fuels than in climate transition. Capital decisions and outcomes have again trumped climate.
System change is too hard for the banking and finance sector
Since the launch of GFANZ at COP26 - UN Climate Change Conference, the planet has blown through seven of the nine planetary limits. We are at a higher than 50% chance of going past 1.5 C, and some analysts and scientists, including Pietro Peter Altermatt in a poignant post believe we already have (A fact, ecologically and economically more severe than any other, that received less media coverage than the GFANZ PR launch).
The GFANZ members have to leave money on the table
In the period since the hyperbolic announcement of COP 26, the banking consortium has realised the decarbonisation and system change of large companies and assets is tough. Their internal analysis demonstrates it is either:
a. unprofitable or impossible while maintaining current levels of capital return, or
b. their risk committees are too scared to shift capital allocation and invest in the more minor low-carbon innovations and companies that will drive the transition.
Either way, they must leave the capital on the table, hence the backpedalling and the lobbying to keep coal in their portfolios.
Problems from the start.
The reality is that from the start, GFANZ has been a utopian dream. If the objective was for banking CEOs to dominate the headlines and COP 26, it was a success. The PR machine and the hyperbole that has been polished indeed sounded sincere. Going through the details of the stated targets of GFANZ, there is a realisation that the project lacks credibility. There is little evidence that it is anchored on science-based metrics or ecological realities. The science-based methodology used to measure the GFANZ member's path to net zero remains an enigma. No gradual cap on the use of carbon credits, which enables banks to outsource carbon with no system change, has been published. The primary data sets that enable the GFANZ transition plans remain unclear.
Who is setting the GFANZ agenda?
I know some of the GFANZ team’s work and the banking side’s contributors. They know the science and capital markets. They get climate and understand the issues. These are talented, bright people, many of whom I trust. Which is why the cognitive and intellectual shadowboxing resplendent across all the GFANZ reports and consultation documents is puzzling. The documents lack anything new. Where is the obvious line comparison between capital input and climate reduction output?
No revelation, no purpose, no direction setting
At this stage in the game, the IPCC and climate scientists have identified the problem and the solution. The only job for GFANZ is to direct the capital. Unfortunately, the ‘insights’ provided by GFANZ offer no direction or agenda setting on this critical point. The most recent document on transition plans is nothing more than a rehash of TCFD or a reworking of the old circa 2010 output produced by the Carbon Trust in the U.K.
What’s the fundamental objective of GFANZ?
At this point, the supporters and signatories to GFANZ need to question the fundamental objectives and outcomes. With an army of consultants and a consortium of banks sitting on $132bn for decarbonisation, why are the output and ideas so mediocre? Are we doing coal or climate — because we can’t do both?
Is GFANZ part of a ‘misdirection’ playbook?
It has been suggested in some quarters that GFANZ is nothing more than an elaborate shop front, a climate delay mechanism and or what the Three Shades of Green (washing) report from Harvard University and the Algorithmic Transparency Institute have termed ‘misdirection’. (Misdirection’ is to focus the audience’s attention on engaging topics unrelated to companies’ core business operations)
Knowing some of the individuals and some of the better climate banks involved in GFANZ, I hope this is not true. However, given recent events, some might be correct in thinking the financial industry, and indeed the GFANZ advisors, have adopted the ‘tobacco, oil and gas playbook’ to distract, delay and dissuade.
Given its size, the reverence extended to the personalities, and the capital GFANZ can leverage to promote and market itself, the project will continue to gain headlines. The events in New York and Climate Week leave more questions to be answered and leave a significant credibility gap for all involved.
We’ll get there in the end.
This article is also published on the author's blog. Illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
Jonny Mulligan is the Founder of The Martello Advisory Capital and M&A Advisory. Our mission is to use science based metrics to direct capital to the innovative impact businesses and projects that will drive the transition to the low carbon, low climate impact economy.