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What GFANZ should have said

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By Tom Gosling, Harald Walkate

· 15 min read

We’ve been following the GFANZ turmoil with interest, as you all surely have as well. We won’t bore you with a lengthy analysis of what happened, what went wrong, and why, and how US banks can be persuaded to stay in. We don’t think you would read it.

Instead, on the eve of COP27, we wanted to offer some thoughts on what GFANZ should have said (or not said) a year ago, in place of the press release that was actually issued. Because perhaps the only way forward for GFANZ is to start all over again. And if it is too late for GFANZ, we hope future initiatives take note and don’t fall into the same traps GFANZ did.

We’ve had a bit of fun with this. Humour is a necessary palliative in difficult times. But that should not disguise our serious intent. The finance industry has an important role to play in supporting the transition. If GFANZ collapses that would be a significant loss in the battle against global warming. But at the moment it isn’t doing what it needs to do, and the contradictions and overstated claims of GFANZ are damaging credibility. We need a new way forward.

So here goes:

PRESS RELEASE – Finance industry steps up to contribute to climate action through new initiative

3 November 2021

Today, through the Glasgow Financial Alliance for Real-World Additional Action on Net Zero (GFARWAANZ), firms stewarding over $130 trillion of private capital are committed to helping transform the global economy for net zero. These commitments, from over 450 firms across 45 countries, will help the finance sector play its role in supporting governments as they seek to achieve net zero over the next three decades.

GFARWAANZ members will sign up to the following commitment statement.

GFARWAANZ commitment statement

My organization commits to help accelerate progress towards a net zero global economy to the extent and speed possible consistent with our fiduciary duty to clients.

We will do this by:

  1. Supporting governments
  2. Fulfilling our fiduciary duty
  3. Engaging with clients
  4. Prioritizing real-world action
  5. Active ownership and stewardship
  6. Mobilising additional capital
  7. Holding ourselves open for scrutiny

1. Supporting governments

First, we want to point out that nothing in this statement should be construed to mean that the finance sector has the primary responsibility to act on climate change – this responsibility lies squarely with the world’s governments who are, after all, the signatories of the Paris Agreement. Therefore, we will not make the mistake of only including a very brief reference to public policy as a get-out-of-jail-free card at the very end of a long list of bullet points at the bottom of this press release.

Instead, GFARWAANZ starts this long list of pledges by committing, first and foremost, to provide a forum for strategic coordination among the leadership of institutions from across the finance sector to facilitate conversations with government representatives in order to advocate for, and contribute to, evidence-based, sensible government policy that will actually deliver the energy transition. What will this look like?

  • We think most governments know what they need to do – climate and energy experts as well as engineers and economists seem to have formed a lot of consensus on this: carbon taxes, sector-specific policies and incentives, government-led innovation in new technologies that are too early stage for the private sector to take up, public-private partnerships to finance mitigation and resilience in the developing world. Surely government officials have taken note of this as well.
  • Nonetheless, only a tiny number of states appears to be on track to meet their Paris commitments. So … perhaps governments need help! Also, the finance sector might have relevant expertise, knowledge, resources or ideas that could be helpful to governments. So, we will provide access to the expertise, knowledge, resources and ideas so that governments can leverage all this in their policy-making.
  • We recognize that the private sector can hinder as well as help government with policy development. The problem of companies advocating their green credentials publicly while privately lobbying against the effective regulation we need is well known. Therefore, as GFARWAANZ signatories we commit to prioritizing alignment of lobbying activity to stated climate commitments both in our own firms and in the companies that we finance or invest in. We will produce guidance and voting policies to make this a reality.

2. Fulfilling fiduciary duty

In the finance sector, we generally don’t have any money of our own. Instead, we act as a fiduciary for the money of our clients. The last thing we want to do is to create the false expectation that we have huge amounts of capital ready and available to deploy to fight climate change.

Strange as this may sound to some, we actually believe that fiduciary duty is pretty important. It is not just a matter of law; it is a fundamental underpinning to a trust-based financial system. Therefore, we will always prioritise our fiduciary duty to clients. We cannot use our clients’ money to pursue our own or society’s objectives, however important we may think those objectives are, unless it is in clients’ financial interest or we have their permission to do so.

Therefore, we will not make the mistake of committing to achieve a societal goal, such as limiting global warming to 1.5°C with limited or no overshoot, that is neither within our control nor obviously the consensus objective of the societies in which we operate.

Our fiduciary duty as financial institutions means we have to acknowledge the possibility of a range different climate scenarios coming about. It’s not smart to pick one particular scenario – that is perhaps the most desired but also the least likely – and base our investment decisions on it. We might like to talk about “the inevitable policy response” but, let’s face it, unfortunately there’s nothing inevitable about it. This means that we will make qualitative scenario analysis our preferred climate-risk management tool and we will discuss publicly what we learn from these exercises.

3. Engaging with clients

The scientific consensus implies that getting to net zero mid-century so as to meet the Paris goal of limiting global warming to 2°C or less is both socially and economically desirable for the world as a whole. We recognize that many of our clients, and their beneficiaries, will share this view, and may even want the world to go further and faster, limiting warming to 1.5°C. They may even be prepared personally to accept lower returns to make this outcome more likely. But we can’t assume that without asking them. 

Therefore, we commit to making efforts to inform our clients about the implications of different (sustainable) investing strategies both on real-world climate outcomes and portfolio risk and returns so that they are able to make decisions that reflect their own balance of financial and non-financial interests. This will require us to bring greater range of expertise to our client discussions than we’ve done so far and likely requires building on techniques of deliberative democracy to ensure informed consent. This will enable us to construct products and client mandates so that they genuinely reflect clients’ interest AND genuinely accelerate the path to net zero.

4. Real-world action

GFARWAANZ will focus at all times on real-word progress towards a net zero global economy. A growing body of evidence shows that many ESG investing strategies have little if any real-world impact on the trajectory of carbon emissions. Therefore, we will focus our activities on things that are likely to work (active ownership, blended finance, policy engagement, venture finance) rather than things that are ineffective or unrealistic (divestment, portfolio footprinting, net zero plans for financial institutions, Paris-aligned portfolios).

We also commit to avoiding overblown claims about our impact, however good they may make us feel. We have to be modest about the role the finance sector can play in addressing a systemic issue like climate change. Also, research shows that clients are easily bamboozled into believing that products are ‘sustainable’ when in fact they have no real-world impact. It can even be tempting for financial institutions to charge more for those products, taking advantage of the warm glow they give to clients. Therefore, we commit to making sustainability claims for our products only when these can be backed up by credible evidence of real-world impact and we will not charge more for products that deep down we know have no such impact.

5. Active ownership and stewardship

There is some pretty good evidence that active ownership, including engagement, can be effective at producing change in the companies we finance. Nonetheless, we have to be honest that we can’t force companies to make changes to their operations that make no strategic and financial sense given current or future economic incentives and regulation. We won’t use our clients’ money to buy and mothball fossil fuel assets like some would have us do. Nor will we forgo profitable financing of investment opportunities unless our clients or owners are clear through fund choices or mandates that they want us to do so.

However, the concept of fiduciary duty allows a wide spectrum of reasonable approaches that boards of our investee companies can take to the question of climate change. At the simplest level, the gradual decarbonization of the economy and onwards march of government regulation creates real investment risks and opportunities for those companies. We will definitely take these risk and opportunity factors into account, whatever nonsense is thrown at us by ESG backlashers. But beyond this, companies can choose to be a leader or a follower of change, in both cases consistent with the legal duties of the board. Therefore, we commit to using active ownership with investee companies to encourage boards to take proper account of risks and opportunities created by climate change, but beyond that to lean into rather than against the decarbonisation trend.

6. Mobilising additional capital

GFARWAANZ members will work to mobilize the trillions of dollars necessary to build a global zero emissions economy and deliver the goals of the Paris Agreement. However, we have to remember that GFARWAANZ signatories manage money on behalf of third-party clients, and so while we hope the combined AuM in our initiative will end up being an awe-inspiring number, we want to avoid giving anyone the impression that GFARWAANZ signatories are free to allocate these assets to whatever cause they like, for example green technology, without asking clients. This would likely be at odds with our fiduciary duty and this might mean we end up having to withdraw from GFARWAANZ. This would result in a lot of negative publicity, which could end up being counterproductive for climate action, and for this initiative, which would not be good.

Instead, recognizing that if investments needed to achieve Paris goals would have offered attractive returns today they would have been made already, we will work tirelessly to collaborate with governments, development banks, foundations, philanthropists, energy experts, universities and entrepreneurs, AND clients, all so that suitable investment vehicles are developed that will ensure:

  1. we meet our respective investment requirements (and those of our clients) and do not run afoul of fiduciary duty;
  2. we invest in new technology development (e.g. for hydrogen, modular nuclear, carbon capture & storage, direct air capture, etc.) and in deploying at scale existing technologies such as wind & solar; and
  3. we don’t forget about emerging markets which is where all the heavy lifting is.

All so that:

  1. we make the uninvestable investable; and
  2. in other words, manage to actually live up to this earnest and ambitious pledge that is highlighted in bold above, that we could otherwise never make without being ridiculed.

Because blended finance will likely be our preferred tool for much of this mobilisation, and because that is complex and requires the involvement of financial and legal experts, we will make available the needed expertise; e.g. chief investment officers, emerging markets portfolio managers, investment bankers, financial engineers, risk managers, actuaries and lawyers. Because we recognize that this is not a question of participating in the occasional Zoom call, we will look into the possibility of making the necessary people and expertise available through medium and long-term secondments.

Because in this context the concept of “real-world additionality” (allowing things to happen in the real world that otherwise wouldn’t happen) is so crucial, yet poorly understood, we have decided to include it in the GFARWAANZ acronym. We have made it bold here, and underlined it, so that you can see we’re serious about this. And this way we hope it becomes embedded in our regular climate-related dialogue and it keeps us from committing to whatever sounds good without considering if it changes anything.

7. Holding ourselves open for scrutiny

As GFARWAANZ signatories we will set interim and long-term goals for our contribution to society reaching net zero to the extent and speed possible consistent with our fiduciary duty to clients. These goals will be explicit and measurable, reflecting our organisations’ role in the financial system, and will be consistent with the scientific consensus about what needs to happen for us to achieve net zero over time. These goals are supplemented by member-determined short-term targets and action plans. In the context of setting goals please note:

  1. Obviously we know that making our portfolios net zero (if we can even agree on what that means or how it is measured) doesn’t equate to making the global economy net zero. And, of course, only that – net zero global economy – can be our true aim.
  2. Indeed, we’ve come to the conclusion that ‘net zero’ is actually quite an unhelpful term when applied to portfolios and investments – because it allows us to avoid having to talk about the specifics of what we actually need to do to get there and instead focus on superficial techniques to create an illusion of carbon reductions. Some climate scientists have even called it a “dangerous trap”. So we reserve the right to at some point remove “NZ” from our acronym, and change it to, for example, Glasgow Financial Alliance for Real-World Additional Action and Effective Policy for Climate Change (GFARWAAEPCC). Clunky, we know! But we want to get it right.
  3. Nor are we going to create a false impression of accountability by tying ourselves to conditions set by external bodies such as Race to Zero because, as should be obvious to everyone, when their requirements conflict with what we see as our fiduciary duty to clients, our clients will win. Every time.
  4. If we do decide to talk about net zero or make net zero commitments, we will, as much as possible, be explicit about what we mean by that. Especially the additionality of these things and the role of carbon offsets in fulfilling such claims (which should generally be small as they frequently don’t stand up to scrutiny).

We will be held accountable on the above through transparent disclosures and will create governance mechanisms for input and deliberation amongst our signatories to ensure that we deliver on these earnest commitments, especially the ones in bold, in a way that is aligned with fiduciary duty, evidence-based, consequential and impactful.

We will invite climate scientists, economists, engineers, public policy experts and government representatives into these deliberations so that we can learn from them and adjust our focus and efforts as needed. This is because we will almost certainly get lots of stuff wrong and will need to change direction in order to fulfil our aim of being as supportive as possible of the transition to net zero.


Through these commitments, the finance industry shows that it stands ready to support governments in the fulfilment of the Paris goals to create a better future for us all. We have identified actions that we believe are consistent with our fiduciary duty to clients while having the greatest impact in supporting progress to net zero.

And in so doing, we have tried to design the initiative in a way that it lasts for more than a year.

Mark Carney, UN Special Envoy for Climate Action and Finance and COP26 Private Finance Advisor to PM Johnson said:

“We’re making a few tweaks to the architecture of the global financial system to make it more likely that we can achieve net zero. However, to be clear, we have not suddenly found down the back of the global sofa the $100 trillion of undeployed capital needed over the next three decades for a clean energy future. And so you will not hear me say that we have.”

“The rapid, and large-scale, increase in capital commitment required to make the transition to a 1.5°C world possible has not magically come into being as a result of this initiative. Indeed, the finance industry can only make a modest contribution to climate change, but through GFARWAANZ we’re going to fulfil this role authentically and to the best or our ability in support of government efforts world-wide.”

Rishi Sunak, Chancellor of the Exchequer said:

“I’m proud that under the UK’s leadership, the number of financial firms committed to Net Zero plans has tripled, with the assets now totalling $130 trillion. I recognise that this is not a terribly meaningful figure in the context of the transition finance needed to achieve net zero, which is something else altogether, but I’m encouraged that so many firms are willing to play a leading role in helping me, and other political leaders, to set sensible climate policy regulation that will enable the global economy to get to net zero.”

“In this context I’ve announced the modest step of requiring firms to publish their net zero transition plans. I recognise this won’t make that much difference by itself and that together we still need to find a way to provide the cash the world needs to stop catastrophic climate change. This will not be provided by the private sector alone, but requires the support of governments through blended finance and other mechanisms, which we’re working on with vigour. And should I ever become prime minister in some weird and implausible scenario, then I will not forget about any of the above, especially the last bit.”

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.

Photo credit: Press Release by Nick Youngson CC BY-SA 3.0 Alpha Stock Images

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About the authors

Tom Gosling is an Executive Fellow at London Business School and at the European Corporate Governance Institute. He has 20+ years of experience as a board adviser and is a leading independent authority on corporate governance and responsible business. He is a member of the Steering Committee of The Purposeful Company, and was previously a senior Partner at PwC.

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Harald Walkate is a founding partner of Route17, an independent blended finance advisory firm. He is also a Senior Fellow at the University of Zurich Center for Sustainable Finance and Private Wealth (CSP) and a member of the ESG Advisory Committee of the Financial Conduct Authority (UK). Previously he was the Head of ESG and member of the Executive Committee of Natixis Investment Managers, and the Global Head of Responsible Investment at Aegon Asset Management.

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