- Gfanz aims to motivate more financial institutions to commit to net-zero results and help them in the transition towards this objective.
- The alliance members today number over 500 firms, all of which are part of seven “sector-specific net-zero alliances”.
- The umbrella group has been under intense scrutiny since the second half of 2022 when members filed complaints that claimed targets were unrealistic.
The Glasgow Financial Alliance for Net Zero (Gfanz) was first introduced in April 2021 at COP26, held in the Scottish city where the alliance gets its name. The aim is to potentially direct trillions of dollars to tackle the environmental crisis.
This collaborative effort was forged by UN climate envoy Mark Carney alongside the UN Race to Zero Campaign with the goal of accelerating the decarbonisation of the economy with the support of the finance and investment sectors.
But which financial institutions are included under the GFANZ umbrella?
What is Gfanz?
Gfanz is a global collaboration between financial institutions that have the same objective in mind: to help transition and accelerate the decarbonisation of the global economy in decarbonisation.
A group known as a Principals Group of business leaders from institutions like banks and the financial field are leading Gfanz, with co-chairs Mark Carney and Michael Bloomberg. The role of vice chair and head of the secretariat is covered by Mary Schapiro, former head of the US Securities and Exchange Commission.
Gfanz aims to offer support and resources such as guidelines and accountability mechanisms to members of the financial sector to make it easier to reach net-zero objectives.
Which groups and how many form the Gfanz umbrella?
Gfanz is only a “container” or umbrella for other groups. Today, the number of alliance members totals more than 500 firms (accounting for well over $130trn in assets), with each institution being part of one of seven “sector-specific net-zero alliances”, spread out in every department of the finance sector.
These may entail banks, asset owners and managers, service providers and investors. The mutual element among all these companies is the commitment to reaching net zero by 2050 as well as coming up with and achieving other environmental targets by 2030 to keep the progress stable.
The seven sector-specific alliances are:
- Net-zero Asset Owner Alliance (NZAOA)
- Net-zero Asset Managers Initiative (NZAM)
- Paris Aligned Asset Owners (PAAO)
- Net-zero Insurance Alliance (NZIA)
- Net Zero Financial Service Providers Alliance (NZFSPA)
- Net Zero Investment Consultants Initiative (NZICI)
- Net-zero Banking Alliance (NZBA)
Each individual member and sector-specific alliance is linked to the Race to Zero initiative, which involves governments setting a plan of action to respect net-zero emissions by a 2050 objective.
Gfanz’s role is to include the individual companies that form the umbrella alliances within this movement and to ensure industry collaboration.
What are the key objectives of Gfanz?
The Paris Agreement’s objective is to prevent global temperatures from rising beyond 1.5°C compared to pre-industrial levels. This is also part of the objective of Gfanz and the umbrella groups, which strive towards reaching net-zero emissions by 2050.
As Gfanz outlines, the main two goals set by the organisation are: to motivate more financial institutions to commit to net-zero results and help them in their transition towards this objective in the financial world and also to aid the institutions to develop appropriate and effective action.
The five core values of Gfanz and its institutions are: to broaden participation, raise ambition, coordinate action, support collaboration and showcase collective efforts.
In its own words, “Gfanz brings together independent, sector-specific alliances to tackle net-zero transition challenges and connects the financial community to the Race to Zero campaign, climate scientists and experts, and civil society.”
Why is Gfanz under pressure?
Gfanz has been under intense scrutiny since the latter half of 2022 when some banks and other financial institutions filed complaints that claimed the targets were unrealistic and had been proposed without consultation.
In addition, only two months later, Vanguard abruptly terminated its relationship with the Net Zero Asset Managers’ goals. February 2023 also saw some controversy, as the GLS Bank detached itself from the Net-Zero Banking Alliance (NZBA). The reasoning behind it is the continuous investments by NZBA members into fossil-fuel projects in Africa, as well as other members’ problematic approach to the environmental cause.
GLS Bank, based in Germany and founded in 1974, holds over 40% of global banking assets and similarly aims to reach total net-zero investments and emissions by 2050. It was one of the founding elements of NZBA too.
This put even more pressure on Gfanz as it showed the objectives are not progressing as they should. For instance, Barclays, a member of NZBA, recently announced it will “not provide financing to oil sands exploration and production companies or for the construction of new oil sands exploration, production and/or processing assets; or oil sands pipelines”.
Oil sands are made of water, sand, clay and bitumen, and are mostly found in Venezuela, the US and Russia. Most deposits are deep into the ground and call for invasive recovery methods like drilling, which disrupt the environment around them. Once the oil (bitumen) is extracted, it can be upgraded to heavy oil or further refined to make gasoline and diesel.
While Barclays agreed it would no longer finance the actual pipelines, however, there is less transparency on whether it will continue to financially support companies still involved in these activities. This has brought some disagreements, as Lucie Pinson, director of Paris-based think tank Reclaim France, accused the bank of greenwashing. According to Pinson, the decision showed “not a single major new commitment that would bring Barclays closer to meeting the climate imperative of actually limiting global warming to 1.5°C”.
After GLS Bank’s voluntary retirement from the project, Gfanz’s credibility is heavily compromised. Even if the organisation were to publicly address the issue and continue to hold members accountable to reach true net-zero results, NZBA would lose most of its contributors and could fall into greenwashing territory.
What happens if a member fails to commit to net zero?
At the end of 2022, Gfanz published a guideline for its Financial Institution Net-Zero Transition Planning, which also serves as an indication of how the alliance plans to keep everyone aligned with the objectives.
Though participation is voluntary, the Financial Institution Net-Zero Transition Plan is spread across four main points which are intended to motivate the seven alliances to reach net zero in the expected timeframe.
These are: scale investment in climate solutions, align every business model with science in order to reach net-zero emissions, give support to companies that are still in the process of finding their environmental path and support companies that have “credible” transition projects.
However, the organisation can’t do anything if a member fails to commit to net zero. Even if each member has to come up with a plan by 2030, there is no official requirement for members to actually reduce their carbon emissions before 2050. Although the requirements have changed and there are new policies on transparency, Gfanz and its guidelines do not have any near-term plans or commitments.
In addition, in October 2022 Gfanz communicated that the ties with the UN-backed Race to Zero campaign had been severed, which also meant changing the minimum requirement for participation. This is reported to be because the UN campaign’s requirements were very strict and put on the line the ability for bigger organisations to participate and meet the right objectives. Therefore, signing up for the Race to Zero campaign is not a requirement to join the Gfanz anymore.
Gfanz members are now “encouraged, but not required, to partner with the Race to Zero” campaign, but the collective organisation has made it clear that it still wishes to keep working alongside the UN.