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February 23, 2023updated 16 Mar 2023 11:22am

Gfanz: Why GLS Bank’s exit is a serious setback

The banking members of Gfanz have long proved troublesome. But the departure of Germany’s GLS Bank could lead it to insignificance.

By Adrian Murdoch

Gfanz, Mark Carney
Increasingly isolated? Mark Carney’s dream to unite all major financial institutions under a net-zero banner is under threat. (Photo by Christopher Furlong/Getty Images)
  • GLS Bank has walked out of the Net-Zero Banking Alliance because member banks persist in funding new oil and gas projects.
  • In December, HSBC said that it would no longer provide new lending or capital markets finance to new oil and gas projects.
  • Critics say that last week’s statement on oil and gas funding from Barclays doesn’t remotely go far enough.

For the past six months, the Glasgow Financial Alliance for Net Zero (Gfanz), has come under increasingly intense pressure.

The umbrella group for the seven net-zero initiatives for financial institutions was launched in April 2021 by UN climate envoy Mark Carney in collaboration with the UN Race to Zero Campaign. It faced its first controversy in October last year when banks complained that they had been set unrealistic targets without consultation. Then, in December, Vanguard Group (Vanguard) flounced out of its asset management arm, the Net Zero Asset Managers (NZAM) initiative, claiming it needed to speak with an “independent voice”.

At the beginning of February, the banking arm of Gfanz was shaken again. Germany-based GLS Bank, which has defined itself as an ethical bank since it was founded in 1974, walked out of the Net-Zero Banking Alliance (NZBA)

The last departure is significant for a number of reasons. Not just because the group currently represents more than 40% of global banking assets, which are committed to aligning their lending and investment portfolios with net-zero emissions by 2050, or because GLS Bank was a founding member of the NZBA. Instead, what has caused disquiet is the bank’s rationale for leaving.

It has made no public statement but told Bloomberg that it was fed up that NZBA member banks continue to finance new fossil-fuel infrastructure projects in Africa and that a significant proportion of NZBA members continue to lack an appropriate approach to their own climate and environmental impact.

ESG LaLa Land

Banks have struggled with their net-zero ambitions. They have done pretty much all they can to avoid giving up fat oil industry fees.

But GLS Bank has had enough. Ralph Thurm, co-founder of Berlin-based not-for-profit platform r3.0 and who has worked with GLS Bank for years, said that the bank’s departure was “not an anomaly”, rather a desire to “insulate themselves from the Net Zero Blah Blah of ESG LaLa Land”.  

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While the previous complaint was a collective moan from the banks having been given tough standards to reach, this is different. GLS Bank is complaining that its fellow banks aren’t even trying to get there.

It is true that movement from the banking sector has been achingly slow. In December 2022, HSBC – Europe’s largest financer of new oil and gas projects between 2016 and 2021 [see chart] – became the latest and largest global bank to announce that it would no longer provide “new lending or capital markets finance for the specific purpose of projects pertaining to new oil and gas fields and related infrastructure when the primary use is in conjunction with new fields”.

But with Gfanz bringing about little change by itself – certainly indicated by the GLS Bank departure – pressure for change in the banking industry is coming from activists. Their attention has now turned to the next five largest major oil and gas funders.

At the beginning of February, London-based lobbyist ShareAction wrote to Barclays, BNP Paribas, Crédit Agricole, Société Générale and Deutsche Bank asking them to stop directly financing oil and gas expansion projects by the end of this year.

Jeanne Martin, head of banking programme at ShareAction, said that it was a “wakeup call” to banks that have made net-zero commitments. The pressure group had corralled a group of 27 investors which include Nest, LGPS Central, and Brunel Pension Partnership representing over $1.4trn in assets under management.

“Stopping direct financing of new oil and gas fields in breach of IEA (International Energy Agency) recommendations is an absolute minimum to expect from banks that proclaim to have a green profile,” said Anders Schelde, chief investment officer of Danish public pension fund AkademikerPension (AUM $23bn).

Weasel words?

At first glance, the pressure appears to be working. Last week [15 February], Barclays, a member of the NZBA, committed to new restrictions on funding oil from oil sands. Also known as tar sands, they are a mixture of sand, water, clay and bitumen.

The bank said that, from July, it would not directly finance new oil sands exploration, production, or processing and would restrict finance to companies that generate more than 10% of their revenues from these activities.

Barclays also said it would not directly finance new oil sands pipelines but could still finance companies that own and operate such pipelines. It declared in its 2022 annual report that it would “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.”

A caveat, however, commits the bank to provide transition funding. “We will only provide financing to oil sands exploration and production clients who have projects to reduce materially their overall emissions intensity, and a plan for the company as a whole to have lower emissions intensity than the level of the median global oil producer by the end of the decade.”

This has not been received well. Lucie Pinson, director and founder of Paris-based think-tank Reclaim Finance, called Barclays’ statement a “missed opportunity” and dismissed it as greenwashing.

The statement contained “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”, she said.

Although Barclays has said that it intends to set 2030 targets to reduce its financed emissions across four of the highest-emitting sectors in its portfolio – energy, power, cement and steel – by 2024 along the lines of Gfanz, it clearly hasn’t done so yet.

“Disappointingly, despite not having published a new oil and gas policy for the last three years, the bank’s fracking policy remains unchanged and there is no mention of new oil and gas. This means Barclays continues to be out of step with current minimum standards of ambition within the industry,” said ShareAction’s Martin.

In this light, the shot across the bows from GLS Bank is hard to ignore if the NZBA wants to avoid being known as a greenwashing club.

Neither Gfanz or NZBA has made any comment GLS Bank’s departure, but it needs to engage with the issue, publicly or otherwise. If it maintains business as usual, then the remaining credibility it has will look increasingly shaky, but if it tries to hold its members to genuine net zero standards, then NZBA will only end up with a handful of members.

It will be a difficult call to make, but Gfanz's future rests upon it.

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