The Glasgow Financial Alliance for Net Zero (GFANZ) ‘quiet quits’ the United Nation’s Race to Zero Campaign, following discussions about the risks of breaching antitrust law and resistance against some of its fossil fuel phase-out criteria. Even though this decision is disappointing, the GFANZ alliances remain partners of the Race to Zero and the objective to reach net zero by 2050 still requires financial institutions to adopt science-based transition plans with measures to support the phase-out of the coal, oil and gas industry, starting with an end to all support for fossil fuel expansion.

The GFANZ has released yesterday its second annual Progress Report (1). The GFANZ’s first Progress Report, issued last November, stated clearly that “all GFANZ members must align with the Race to Zero criteria”, but today’s report has no mention of any requirements for its members related to the United Nation’s (UN) campaign. The report simply lists Race to Zero along with the United Nations Framework Convention on Climate Change (UNFCCC), Intergovernmental Panel on Climate Change (IPCC), International Energy Agencey (IEA), the UN High-Level Expert Group on Net Zero and others, as bodies that GFANZ “will continue to engage regularly with.”

While not mentioning directly any change in the status of GFANZ’s relationship with the Race to Zero, the report is notable for carrying a legal disclaimer and repeatedly stressing that all its guidance is voluntary and that each of its seven sectoral alliances “are independent initiatives subject only to their individual governance structures.” Any mention of the change to the Race to Zero’s status is notably absent from GFANZ press release (2) on its new Progress Report.

The Progress Report does however state that the sectoral alliances (including the Net Zero Asset-Owner Alliance (NZAOA), Net Zero Asset Managers Initiative (NZIA), Net Zero Banking Alliance (NZBA), and Net Zero Insurance Alliance (NZIA)) are themselves partners of the Race to Zero, which requires them to commit to a “fair share” of the 50% cut in global CO2 emissions that the IPCC says is needed by 2030 for global warming to stay under 1.5°C (3) and to end their support for fossil fuel expansion.

Paddy McCully, Senior Analyst at Reclaim Finance says : “It is disappointing that GFANZ is quiet quitting the Race to Zero. Clearly they are giving in to their Wall Street members who have been reported as threatening to quit the alliance if they are expected to actually pull back on their finance for fossil fuels. But as the individual alliances within GFANZ are still Race to Zero partners, these alliances and their bank, investor and insurer members are still supposed to follow the Race to Zero criteria. And in reality, regardless if any “net-zero” or “1.5-aligned” alliance or financial institution commits to following the Race to Zero criteria, the credibility of its climate policies will continue to be judged against these criteria, and in particular on their continued financing for companies expanding the supply of fossil fuels. Banks and investors cannot wish away the terrifying math of the global 1.5°C carbon budget which has zero room for any new coal mines or oil and gas fields.”

Adele Shraiman, Campaign Representative with the Sierra Club’s Fossil-Free Finance campaign, called on GFANZ to ensure its members stay committed to credible, robust, science-aligned policies on net zero: "The updated Race to Zero criteria affirmed what has been obvious for years: in order for banks' net-zero commitments to be credible, they must explicitly commit to phase out financing for new fossil fuels. Now, GFANZ and its associated alliances, including NZBA, must decide how to guide some of the world’s largest banks toward the credible, robust, and science-aligned policies that are necessary for meeting the climate goals they have committed to. Without explicit commitments to phase out financing for fossil fuel expansion, financial institutions will not be aligned with what leading climate scientists and energy experts tell us will be necessary to keep global temperature rise below 1.5C. If the various alliances in GFANZ want to maintain credibility and enforce robust standards on their membership, their guidance must reflect this reality. What's most important is for banks and other financial firms to actually meet their own net-zero commitments, and for global alliances like GFANZ to uphold high standards for its members. Whether NZBA holds its members accountable via its own governance or via Race to Zero’s criteria isn't what matters most — the strength of banks' commitments, and their plans to meet those commitments, is."

Ultimately, global alliances and initiatives like GFANZ and Race to Zero are just a means to an end. What’s most important is the outcome: getting the financial sector to make strong commitments, and actually have credible plans to follow through on those commitments. Moving forward, GFANZ and its associated alliances face the challenge of upholding robust, credible, science-backed guidance, without alienating its members or diluting the impact.

Jeanne Martin, Head of Banking Programme at ShareAction said: "We are extremely concerned by the Glasgow Financial Alliance for Net-Zero’s decision to drop the UN-backed Race to Zero’s science-based guidelines. This comes at a crunch point for the planet – the IEA and UN agencies are calling for an immediate, rapid decline in fossil fuel supply and consumption to have any chance of preventing the worst impacts of climate change. Financial institutions have a vital role to play in powering our transition to a low carbon world, and we urge the sub-alliances and members to live up to their responsibilities to support the phasing out of fossil fuels in line with a 1.5C aligned pathway. It’s clearer than ever that voluntary initiatives alone aren’t enough to drive the urgent action needed to secure a liveable future. Governments should step up with tougher regulation of financial institutions that continue to fund fossil fuel expansion.”

Johan Frijns, Executive Director of BankTrack says: ''GFANZ cutting ties with the UN-backed Race to Zero campaign is yet another example of how financial institutions always seem more keen on appearing to act on climate change rather than actually doing so. There is a limit to the credibility of 'voluntary initiatives that leave it to their voluntary members to volunteer what to do' no matter how many volunteers they have managed to bring 'into the tent' with extremely lenient entry requirements. Today's announcement that GFANZ will go it alone, a week before COP 27, leaves its credibility hopelessly shattered. It is high time for governments to finally step in and regulate the financial industry to comply with the Paris climate goals.''

This posting is a combination of press releases from partners and BankTrack. Read the original press release of Reclaim Finance here, of Sierra Club here, of Shareaction here.

Notes:

1. GFANZ, 2022 Progress Report, October 2022.
2. GFANZ, GFANZ Reveals Year of Membership Growth and Implementation in Annual Progress Report, Expands Leadership with New Principal Group Members, October 2022.
3. IPCC, Sixth Assessment Report, 2021