Carney: Grasp of financed emissions will soon be ‘table stakes’ for FIs

Mark Carney, the UN special envoy on climate action and finance, has said a good grasp of financed emissions will be “table stakes” for financial institutions in the next two to three years.

In a recorded interview, Eric Usher, head of the United Nations Environment Programme Finance Initiative (UNEP FI), asked the former governor of the Bank of England about reasonable near-term expectations for members of the alliances that make up the Glasgow Financial Alliance for Net Zero (GFANZ). Carney co-founded GFANZ in 2021. 

“The first is to know your emissions,” Carney said. “Know your financed emissions, including – as much as possible and certainly where material – a good estimate of the Scope 3 emissions that portfolio companies have.” This, he added, was “obviously table stakes”. 

GFANZ, which has several sub-alliances covering insurance, banking and asset management, brings together more than 500 finance firms managing some $135 trillion in assets. 

Another near-term expectation outlined by Carney was that GFANZ members should be able to provide a breakdown of their financing in terms of proportion of assets categorised as 1) enabling net zero, 2) full aligned with net zero, 3) aligning and 4) those that “are going to be wound down or phased out consistent with Paris”. 

He added that they should have a “view of where you think you’re going to be two years from now, two years from then, five years from then on … and, of course, to get there, you need an engagement strategy, you need to be working with the portfolio companies, and maybe you’re going to need to make some tough decisions down the road in terms of who you stick with and who you don’t.” 

A lesson he said he took from his efforts in driving the creation of corporate climate disclosure framework TCFD was that voluntary efforts can only go so far.  

“Ultimately, to have universal coverage, to have consistency, credibility, you really do need to move to mandatory requirements,” Carney said. He also warned that this would require a balance between not moving too soon while still responding to the imperative of the climate crisis. Acting too soon, Carney said, would potentially mean missing an opportunity to “get some of the kinks out and have some of the learnings from actionable application”.

On how GFANZ can pull together the work of the different alliances that sit under it, Carney said the alliance is currently working on a common framework to provide guidance for financial institutions on net-zero transition plans, which it was hoping to finalise for COP27. 

He told Usher: “Something that is absolutely necessary for the transition is a framework for the transparent, responsible phasing out of high-emission assets or … ultimately stranded assets.”  

Last month, the Financial Times reported that some of the largest US banks were threatening to leave the Net-Zero Banking Alliance over fears that they could be exposing themselves to legal risks as a result of decarbonisation requirements imposed upon them by membership. 

They were reported to have felt blindsided by updates introduced in June by Race to Zero, the umbrella UN body for climate initiatives including GFANZ, which would require them to establish fossil fuel phase-out policies within a year or face expulsion from UN-backed net-zero bodies.  

On Friday, Bloomberg reported that GFANZ had clarified that, while it and its sub-alliances are affiliated with the Race to Zero, they all have their own governance structures and are “responsible for managing accountability of their members” and “any updates to the nature of their commitments rest with the alliances”. 

Writing on Twitter, Ben Caldecott, director of the sustainable finance group at Oxford University’s Smith School, said: “It seems likely that GFANZ’s finance alliances will break with (or be ejected from) UN’s Race to Zero, though probably in slow motion. Getting GFANZ to lock itself to evolving R2Z criteria originally was a redline for ⁦COP26 hosts. Less leverage now.” 

Caldecott, who also serves as co-head of the UK government’s Transition Plan Taskforce, added: “The COP26 presidency had significant leverage, namely that if it wasn’t happy with the robustness and integrity of GFANZ, then it wouldn’t allow it to be linked to COP26 in Glasgow and thus benefit from the association.” 

Since last year, however, nothing has replaced that leverage and “critically, the gap between what GFANZ sub-sector alliances are willing to accept and what the R2Z criteria says has grown”, Caldecott said.  

Mark Carney was speaking at UNEP FI’s 2022 global roundtable, which started on Monday 10 October.