Members of the Glasgow Financial Alliance for Net Zero (GFANZ) that are headquartered in or have substantial operations in the UK will be called on to make public statements regarding their fossil fuel policies by parliamentarians.
The ask is part of a new inquiry by the Environmental Audit Committee (EAC), a cross-party group of 16 MPs considering the financial sector and the UK’s net-zero transition.
Launched last April, GFANZ requires member organisations – which number more than 450 – to commit to achieve net zero by 2050. It serves as the umbrella organization for the Net Zero Asset Managers Initiative, Net Zero Asset Owner Alliance, and Net Zero Banking Alliance, among others.
In a statement, the EAC said: “Given the global reach and total assets covered by GFANZ initiatives, and the potentially pivotal role of UK financial institutions in supporting reductions in fossil fuel extraction, EAC considers such initiatives as crucial in determining whether the UK government’s carbon budgets and its net-zero target are likely to be met.”
It continued: “However, despite the significant role of fossil fuels in contributing to carbon emissions globally, few nation states, nor financial institutions, are yet to make explicit commitments rapidly to phase out fossil fuels, or to be transparent regarding their exposure to fossil fuel investments.”
As well as statements on their fossil fuel policies, UK signatories to GFANZ will be asked by the committee to detail their policies on investment in renewable energy technologies and whether current geopolitical events impact their view on the International Energy Agency’s May 2021 conclusion that achieving net zero by 2050 means no new investment in fossil fuel initiatives.
The committee plans to publish all responses for scrutiny, with a view to enabling the assessment of claims made by institutions against their observable practice, particularly in the run-up to COP27 in Sharm-el-Sheikh, Egypt, in November.
“The exercise will illustrate how those elements of the private finance sector which have subscribed to net-zero declarations intend to phase out fossil fuel investments and support investment in renewable energy technologies as part of a net-zero strategy,” the EAC said.
Responding to the news on Twitter, former Bank of England governor and GFANZ founder Mark Carney wrote: “Welcome the @CommonsEAC timely review of the transition of the financial system to net zero. #GFANZ will begin consulting on frameworks to underpin the financial sector transition. Looking fwd to engaging w/ the Committee to ensure the entire financial system plays its part.”
James Corah, head of sustainability at CCLA – a signatory to the Net Zero Asset Managers Initiative – told Responsible Investor: “As a sector, our actions can be a significant catalyst for change, and it is right that we are collectively held to account on our effectiveness in accelerating the transition to a net-zero economy.
“For this reason, we support the Environmental Audit Committee’s inquiry into GFANZ members’ activities and hope that, in time, this will lead to a political and regulatory landscape that can further incentivise the flow of capital to where it is most needed.”
James Alexander, chief executive of UKSIF, also welcomed the initiative. “It is a really good opportunity for those that are leading to demonstrate what they’re doing and showcase the ways that financial services are having a really big impact,” he told RI.
“And at the same time, it can make sure that we build public confidence and showcase that when we say that we’re doing things, we can demonstrate the action that we’ve taken. This is important, because we talk about the role the financial sector can play in this transition and we’ve got to live up to that.”
As well as writing to GFANZ members, the committee is also inviting “anyone with views on the role of private finance in decarbonising the economy” to provide written submissions addressing several issues. These include corporate approaches to the financing of existing and planned fossil fuel projects, the potential effectiveness of the financial sector – including through alliances such as GFANZ – in encouraging the decarbonisation of the economy in time to limit global temperature rises to 1.5C; likely pathways to the responsible retirement of fossil fuel assets, in a way which is compatible with the UK’s national interest; reducing the risk of stranded assets and meeting the UK’s international climate obligations.
The deadline for submissions is 30 June.
Regarding next steps, a spokesperson for the committee told RI: “At some point2, public oral evidence sessions will begin. Often – but not always – this starts before the closure of submissions in written form, but I am unsure of timings right now. Some weeks/months after these sessions close – depending on the scope of the inquiry – a report will be published, again, publicly.”