Net zero not our sole responsibility, say UK GFANZ members

Financial institutions should not be held solely accountable for delivering the UK’s climate targets, GFANZ members have argued in submissions to a parliamentary investigation.

The institutions were responding to an inquiry by the UK parliament’s Environmental Audit Committee (EAC) into the steps that UK financial institutions are taking to support national-level climate and environment targets.

The EAC had previously written to GFANZ members in 2022 to ask whether they were aligned to net-zero scenarios published by the International Energy Agency (IEA). It received responses from 39 financial institutions.

In an independent analysis of the responses sent to the EAC last week, Carbon Tracker said: “While many financial institutions claim to now vocally support the IEA’s net zero by 2050 scenario, a common theme which has emerged… is that these companies do not believe it is their role to independently drive the action needed to deliver this target.”

The think tank, which is acting as an adviser to the EAC inquiry, said the responses are in part symptomatic of a “policy incoherence” at government level.

“Mixed signals from government in recent years on climate policy have made it harder for investors to have long-term visibility and certainty on the direction of travel,” it said. “Questions over the UK government’s approach and plan to deliver its legally binding net-zero emissions by 2050 target have been raised consistently over the past year.”

Carbon Tracker cited the launch of a new licensing round for North Sea oil and gas exploration and the approval of a new coal mine at Whitehaven in Cumbria last year, which it said “will have done little to convince investors of policymakers’ intent to ensure net-zero delivery”.

It added that the responses to the EAC enquiry suggest that the UK government “has not yet put into place a strong framework for delivery to incentivise private sector action”.

In its submission, BlackRock said: “It is the role of governments, not industry bodies or investors, to set the targets that private sector actors should pursue. As a fiduciary, our engagement with companies focuses not on enforcing a particular temperature goal, but rather on how companies can generate long-term financial performance in the operating context of evolving climate policy and regulation.”

The US asset management giant cited the UK’s move to license new oil and gas projects as evidence “that continued investment in fossil fuel and energy-intensive sectors will be necessary”.

Similarly, Aviva said: “Investors do not have the ability to correct market failures – this is the role of government.”

Insight Investment requested that the government “provide further clarification on the role of financial regulators in facilitating the sector’s alignment with net zero”, while M&G said policymakers could consider developing “a wider definition of fiduciary responsibility” that accounts for climate change.

Elsewhere in its analysis, Carbon Tracker acknowledged that fears over energy security “has clearly made inroads with the financial community”, with a number of GFANZ members using the issue to justify their continued financing of fossil fuels.

This is despite the fact that the UK has already achieved “a high degree of energy independence”, said the think tank, with most of the country’s energy coming from renewable sources or from geopolitically stable trading partners such as Norway.

Carbon Tracker also noted out that GFANZ respondents which did not have exclusion policies explained their position by saying they are “financing the transition” and favour “engagement over exclusion”.

The analysis builds on an earlier high-level review by Carbon Tracker of the responses submitted to the EAC last year.

Richard Folland, Carbon Tracker’s policy engagement head, told Responsible Investor that the disconnect between the government’s move to license new fossil fuel projects was the “most egregious example” of a disconnect between its policies and public statements.

“This is cognitive dissonance, and it risks putting doubt in investor minds about the government’s overall commitment to the Paris goals,” he said. “That said, financial institutions can sometimes be disingenuous in putting the entire burden on policymakers.

“Our analysis showed that institutions are quite happy to talk publicly about what they doing to support green investment, but less so about what they are doing to diversify away from investing in fossil fuels.”

GFANZ has been contacted for comment.