Gfanz drops its Race to Zero requirements

Hello from New York, where we’ve just wrapped up the third and final conference in this year’s Moral Money Summit series. It featured some really stimulating insights from speakers ranging from UN Development Programme head Achim Steiner to Meta’s chief diversity officer Maxine Williams, and from ex-BlackRock firebrand Tariq Fancy to US climate envoy John Kerry (see Patrick’s take on that session below).

If you missed it, don’t panic — you can sign up here to watch all the sessions on catch-up. And we’re already gearing up for next year’s conferences in London, Singapore and New York, where we’ll look forward to catching up with many more readers in person.

Another compelling session at our conference this week was with Mark Carney, the vice-chair of Brookfield Asset Management and former governor of the Bank of England. Carney rejected the idea that his Glasgow Financial Alliance for Net Zero was in danger of dissolving, and highlighted its support for a new open data initiative that could shed light on the climate challenge – and put new pressure on companies to raise their game.

But as we explain below, Gfanz yesterday revealed a change in its membership rules — dropping a tight link to the UN-backed Race to Zero, which it had earlier brandished as a guarantee of rigorous standards.

Gfanz says that this reflects an evolution of its approach, as it moves to a “more technically oriented phase of work”. To Paddy McCully at the campaign group Reclaim Finance, it looks like the Gfanz leadership is “giving in” to Wall Street institutions who are loath to cut back on their fossil fuel business. What does it look like to you? Let us know at moralmoneyreply@ft.com. (Simon Mundy)

The marriage between Gfanz and Race to Zero is over

When we wrote in August about emerging differences between Gfanz, the corporate climate alliance spearheaded by Mark Carney, and Race to Zero, the UN-backed body that set its criteria, we received a firmly worded response from Gfanz.

“The Gfanz criteria is the Race to Zero criteria,” we were informed. “Members of Race to Zero deemed not to comply with the criteria will be removed from Race to Zero and thus Gfanz.”

The message was clear. As Carney had stressed since the inception of Gfanz — which has grown to more than 550 corporate members controlling $150tn in assets — this would not simply be a matter of companies coming together to write their own rules. Instead the conditions for membership would be set by an independent, UN-backed body that would ensure the initiative had credibility and rigorously high standards.

Yesterday, that message changed. In a progress report, Gfanz — co-chaired by Carney and billionaire entrepreneur Michael Bloomberg — emphasised that its sectoral alliances “are independent initiatives subject only to their individual governance structures”, with “sole responsibility” for changes to their membership criteria.

The document said nothing about compliance with Race to Zero guidelines as a condition of membership. Instead it said that the alliances would “take note of the advice and guidance” of Race to Zero as well as other bodies (it helpfully named eight examples). The accompanying press release didn’t mention Race to Zero at all.

When we asked for clarification, the shift was stark. “Gfanz member alliances are encouraged, but not required, to partner with the Race to Zero,” an official said. All the corporate alliances — which cover sectors including asset management, banking and insurance — are currently Race to Zero partners, because until yesterday they had no choice. But they are now free to junk the standards set by Race to Zero, without any automatic loss of the prestige that comes with Gfanz affiliation.

All this might seem arcane and hopelessly geeky to some readers. But it’s worth taking the time to consider the implications. Race to Zero members must seek to roughly halve the emissions they are responsible for by 2030, rather than simply relying on a goal to reach net zero by 2050. Among its other requirements are strict rules around carbon offsets, which can be bought by corporate or financial actors to justify investments in high-emitting assets.

When Carney launched Gfanz last year, the tight partnership with Race to Zero was a central part of the package. It was touted as an answer to those who worried that this grouping of wealthy financial executives might be tempted to soft-pedal on aggressive climate measures — and that the whole initiative could be an unhelpful distraction from the push for serious action by governments and legislatures.

“Gfanz is underpinned by the rigour of the UNFCCC’s [UN Framework Convention on Climate Change] Race to Zero,” Carney said in Glasgow last November — a sentence he considered so important that it was underlined in the official transcript of his speech. “To ensure credibility and consistency, access to Gfanz is grounded in the UN’s Race to Zero campaign,” said a Gfanz publication in the same month.

Since then, Gfanz has come under heavy public pressure — severe enough to make some wonder if it could fall apart entirely. Big US banks have threatened to quit, having been accused by Republican politicians of neglecting fiduciary duty for the sake of a “woke” agenda. Legal experts warned that the Race to Zero’s guidance against support for fossil fuel projects could fall foul of antitrust laws against co-ordinated action by companies.

One could argue that this is simply a pragmatic move to hold together a valuable corporate initiative – a “broad church” strategy of keeping a large number of giant institutions publicly committed to climate action. In its report and accompanying statements yesterday, Gfanz was adamant that standards will remain rigorous. Indeed, it said that it was strengthening its relationship with the UN, through the appointment of Simon Stiell — executive secretary of the UNFCCC — to its “principals group”, joining 20 financial sector leaders including BlackRock’s Larry Fink and Bank of America’s Brian Moynihan.

But there is no getting away from the fact that Gfanz — having repeatedly stressed its reliance on Race to Zero’s criteria as a key source of credibility — has now publicly shaken off that hand-in-glove relationship. We’ll now be watching how its members make use of the newfound flexibility. (Simon Mundy and Kenza Bryan)

Kerry calls on World Bank to rethink its triple-A rating

The World Bank has maintained a triple-A credit rating since 1959. But with trillions of dollars needed to fund the fight against global warming, it is time for the World Bank’s shareholders to rethink their dedication to that metric, John Kerry, the US special envoy on climate, told the Moral Money summit this week.

In an interview with Gillian, Kerry said he was in favour of expanding the lending capacity of multilateral development banks to get more money into the system “and frankly liberating those banks a little bit”.

“They are triple-A institutions today but they were not necessarily intended to be that,” he said. “We want them to take a little risk,” he said, adding that “we do have hope that the World Bank will pick up the pace” in funding the energy transition.

“We think a significant increase in concessionary funding could be created by virtue of being more creative in the application of the current rules,” Kerry said.

The World Bank, which says it is the largest multilateral financier for climate action in developing countries, in September announced that it financed a record $31.7bn this year to help nations combat global warming — up 19 per cent from the year before.

But Kerry said the Asian Development Bank and African Development Bank dedicated a “much higher percentage” of their portfolio to climate finance.

As Gillian pointed out in her latest column, the beauty of the World Bank’s financing should — in theory — be leverage. The multilateral development banks’ aid can potentially serve as the first-loss tranche for green investment projects, and subsequently attract additional private sector funds. This is crucial to diverting “the flood of money in green finance to the parched corners of the system that are currently ignored”, Gillian writes, noting that at present this potential was not being properly deployed.

As Kerry is certainly aware, the World Bank and other development funds are essential because countries’ climate commitments are woefully inadequate. The International Energy Agency warned yesterday that green investments must rise even faster — to $4tn annually by 2030 — if government net zero targets are to be met.

Simultaneously, the world is currently on track for a temperature rise of between 2.4C and 2.6C by 2100, the UN Environment Programme said on Thursday. “The emissions gap is a byproduct of a commitments gap,” UN secretary-general António Guterres said. “We are headed for a global catastrophe.”

Is a triple A rating worth anything if the world ends up in crisis because of climate change? The World Bank’s shareholders should seriously consider the case for faster action, as the cost of climate change is only going to get worse tomorrow. (Patrick Temple-West)

Smart read

The New York Times Magazine has published a climate issue ahead of COP27. In its cover story it offers a reason for hope: doom might not be inevitable.

“Thanks to astonishing declines in the price of renewables, a truly global political mobilisation, a clearer picture of the energy future and serious policy focus from world leaders, we have cut expected warming almost in half in just five years,” the magazine said.

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