On Finance Day at COP, former Governor of the Bank of England Mark Carney announced that financial institutions with a combined USD 130 trillion in assets have formed the Glasgow Financial Alliance on Net Zero (GFANZ). The 450 members also signed up to be net zero by 2050.
The size of the ‘commitment’ and some creative wordsmithing from finance leaders have caught media attention. For example, the FT ran with “Carney-led finance coalition has up to $130tn funding”. Reuters said the alliance had all USD 130 trillion “at their disposal”, while the UK government reported that all the monies “will now be aligned with the climate goals of the Paris agreement”. However, the number refers to total assets under management, not actual funds committed. Nor are their assets in line with either a net-zero trajectory or the Paris Agreement.
Not all journalists were drawn in. The FT economics editor explained simply why the USD 130 trillion figure doesn’t really equal climate finance. He wasn’t alone – campaigners at Reclaim Finance pointed out there are no rules in GFANZ to end or reduce fossil fuel financing – the key to actually being Paris-aligned. Meanwhile, economist Daniela Gabor gave a really good overview of what the finance sector could have done to show it’s getting serious on climate, and why the focus on voluntary measures and exaggerated numbers are unhelpful.
What they all understood was this: The numbers don’t add up. Estimates of actual private climate finance were USD 340 billion last year – just 1/380th, or 0.3%, of the USD 130 trillion. The assumption that every asset under management will be committed to climate finance even runs counter to the language of the initiative itself, which allows banks and fund managers to pick only some of their assets to be aligned with net zero. For instance, the progress report of the Net Zero Asset Managers (NZAM) initiative – a member group of GFANZ – shows that only a third of their assets are currently covered by a net-zero pledge.
“There are two problems with GFANZ’s numbers,” says Jeanne Martin at ShareAction. “Firstly, the USD 130 trillion figure is simply wrong. It counts the total financial assets of all the members of the various GFANZ groups and adds them up to USD 130 trillion. It’s true that these financial institutions have all committed to reach net zero, but dig into the numbers and you see that they are not making this commitment for all of their assets. On average, NZAM members have committed just 35% of their assets to net zero. For some members, the figure is as low as 1%.” [Full report is here]
GFANZ members are in fact heavily invested in fossil fuels. Just 12 of the 93 member banks poured USD 360 billion into fossil-fuel financing last year – more than all of private climate finance combined. The top 60 member banks financed USD 750 billion worth of fossil fuel projects – double all private climate finance. They’ve been doing this for the last five years (on average). Are we expected to believe that all this financing will stop overnight? Indeed none of the commitments from GFANZ signatories today mentioned a plan to divest from fossil fuel assets.
The reality is private climate finance remains sluggish and far from the level that global net-zero needs. It has grown by USD 73 billion in the last five years, slower than public climate finance, which has grown by over USD 90 billion. To reach an annual level commensurate with net-zero, private climate finance needs to grow fifteen times. The record of the finance industry in recent years suggests that it won’t.
For more information, please take a look at the following sources:
- Estimate of current private climate finance (USD 340 billion): Page 69. Estimate of private finance growth since 2015 (73 bn USD): page 175.
- Estimate of investment by top 12 fossil fuel investing banks (USD 360 billion), and top 60 fossil fuel investing banks (750 bn USD): page 48.
- Estimate of annual finance needs for NZ: pages 81 and 82.