Carney Vows ‘Hard Numbers’ as Big Finance Faces CO2 Reckoning
(Bloomberg) -- Mark Carney, the former central banker turned climate finance envoy, says the banking industry is about to deliver “hard numbers’’ to show it can wipe out its carbon footprint.
His grand project — to get big finance to commit to net-zero CO2 emissions by mid-century — has drawn in firms representing over $90 trillion, with more last-minute commitments expected to be unveiled at the COP26 climate summit in Glasgow this week.
Now, the challenge is to prove to the world that an industry that’s channeled trillions of dollars into fossil-fuel finance since the 2015 Paris accord can plausibly reform itself fast enough to avoid a climate catastrophe. Carney says the numbers will speak for themselves.
Firms signing up to the Glasgow Financial Alliance for Net Zero now support “a wholesale rewiring of the global financial system so that every financial decision takes climate into account,’’ Carney said in a written comment to Bloomberg on Monday.
GFANZ was created in April. Convened by the United Nations and chaired by Carney, the alliance comprises six groups spanning all corners of the financial industry. Michael R. Bloomberg, the owner and founder of Bloomberg News parent Bloomberg LP, was among those at the launch of GFANZ. The alliance requires members to use science-based guidelines to reach net zero carbon emissions across their value chain (scope 1 to scope 3), and to provide 2030 interim goals.
Early adherents include the global giants of finance. BlackRock Inc., HSBC Holdings Plc, Morgan Stanley, Deutsche Bank AG and UBS AG were some of the first to add their names to the initiative. But there were plenty of holdouts. Wall Street titan JPMorgan Chase & Co., the world’s biggest provider of fossil-fuel finance, only signed up last month, as did Wells Fargo & Co.
Carney’s big moment at the COP26 climate talks in Glasgow, Scotland, comes on Wednesday, when the summit turns its attention to the finance industry. The 56-year-old, who stepped down as governor of the Bank of England last year to embark on his new career, will be among the most prominent speakers present. The plan, Carney told Bloomberg Television, is “to reveal’’ which financial firms are “stepping up.’’
His status as a COP dignitary didn’t help him on Tuesday, when he missed a panel discussion with BlackRock CEO Larry Fink. Carney was stuck in the so-called Blue Zone in which delegates negotiate, after the U.S. Secret Service locked it down until President Joe Biden left the venue.
Read more on Carney’s lockdown
Barring any further logistical mishaps, Carney is expected to lay out the progress that GFANZ has made on a number of its goals, including its $100 trillion target. He's also likely to flesh out the mechanics of entwining every financial decision with climate considerations and how banks can support the energy transition in emerging economies.
But as finance remains the great enabler of global warming, Carney’s net-zero vision still has a lot of skeptics. Since the 2015 Paris Agreement, banks have facilitated almost $4 trillion of fossil-fuel financing, according to data compiled by Bloomberg. This year alone they’ve arranged about $460 billion of bonds and loans for the oil, gas and coal sectors.
Critics say Carney’s net-zero alliance has yet to prove it can stop the finance industry plowing cash into fossil fuels. French nonprofit Reclaim Finance says none of the alliances that make up GFANZ requires signatories to stop financing fossil-fuel expansion. There are also no “numerical limits on the use of offsets for meeting company emission reduction targets,” it said. And an analysis of investment funds by environmental nonprofit CDP found that less than 0.5% of assets held by more than 16,500 funds are aligned with temperature goals set out in the Paris accord.
What’s more, GFANZ’s headline number --$90 trillion and rising — disguises some double accounting, according to a person familiar with how the alliance does its calculations. That’s because GFANZ doesn’t correct for asset values represented by sub-units of parent firms whose total asset values have already been counted, said the person, who asked not to be identified revealing internal processes. In other words, a financial conglomerate that has signed up to more than one sub-alliance will have its assets counted more than once.
“Employing weak metrics, ducking the hard questions of offsets and absolute emissions, and resolutely ignoring the elephant in the room that is fossil fuels, these financial alliances are failing to address the urgency of the climate crisis,” said Patrick McCully, senior analyst for Reclaim Finance.
In his interview with Bloomberg, Carney said that his focus will be “ruthlessly, relentlessly’’ on getting members to live up to their net-zero promises. He’s also repeatedly underscored the economic advantages of signing up to net zero. The transition “could turn an existential threat into the greatest commercial opportunity of our lifetime,” he said. And Carney’s already claiming some success. “On the private finance side, 96% of our priorities have been delivered or on track,” he said in a LinkedIn post, citing progress on climate-related reporting and a network of central banks to assess financial risks.
But presenting the finance industry as committed to fighting climate change is proving a difficult rebranding exercise. Protestors have splattered buildings in London’s financial district, using everything from red paint to fake oil to show their anger at the continued funding of the fossil-fuel industry.
Carney, who not that long ago was forced to walk back a claim that Brookfield Asset Management Inc. -- the half-trillion-dollar asset manager of which he’s a vice chair — had neutralized pollution across its portfolio, says its unrealistic to expect the finance industry to halt fossil fuel funding from one day to the next. “There needs to be some, only some limited, financing for a transition,” he said. And that need has been underpinned by “problems with the transition.’’
But there remain “far, far too many fossil fuels in the world,’’ he said. And there are going to be “enormous stranded assets,’’ including perhaps half of all the proven reserves of oil.
Despite all the caveats around Carney’s vision, the groundwork has been laid for finance to act, according to Rhian-Mari Thomas, head of the U.K. government-backed Green Finance Institute, which was set up to promote sustainable investing.
“We mustn’t forget how far we’ve come: this is the `finance COP’ because previous COPs have convinced and aligned governments with the climate science, which shows we’re in an emergency, and is incontrovertible,’’ she said. “Building on that work, as the finance industry also increasingly gets behind the net zero agenda, we now need to convert commitments into a wall of capital to fund the transition”
Carney’s ability to kickstart such a shift could define how this summit is remembered, especially after U.K. Prime Minister Boris Johnson appointed him as his finance adviser for the event. But expectations are already being managed down, after leaders of the world’s 20 biggest economies left weekend talks in Rome without reaching any meaningful accord on fighting climate change.
“We are still a very long way off,” said Ben Caldecott, director of the Oxford Sustainable Finance Group at the University of Oxford. “We urgently need new commitments at COP26 that amount to the most significant ever from financial institutions on climate, that demonstrate the collective intent for massive material change in future financial flows, and the widespread adoption of financial practices that actively support the transition to net zero at the pace and scale required.”
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