An alliance for change: how financial institutions aim to fund the energy transition
To successfully transition to a clean energy economy, the world needs investment on a level rarely seen before. Trillions of dollars will be required to decarbonise the world economy and reach net-zero emissions by 2050 – an estimated $100tn over the next three decades.
Late last year, former governor of the Bank of England Mark Carney announced a new initiative to get there.
The Glasgow Financial Alliance for Net Zero (GFANZ) aims to unite net-zero finance initiatives in the UN’s Race to Zero into one sector-wide strategic alliance and, at its launch in November 2021, its membership included more than 450 financial firms from 45 countries responsible for more than $130tn in assets.
“GFANZ is the gold standard for net zero,” said Carney at the COP26 Finance Day. “All members followed rigorous internal governance processes to make commitments that will reshape their business models and fund the sustainable transformation of our economies.
“And GFANZ members haven’t just committed to net zero financed emissions by 2050 at the latest. They also target their fair share of the 50% greenhouse gas emissions reductions by 2030 that are needed to keep the world on track for 1.5 degrees. And they’re using the most rigorous and stringent science-based scenarios to set detailed five-year emissions reduction plans.”
Workstreams to drive change
GFANZ aims to move the needle on seven key areas that are critical to net-zero transition:
Building commitment: building and growing existing and new net-zero alliances in the UN’s Race to Zero
Mobilising private capital: supporting the mobilisation of private capital to emerging markets and developing countries through private sector investments and public-private collaboration
Sectoral pathways: catalysing alignment between financial institutions and major global industries on sector-specific pathways to reach net-zero emissions
Real economy transition plans: accelerating decarbonisation in the real economy by describing financial sector expectations of transition plans from the companies the sector engages with and finances
Financial institution transition plans: driving convergence around sector-wide best practices for financial institutions in designing and implementing credible net-zero transition plans
Portfolio alignment measurement: supporting the development an effective implementation of portfolio alignment metrics for financial institutions and driving convergence in the way portfolio alignment is measured and disclosed
Policy: advocating for the public policy needed to accelerate investment in net-zero aligned activities and organisations.
A call to action
GFANZ has also issued a call to action to policymakers, financial institutions and companies around the world. The alliance wants world leaders to issue detailed and expansive plans on how to achieve net zero, including how to phase out fossil fuels and align debt issuance with sustainability goals. This includes organising an effective, coordinated global response that will help developed and developing countries alike.
The alliance believes that pricing the externality of carbon emissions is an essential way to drive the transition, and that G20 leaders need to drive this commitment to carbon pricing. Creating incentives to help people, businesses and communities to go green as they recover from the pandemic is also key and requires government, private sector and financial institutions to work together.
“We need to unlock trillions of private finance to speed up the transition to net zero,” said Amanda Blanc, CEO of member firm Aviva, in GFANZ’s inaugural progress report.
“It starts with policies that genuinely drive technology, innovation and finance in the right direction, including carbon pricing schemes and credible net-zero plans. Private finance will only flow at scale when the cost of polluting is built into market prices.”