Financial Firms Now Hesitant About Climate Commitments

Following the UN’s recent climate summit, COP27, hope that the world’s financial sector would commit to taking planet-saving environmental measures may have fallen.

Efforts to impact climate change, deforestation, and biodiversity will be hard to put in place due to systemic inertia, political conflict, and a bias toward incumbent providers, according to a Reuters analysis.

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Before the conference in Glasgow, optimism was high that asset owners, asset managers, insurers, and pension funds would rise to the challenge, given their commitment to the Glasgow Financial Alliance for Net Zero (GFANZ).

Achieving net zero by 2050 will take $200 trillion, according to BloombergNEF’s New Energy Outlook, and financial institutions are sending mixed messages about just how committed they are to the goal.

For instance, JPMorgan Chase Chief Executive Officer Jamie Dimon said a few years ago that the bank would align its investments in fossil fuels with the Paris Agreement. But earlier in 2022, Dimon told Congress that the bank “absolutely does not” have a policy against funding new oil and gas projects. Such a move “would be the road to hell for America.”

Also, Vanguard has removed itself from the Net Zero Asset Managers initiative following attacks from anti-climate policy Republican politicians in the U.S. And, after agreeing to the methodology of the UN’s Race to Zero initiative, members of the Net-Zero Banking Alliance (NZBA) abandoned it in the summer of 2022 when it was made more stringent. The new methodology required members to “phase down and out of all unabated fossil fuels.”

“Race to Zero has a very robust approach to target-setting,” Dr. Adriana Kocornik-Mina, Senior Research and Metrics Manager at the Global Alliance for Banking on Values (GABV), told Reuters. “The NZBA has recently dropped this and allowed members to use alternative approaches, leading to a potential weakening of how organizations carry out net zero analysis and planning.”

After an analysis of NZBA member actions, gaps and flaws were found in some members’ targets, according to Jeanne Martin, Head of ShareAction’s banking program.

“Most fail to capture the full range of greenhouse gas and financing activities, exclude heavy-emitting sectors such as chemicals, or use emissions-intensity targets, which can mask the fact that absolute emissions continue to rise,” she told Reuters.

Additionally, investors are not privy to a complete assessment of how much the companies they invest in are polluting the environment, according to Jane Thostrup Jagd, Deputy Director of Net Zero Finance at the We Mean Business Coalition.

Of 134 multinational companies analyzed by climate finance NGO Carbon Tracker, 98% did not provide sufficient evidence that their financial statements include the impacts to their business from climate change. And, even though a significant majority of the companies Carbon Tracker examined had emissions-reduction targets, just 2% had aligned the information in their financial statements with achieving them.