A report by Reclaim Finance calls on Glasgow Financial Alliance for Net Zero members to withdraw investment for expanding fossil fuel companies, calling some past commitments “meaningless”.
Campaigners have criticised the Glasgow Financial Alliance for Net Zero for not reining in its members’ investments in fossil fuels.
The Gfanz network, founded in 2021 by UN special envoy on climate action and finance Mark Carney, groups more than 550 member firms spread across seven sector-specific net zero alliances from different areas of financial services.
These groups include the Net-Zero Asset Owner Alliance, the Net-Zero Insurance Alliance, the Net-Zero Banking Alliance and the Net Zero Asset Managers initiative.
Campaigners at non-profit Reclaim Finance analysed the investment and financing of fossil fuels by 161 members belonging to these four alliances. “Since joining GFANZ, these financial institutions have financed at least 211 of the world’s largest expanders of coal mining, transport and power, and of oil and gas production and transport,” they wrote in a report published on Tuesday during the World Economic Forum meeting taking place this week in Davos, Switzerland.
The report urged Gfanz alliances’ members to withdraw support of companies expanding oil and gas production. It asked alliances to demand that members adopt robust engagement policies.
The same day, insurance and asset management leaders participating in a Davos discussion of decarbonisation debated the merits of engaging with fossil fuel companies and, when necessary, divesting from them – with the threat of divestment acknowledged by one asset manager as a necessary tool in its arsenal.
No meaningful restrictions
Reclaim Finance’s salvo landed on the same day as a report by non-profit ShareAction, which accused the world’s largest asset managers – including BlackRock, Vanguard and State Street Global Advisors – of hindering investors’ environmental and social ambitions.
Reclaim Finance said: “Only a handful of the financial institution members of GFANZ have policies that meaningfully restrict finance to companies developing new fossil supply projects.
“The GFANZ sectoral alliances fail to adequately address fossil fuel expansion, and even where individual alliances have issued limited anti-fossil expansion positions, they have failed to ensure that their members incorporate these positions into their policies.”
Only 61 Gfanz members covered in the report have policies that exclude some support for companies developing certain new forms of coal projects, said Reclaim Finance. Most “lack meaningful restrictions” on oil and gas financing, said the report, singling out France’s La Banque Postale as the only one with a strong policy on ending support for oil and gas.
Gfanz members have continued to finance major fossil fuel expanders, with the 56 biggest banks in the NZBA providing at least $269bn to 102 of the top expanders between their date of joining and August 2022, Reclaim Finance said.
The report was particularly scathing about passive investment manager Vanguard, which it listed as the second largest Gfanz asset manager channeling funds towards fossil fuel expansion behind BlackRock, with holdings of $184bn in fossil fuel developers.
Vanguard quit the NZAM in December 2022, observing at the time that such networks can “result in confusion about the views of individual investment firms”. It added: “That has been the case in this instance, particularly regarding the applicability of net zero approaches to the broadly diversified index funds favoured by many Vanguard investors.”
Reclaim Finance dubbed Vanguard’s NZAM commitment “effectively meaningless”. According to the report: “Its further involvement in the initiative may only have dragged down others’ targets by showing the absurdly low level of ambition that its members can get away with.”
To engage or divest?
Reclaim Finance called for Gfanz alliances to end support for coal and to compel members to stop buying new stocks and bonds of oil and gas expanders.
New engagement approaches should include “a clearly delineated escalation strategy ending with meaningful financial sanctions”, it said. Pressure on companies could take the form of “graduated divestment”, which involves selling off shares over time if companies fail to meet benchmarks covering areas including emission reduction.
A Gfanz spokesperson said: “This report focuses on an important aspect of the energy transition. It’s clear a lot of work needs to be done to ensure the world is deploying capital consistent with a 1.5C pathway – which is exactly why Gfanz was created.
“Based on research Gfanz commissioned last year, we know that investment in renewables needs to be four times the levels going into fossil fuels by 2030 to restrict climate change consistent with the aims of the Paris Agreement.”
Engagement and divestment were discussed at a World Economic Forum panel, which included APG Asset Management chief executive officer Ronald Wuijster and Swiss Re group CEO Christian Mumenthaler.
Wuijster said one of his firm’s largest clients had “decided to divest from fossil fuels because they thought the effectiveness of our engagement was not good enough”. He acknowledged there was a debate between remaining engaged with companies or deciding to divest and accepting the loss of influence that comes with selling out of investments. “If there’s no stick – if there’s no threat of divestment – then I think it’s also not working,” he said.
Divestment “is not something we prefer, because we want to influence the companies”, said Mumenthaler, adding: “I’m more worried about private capital coming in.”
He said to some extent it would be better to own companies and steer them in the right direction, since “the consequences [of divestment] are not that dire for companies.”
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