Big Challenges for a Broader Tent
With climate-focused initiatives under pressure, how will GFANZ 2.0 contribute to net zero?
With cracks shaking the foundations of net zero alliances spanning asset management, insurance and banking, there is clear concern that the Glasgow Financial Alliance for Net Zero (GFANZ) as we know it is heading for the emergency exit. But the body’s plan to re-strategise doesn’t mean its demise. GFANZ needs to reinvent itself in line with the world we now live in.
Led by Chair Michael Bloomberg (and former Co-chair Mark Carney), in 2024, membership of the financial sector alliances comprising the umbrella body GFANZ had reached over 700 financial institutions.
The formal establishment of GFANZ in 2021 during COP26 sent a clear signal that climate change is a material risk. It showed that the financial industry was prepared to work together at scale to remove barriers to financing the transition to net zero.
Feelings of disappointment were therefore understandable when GFANZ rang in the new year with the announcement it would be lowering the threshold for participation, pausing work on new guidance and restructuring its priorities. GFANZ will be finetuning its focus on mobilising private finance for the energy transition – especially in emerging markets and developing economics (EMDEs).
With alliances shaken and rethinking their commitments, it’s clear that the path to net zero is navigating choppier waters, meaning increased pragmatism may be necessary for industry-led initiatives to avoid capsizing altogether.
“This decision [to focus more on growing investment] was inevitable – GFANZ needs to pivot where we can add the most value,” a spokesperson for GFANZ told ESG Investor.
GFANZ has successfully met many of its original objectives, they said.
“We need GFANZ to succeed so they shouldn’t be attacked from both directions,” says Andrea Webster, Financial System Benchmark Lead at the World Benchmarking Alliance (WBA).
“But they also need to prioritise transparency as they evolve, so we can support them.”
Under the microscope
In just a few short years, GFANZ has significantly contributed to financial institutions’ transition efforts, experts agree.
“GFANZ has helped to bring the buy side and sell side together,” says Sean Kidney, CEO of the Climate Bonds Initiative (CBI).
“As a broad tent umbrella, it has led a lot of very interesting work.”
This includes guidance encouraging greater levels of climate-related disclosure and credible transition plans, while also undertaking work to de-risk private climate-focused investments directed toward EMDEs.
But there is of course the US-sized elephant in the room to account for, and the shadow it has cast over collaborative initiatives.
“GFANZ’s restructure was clearly forced by the situation in the US,” argues Mark Campanale, Founder and Director of think tank Carbon Tracker.
“It’s far better for GFANZ to have a rethink as to how they can continue their work – just not so visibly.”
With Donald Trump winning a second term in the White House, the anti-ESG movement has surged forward, with Republican states ramping up the pressure. Even prior to the Trump administration, Carney and Vice Chair Mary Schapiro were grilled by a US House committee on whether GFANZ was facilitating collusion that may violate US anti-trust laws.
But GFANZ restructuring can also be seen as an opportunity to increase ambition.
“[It] is a chance for GFANZ to put in place meaningful and robust standards to ensure [participants] are aligning with the Paris Agreement and acting to move capital away from polluting fossil fuels and into activities needed for a just transition,” says Katie Stewart, Senior Research Manager at UK NGO ShareAction.
Constructive criticism
By allowing for a broader base of signatories, GFANZ hopes to encourage a wider variety of financial players to collaborate on climate – from those based in jurisdictions without 2050 net zero commitments to sovereign wealth funds with government ownership that may feel uncomfortable joining voluntary initiatives with strict membership criteria.
“We remain supportive of any [financial institution or collaborative initiative] that is working on mobilising capital, and we are open to working with them,” the spokesperson said.
There is concern, however, that lowering participation thresholds to encourage a broader GFANZ membership base will take precedence over ensuring financial institutions are being held accountable on their climate transition progress.
“There is logic to them wanting to widen the tent,” says WBA’s Webster.
“That said, there does need to be some baselines established across all regions that succeed in holding all financial institutions to account.”
This decision follows a previous weakening of GFANZ’s participation threshold when, in 2022, the body was criticised for waiving its original requirement for financial institutions to sign up to the UN’s Race to Zero (RtZ). The global campaign includes criteria such as setting interim decarbonisation targets, providing transparent disclosures and aligning with accounting standards.
GFANZ participants have also been accused of not putting promises into practice. In 2023, a group of NGOs found that 229 of the world’s largest fossil fuel developers had received finance from 161 (29%) GFANZ members.
“GFANZ’s restructure may prevent premature death, but if banks can brandish GFANZ credentials without substantive commitments toward net zero or away from fossil fuels, it’s a terminal diagnosis,” says John Lang, Lead of the Net Zero Tracker.
“Pragmatism is always welcome, but at what cost to integrity?”
GFANZ’s spokesperson said that it never intended to be a standard setter.
Some have voiced disappointment that GFANZ has hit pause on its work relating to nature-focused transition plans and transition-oriented index investing. It is currently unclear whether GFANZ will continue this work.
Dr Rory Sullivan, CEO of global advisory firm Chronos Sustainability, suggests these projects should be handed over to climate networks like the Principles for Responsible Investment or Institutional Investors Group on Climate Change.
Accessing emerging markets
Increased pragmatism doesn’t have to mean slashing ambition. Experts have therefore welcomed GFANZ’s continued commitment to mobilising climate-focused private finance.
The Independent High-Level Expert Group on Climate Finance has estimated that global public and private investment must reach US$6.3-US$6.7 trillion a year by 2030 to achieve the goals of the Paris Agreement, with EMDEs requiring between US$2.3-US$2.5 trillion.
EMDEs also accounted for over 95% of the increase in carbon emissions over the past decade.
“GFANZ has made the right call by choosing to focus on mobilising transition capital, particularly emphasising the Global South,” says Carbon Tracker’s Campanale.
He urges GFANZ to identify the “best local fund managers and private equity firms” and other local partners on the ground to build out much-needed renewable energy infrastructure.
“If GFANZ can act as a door opener to essential private capital that would be very useful,” he says.
GFANZ is already well-established in EMDEs, with chapters in regions including Latin America and Africa.
A big part of unlocking private capital flows is ensuring strong relationships and collaborations with the public sector. GFANZ is expected to draw on its existing experience developed through its work on Just Energy Transition Partnerships (JETPs).
Financial institution working groups put together by GFANZ have pledged to at least match public sector financing commitments made through JETPs with Indonesia and Vietnam.
The spokesperson said that the body’s work on these partnerships is bearing fruit, with funds mobilised and more announcements to come at COP30 later this year.
“When working with real economy companies, policymakers, governments and private finance, it’s hard and takes time to get everyone rowing in the same direction. It’s important to build trust and relationships,” the spokesperson said.
“But not all of GFANZ’s focus on facilitating transition capital flows will be focused on emerging markets, as the body recognises that there is a continued need to raise capital to support the transition of hard-to-abate industries globally.”
The body will be spending the rest of Q1 working with its Principals Group to formally define GFANZ’s priorities for the year.
Superheroes for net zero
But with GFANZ turning its back on anti-ESG tensions in the US, who can step forward to advocate for the net zero agenda? The unsurprising answer provided by all experts interviewed: asset owners.
“The power sits with the asset owners in finance,” says Webster.
“They are the superheroes we need for net zero, because they can hold the ground, and their signalling will be what drives the actions of everyone else.”
The Net Zero Asset Owner Alliance (NZAOA) sent out a crucial signal last year when it asked governments to better align with climate science. Without collective movement from policymakers and the real economy, asset owners may eventually need to tolerate a “buffer” or slight lag behind the scientific pathways, the alliance warned in a policy briefing.
However, Sullivan from Chronos Sustainability notes that the alliance has been “missing in action” this year.
“[That] paper was issued before the US elections, but it is not clear how relevant it is given that the political context has changed so much,” he says.
For any net zero alliances to continue to be relevant in the years ahead, they first need to show that they are committed and prepared to fight for the concept of net zero, Sullivan argues.
“There’s an awful lot of sewage running down the river at the moment, and asset owners are wise to let it all pass through while they quietly get on with things,” counters Campanale.
A spokesperson for NZAOA told ESG Investor that it has made significant progress in supporting its members as they implement credible decarbonisation commitments and transparent targets.
“The alliance enables extensive peer exchange, shaping industry norms, facilitating engagement with stakeholders such as policymakers and other key areas of the investment ecosystem,” they said.
Keep calm and carry on
Fortunately, despite the political volatility and mounting pressures on investor-led initiatives, collaboration on climate is far from over.
A group of long-term investors recently challenged oil and gas major BP to give shareholders a say on any changes to its climate-related targets, amid mounting speculation and concern that the company may be looking to water down its existing commitments.
“This kind of work will continue (but the pace will inevitably vary) regardless of what happens at GFANZ or any other membership organisation,” says Campanale.
“Just because there is a change in politics, that doesn’t remove the importance of climate risk management, and it’s the realisation of this by many financial institutions that gives me confidence that they will stay the course.”
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