GFANZ May Splinter Over Legal Risks, NYC Finance Chief Rebukes BlackRock, and More

September 23, 2022

The top five climate risk stories this week

GFANZ may splinter over legal risks

US banks may walk away from the world’s largest climate finance alliance over its toughened decarbonization commitments.

JP Morgan, Bank of America, and Morgan Stanley are among the Wall Street giants threatening to leave the Glasgow Financial Alliance for Net Zero (GFANZ), the Financial Times reported Wednesday. They fear being sued by US states and shareholders if they adopt the more stringent fossil fuel policies introduced by the United Nations-backed Race to Zero (RtZ) campaign, which GFANZ is a part of. 

In June, the RtZ updated its climate criteria to explicitly require members to “phase down and out all unabated fossil fuels.” For financial institutions that are part of GFANZ, this means restricting “the development, financing, and facilitation of new fossil fuel assets.” In August, the Financial Times reported that RtZ may set up an independent panel to evaluate member institutions’ adherence to the criteria and kick out firms that fall short.

US banks are the world’s biggest fossil fuel financiers. Although the top Wall Street lenders have all established their own net-zero targets, none have said they will completely stop funding oil, gas, and coal projects. On Monday, climate nonprofit Reclaim Finance released a report showing that Bank of America, Citi, Goldman Sachs, JP Morgan, and Morgan Stanley all continue to finance the world’s largest coal developers.

At a Wednesday summit, Mark Carney — the UN special envoy for climate action and finance and vice chair of Brookfield Asset Management who set up GFANZ in 2021 — said banks need better guidance on decarbonization for certain sectors but shouldn’t be subject to legally binding criteria.

ECB to shun climate stragglers’ debt

As part of its efforts to decarbonize its corporate bond portfolio, the European Central Bank (ECB) said it would “tilt” future purchases of debt away from issuers that are taking little or no action to improve their climate performance.

The ECB first announced the “greening” of its corporate debt pile in July. This week, it detailed the scoring system it would use to separate climate laggards and leaders. An issuer’s score will determine its relative weighting in the benchmark used by the ECB to guide future bond purchases.

Each corporate’s overall score is based on three sub-scores: one covering its past greenhouse gas emissions performance, a second on its forward-looking emissions targets, and a third on the quality of its emissions disclosures. The ECB will buy more bonds from issuers with high climate scores, relative to those with lower scores. The ECB will also limit the amount of long-dated debt it holds from low-scoring companies.

In addition, the central bank said it may give “preferential treatment” to green bonds that enter the market “subject to certain conditions.” Specifically, this treatment will depend on how aligned a given issuance is with market-leading green bond standards and whether there is third-party assurance that the bond’s proceeds will be used for climate-friendly activities.

The ECB said it would start publishing information on the climate profile of its corporate bond portfolio from the first quarter of 2023.

Net-zero asset owners align USD$7.1trn with 1.5°C goal

Institutional investors Allianz, Axa, and the California Public Employees’ Retirement System are among 44 asset owners that have set portfolio decarbonization targets in line with the Paris Climate Agreement’s most ambitious warming goal. 

In a progress report published Tuesday, the Net-Zero Asset Owner Alliance (NZAOA) said these members’ commitments mean that two-thirds of the group’s total assets under management — USD$7.1trn — are now aligned with a 1.5°C warming pathway. The report also revealed that the NZAOA has grown to 74 investors, up from 56 last September. The alliance was convened by the UN in 2019 and is part of the GFANZ group of climate finance initiatives. 

“The members of the Alliance are holding themselves to account through concrete, near-term, science-based climate targets, and putting themselves in a strong position to benefit from the vast opportunities in climate-related investments,” said Günther Thallinger, the NZAOA chair. “We hope this will encourage more asset owners to join us in aligning their portfolios with a pathway that keeps global warming to 1.5°C.”

Of the NZAOA members that have established targets, 41 have set detailed sub-portfolio goals to decarbonize their listed equity, publicly traded corporate bond, real estate, and infrastructure holdings by at least 22% by 2025 or 49% by 2030.

The report also said NZAOA members stepped up their financing of climate solutions to USD$253bn in 2022, up from USD$87bn in 2021.

However, in a reverse for the alliance, Australian superannuation fund CBUS told Responsible Investor it left the NZAOA in order to focus its resources on internal climate-related initiatives. The AUS$59bn (USD$38.6bn) fund was one of the first out of Australia to join the NZAOA in 2020.  

NYC finance chief rebukes BlackRock over climate backslide

BlackRock’s investment approach is “at odds” with its avowed commitment to net zero, the New York City Comptroller said in a Thursday letter.

Brad Lander warned that the three New York City pension funds he oversees, which have 25% of their combined assets invested by BlackRock, cannot reach their own net-zero goals without the support of their asset managers. The three funds control over USD$172bn of assets.

Lander accused BlackRock of “backtracking on its climate commitments” due to pressure from Republican state officials. In August, 16 GOP attorneys-general wrote to BlackRock, claiming the firm put environmental, social, and governance (ESG) concerns ahead of its fiduciary duty to investors. In a September 6 response, BlackRock said it does not push investees to set specific emissions targets and is not pursuing a “specific decarbonization outcome in the real economy,” despite its membership to various climate alliances, including the Net Zero Asset Managers Initiative (NZAMI).

Lander said the “fundamental contradiction” between the firm’s stated commitments and actions is “alarming.” He added that BlackRock “must demonstrate a plan to use its position as the world’s largest asset manager … to move its portfolio companies to get their businesses in line with a net zero economy.” 

Lander requested three things from BlackRock. One, that it release an implementation plan codifying its commitment to net-zero emissions, with “concrete steps” on how it intends to achieve this. Two, to describe how it will stop the ongoing exploitation of fossil fuel reserves and phase out carbon-intensive assets. And three, to stoke climate action through “transparent corporate engagement” and to disclose its climate-related lobbying activities. 

“The scale of the climate crisis surpasses the ability of any one person, company, or country to address alone,” Lander said. “None of us will be spared its financial impacts. The global finance community has a critical role to play in addressing the climate crisis, and BlackRock, as the world’s largest asset manager, must begin to lead in deeds, not simply words.”

Blueprint for net-zero data hub released

A climate data initiative launched by French President Emmanuel Macron released its plan for a new publicly accessible data utility on Wednesday.

As proposed, the Net-Zero Data Public Utility (NZDPU) would host company and financial institution-level data for Scope 1, 2, and 3 emissions, as well as net-zero targets, including the specific actions to reach them. The utility’s design would seek to harmonize the data with current and upcoming regulatory reporting mandates and to maximize transparency for users.

“Currently, most climate data is only accessible through commercial subscriptions or by paying platform fees, preventing the public and many institutions from conveniently accessing it,” a statement from the Climate Data Steering Committee (CDSC), which drafted the NZDPU proposal, reads. “When completed, the Utility will support efforts in developing and developed nations to enhance transparency and bring accountability around business climate action commitments by the private sector.”

In June, President Macron and UN special climate envoy Michael Bloomberg set up the CDSC, with the aim of making it easier to track businesses’ climate actions. Global standard-setters, policymakers, and business leaders are on the committee, which is headed by Mary Schapiro, a member of the Task Force on Climate-related Financial Disclosure secretariat and former chair of the US Securities and Exchange Commission.

The NZDPU blueprint is open for public consultation until October 20. The CDSC intends to issue a request for proposal for technical resources to build the data utility at the UN Climate Change Conference (COP27) in November.