Much of the sustainable finance debate over the past month has centred on concerns over the future of Net Zero. Amid uncertainty over how Europe and the US will tackle the energy crisis, and growing threats of legal action by US politicians who don’t approve of fossil fuel exclusions, a handful of the world’s biggest banks are rethinking their climate commitments.
JP Morgan, Morgan Stanley and Bank of America are all reported to have threatened to quit the Glasgow Financial Alliance for Net Zero (GFANZ), which they signed up to last year, because the rules were becoming too stringent and out of step with current geopolitics, leaving them open to litigation risk.
GFANZ convenes a series of net zero alliances among the financial community, and is overseen itself by the UN’s Race to Zero campaign. The campaign won the hearts of environmental campaigners earlier this summer when it unveiled new requirements for members to phase out fossil fuels and commit to excluding any new coal projects by next year in order to remain signed up.
But the coal ban was quietly cut from the rules soon afterwards, following pushback from financial institutions. That hasn’t proved enough though, and – in the face of departures – GFANZ and Race to Zero are back at the negotiating table with members, working out further potential compromises.
It’s not just banks that are jumping ship. In September, it was revealed that two pension funds – Austria’s Bundespensionskasse and Australia’s Cbus – had delisted from the Paris-Aligned Asset Owners group (not a member of GFANZ) and the Net Zero Asset Owners Alliance, respectively, saying they didn’t have the resources to meet the ever-growing expectations.
US-based consultant Meketa told Capital Monitor it would “temporarily withdraw” from the Net Zero Investment Consultants Initiative and adopt the rules “at a more appropriate time”.
It’s unclear whether the recent exodus marks the beginning of the end of collaborative net zero efforts, or is simply a short-lived, US-centric response to current world events. Either way, GFANZ is not the only body trying to calm down spooked investors: rulemakers in Europe and the UK have been trying to put minds at ease about their green taxonomies over the past week, too.
On Friday, the group advising the UK government on its planned taxonomy published a summary of its recommendations so far, which included ideas about how to ensure the framework’s interconnectivity with other versions around the world, and how to create usable rules on ‘Do No Significant Harm’.
The guidance seeks to settle investor nerves amid silence from the UK government, which is prompting concerns that – in order to meet its 2023 deadline for the taxonomy – it will push rules through at the last minute, blindsiding the private sector. A public consultation was promised for earlier this year, but is yet to happen.
The latest guidance from the government’s advisers reiterates previous advice that it should consider pushing deadlines back to allow time for the consultation and get the rules right first time around.
Europe’s advisers are also trying to give clearer guidance on how the market should deal with the existing EU taxonomy. The Platform on Sustainable Finance published recommendations this week on how regulators should tweak the rules to make them more credible and practical (including dealing with data verification and grandfathering green bonds), and how financial market participants can ensure they’re adhering to the rules properly (including clarifying expectations on minimum social safeguards).
The two reports mark the Platform’s final advice, as its two-year mandate has now come to an end. Yesterday, the European Commission put out a call for applications to join the next iteration of the body, which will run from January for two years.
“The new Platform will be composed of up to 35 members, of which up to 28 will be selected through [yesterday’s] call for applications,” the Commission said in a statement. “The Platform will be made up of a balance of stakeholders, including individuals appointed in a personal capacity with the relevant proven knowledge and experience, individuals representing a common interest shared by stakeholders, organisations representing relevant private stakeholders, organisations representing civil society, organisations representing academia and research institutes.”
It marks the end of a rocky few weeks for the platform, after five NGO members quit the group, alleging their independence was being undermined by policymakers seeking to meet political objectives.
UK regulators are also building up their bank of ESG advisers.
The Financial Conduct Authority (FCA) last week named Deborah Gilshan as the chair of a new group that will develop expectations on how investors should disclose and explain their shareholder voting decisions. Gilshan, who spent nearly a decade dealing with ESG issues for UK pension fund Railpen, is the founder of the 100% Club, an alliance focused on promoting the participation of women in business.
The FCA is also in the process of finalising members of a new ESG Advisory Committee that will “help execute its ESG-related responsibilities”, and will be setting up a group to focus on establishing a voluntary code of conduct for ESG ratings agencies.
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