A coalition of large financial institutions seeking to decarbonize the global economy will not require its members to phase out fossil-fuel investments after some U.S. banks threatened to leave the group.
The Glasgow Financial Alliance for Net Zero, a group of banks and other financial institutions representing around $150 trillion of assets, said in a report Tuesday that its members maintain "independent investment decision-making" authority in meeting 2050 targets to reduce greenhouse gas emissions.
In its report — which included recommendations for meeting net-zero pledges and reporting emissions as well as updates on the development of a climate data tool — GFANZ acknowledged that there are legal limits to what companies can do when making climate commitments.
Citing "unique legal or regulatory constraints," GFANZ — which was formed last year at an international climate conference in Scotland — said that members will "unilaterally" determine the extent to which they "adopt any of the potential courses of action" outlined in the coalition's report.
The new exceptions were added following recent opposition from U.S. banks — including JPMorgan Chase, Bank of America and Morgan Stanley — to GFANZ rules based in part on a United Nations initiative calling on members to phase out fossil-fuel investments, according to
It also comes amid growing pushback from Republican politicians seeking to force banks to curb climate-friendly agendas.
Allowing for legal and regulatory flexibility puts a limit on GFANZ's ability to address climate change by reducing emissions and moving the global economy away from the fossil-fuel industry.
Despite the new caveats, the group's mission remains the same, according to Mary Schapiro, the coalition's secretariat and a former Securities and Exchange Commission chairman.
The group, led by former Bank of England Gov. Mark Carney, seeks to "ensure that these high levels of ambition are met with really credible, transparent action," Schapiro said during a virtual press conference Monday.
In a draft report published in June, GFANZ signaled that membership rules would require climate commitments aligned with criteria set by the U.N.'s Race to Zero campaign, which released updated guidance during the same month calling for members to phase out fossil-fuel investments.
In September, tension among GFANZ leaders and U.S. banks became public over concerns that the banks would be exposed to possible legal and regulatory actions from the coalition's alignment with Race to Zero criteria. Around the same time, Race to Zero backed off slightly, clarifying that members can "independently find their own route" to decarbonization.
The infighting followed a summer in which conservative lawmakers in Republican-led states including oil-rich Texas and coal-heavy West Virginia
A spokesperson for a U.S. bank that has joined GFANZ and who asked to remain anonymous said that the bank's commitment to reach net-zero emissions by 2050 has not changed but "we also have to look after all of our stakeholders and not relinquish business decisions."
"Individual banks remain subject to their regulatory and oversight requirements, so they can't be impeded from making business decisions," the spokesperson told American Banker. "We're trying to help grow energy affordability and security at the same time."
Clifford Rossi, a professor at the University of Maryland School of Business, said that GFANZ "got a little ahead of its skis" and was "overly aggressive" on how decarbonization plans should proceed.
"I think they got an earful from bankers when they started to see that these restrictions came in a little bit harsher than they thought they were going to be," said Rossi, a former chief risk officer at Citigroup and the founder of the consulting firm Chesapeake Risk Advisors.
He added that pushback from conservative lawmakers on climate commitments "has had a 'stop and let's think long and hard' effect on these institutions."
Economic developments this year, including the war in Ukraine's impact on energy prices, are "resetting people's expectations on how fast initiatives transitioning to a green economy can actually happen," Rossi said.
