Financial institutions managers broke their promises on supporting the green transition

In April 2021, the Glasgow Financial Alliance for Net Zero (GFANZ), a global coalition of financial institutions committed to accelerating the decarbonization of the economy, was founded. Among its board members are Larry Fink, CEO of Blackrock, Jane Fraser, CEO of Citi, and Noel Quinn, CEO of HSBC. GFANZ’s objective can be summarized around three core pillars: a) net-zero implementation for financial institutions, b) mobilizing capital to emerging markets and incentivizing developing economies to decarbonize, c) driving net-zero public policy.

For what concerns the first line of action, a growing number of financial institutions have made individual commitments to align their portfolios to net zero. The coalition has determined three levers available to financial institutions to support and accelerate the reduction of emissions in the real economy:

1. New financing or investments that can contribute to the drop in emissions
2. Managing existing financing or investments through lending decisions and security selection in order to influence the cost of capital and shape economic activity
3. Engage with corporations on reasonable transition plans and advocate with policymakers to allow the cost of capital to reflect the negative externalities of greenhouse gas emissions by pricing carbon.

This public commitment, along with frequent climate-conscious talks from Wall Street asset managers and bankers, to support the green transition of the economy seems promising.

However, recent research by the nonprofit “Reclaim Finance” found that 30 of the biggest asset managers combined have more than USD 550 billion invested across oil, gas and coal companies. The investment companies included in the research ranged from BlackRock and Vanguard Group Inc. to Axa Investment Managers and Amundi SA, which are all financial institutions that have joined the Glasgow Financial Alliance back in 2021.

The investment guidelines and policies of these firms appear to be inadequate to align their entire portfolios to a net-zero emissions target.  

In particular, the research showed that 23 out of the 30 firms examined allow investments in companies that are starting new coal projects, while none completely restrict holding shares or bonds of companies that are involved in new oil and gas projects.

Moreover, up to now, no investment firm is calling for companies to immediately and progressively decrease their overall fossil-fuel production and, even though most of them affirm that they are supporting companies to improve on climate-related issues, case studies indicate this engagement has failed to yield concrete results so far.

Lastly, Reclaim Finance states that the fossil-fuel restrictions also apply to the index-tracking assets in none of the surveyed firms.

The disappointing findings revealed in the research lead to inevitable considerations over the effectiveness of the Glasgow Financial Alliance for Net Zero and the level of commitment of many asset managers to supporting and accelerating the green transition while continuing to invest in oil, gas and coal projects.