Events like COP27 and its ‘Finance Day’ highlight the immense pressure faced by banks to allocate funds to green investment, pushing them into making strong commitments like the $130tn. of funding pledged by GFANZ (Glasgow Financial Alliance for Net Zero).
However, they also face constant market strains and political pressure on achieving these goals, including investor demands and the ongoing Russo – Ukraine conflict.
GFANZ, a coalition of over five hundred financial institutions committed to net zero, published a new framework for the transition by 2050 for this year’s COP.
Whilst the framework emphasises portfolio alignment with green investments and the phase out of emissions, banks across the globe are continuing to double down on investments in fossil fuels.
Just last month BlackRock and Vanguard, both GFANZ members, told a UK enquiry that they would not stop new investment in coal, oil and gas.
So where does this leave things?
All eyes are on the global financial institutions to cut (or completely eradicate) ‘brown’ funding – but it isn’t that easy.
There is a sense of duty amongst Financial Services to align to investor interests and deliver healthy profits consistently, which is not always obtainable through green investments.
Moreover, the ongoing Russo – Ukraine conflict, which can be seen to contribute to inflation, has steered Banks towards following the UK Governments support of Oil and Gas licensing.
Reports suggest that this challenge is felt particularly strongly in the U.S and the FT states that ‘large U.S. and Canadian banks accounted for eight of the world's 10 worst fossil fuel funders last year, according to the Banking on Climate Chaos report’. Read the full article here.
Who is responsible for action?
To add another layer of complexity, COP27 has highlighted the ongoing debate over who is responsible for channeling funds into Loss & Damage – Governments or Banks?
‘Loss and Damage’ in summary, will be financial support given to ‘poorer’ countries in response to the severe consequences of climate change on infrastructure and landscape.
A historic Loss and Damage deal was finally agreed at this year's summit, with the EU making a last-minute U-turn to agree the setup of the new fund.
Where richer nations are seen to be the largest contributors to greenhouse gas emissions, Sherry Rehman, Pakistani Prime Minister, notably marked this decision as a ‘down payment on climate justice’.
Although many countries have made efforts to commit to this deal, there has been no tangible guidance on how the fund will be set up or where exactly the finance will come from.
The United States and the European Union, in fears of opening the door to legal liability of historic emissions, were already reluctant to commit and thus requested for a language change to the original commitment.
It is expected to take a further 12 months to determine the full working details of the fund.
Emerging challenges
Unfortunately, we expect logistical challenges to persist - at least in the short term. As we continue to engage in widespread climate change discussions, further complexities unravel revealing the deep-set conflict between creating a swift transition to a green economy and pleasing stakeholders.
The delivery of adequate funding and sound governance does lie in the hands of governments and financial institutions across the globe, but it is important to make allowances for the challenges they are facing to enable them to establish a sustainable level of sacrifices.
How DC can help
Delta Capita offers ESG Consulting and Technology Services that provide insight, capacity and expertise to help companies maintain their commitment to the global sustainability objectives in the height of a crisis and its financial challenges.
To find out more about Delta Capita’s Structured Products offerings or Sustainable Finance Consulting Services, contact us today.
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