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Does the maths on Mark Carney’s $130tn net zero pledge stack up?

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Mark Carney’s eye-catching claim in Glasgow that $130tn of private sector assets was committed to achieving net zero greenhouse gas emissions came with high-profile endorsements from BlackRock’s Larry Fink and Jane Fraser of Citigroup.

Flanked by the two chief executives at the COP26 summit, Carney said that until now there had not been “enough money in the world to fund the transition” to renewable energy by 2050, but thanks to the Glasgow Financial Alliance for Net Zero, or Gfanz, “we have all the money needed”.

Yet financiers, academics and environmentalists have asked whether the maths of the initiative led by the former Bank of England governor, now a UN special envoy on climate and finance, really stack up.

“The objective of Gfanz is good, the question is the pace . . . What we can’t end up with is 2050 commitments that are never implemented,” said Chris Hohn, the hedge fund manager who chairs The Children’s Investment Fund Foundation.

If its signatories do not set out credible near-term decarbonisation plans, “Gfanz will be nothing more than ‘greenwashing’”, Hohn said. “It’s not my expectation that voluntary commitments like Gfanz will solve the problem. It will require regulation.”

Ben Caldecott, director of the Oxford Sustainable Finance Group at Oxford university, said the headline $130tn figure was “not a fresh pool of money, and most of it isn’t allocatable”. It included home mortgages and money to fund fossil fuel infrastructure, he added.

“What proportion of it can you actually divert into the solutions or use in a way to influence polluting companies to become more sustainable?” he asked. “While this is an important development, we need to communicate responsibly.”

Steve Trent, founder of the Environmental Justice Foundation, a climate-focused NGO, said the headlines concealed “a wealth of loopholes and opportunities for backsliding that we can’t afford if we’re to avoid climate breakdown”.

Gfanz, supported by more than 450 banks, insurers and asset managers around the world, on Wednesday said it could deliver the $100tn of financing that it said was needed to help economies transition to net zero over the next three decades.

The larger $130tn figure, which equates to 40 per cent of global financial system assets, according to the Financial Stability Board, was made up of $57tn of assets controlled by the fund manager signatories along with $63tn from the banks and a further $10tn from asset owners.

Yet totting up the numbers in a way that highlights total assets leaves Gfanz open to accusations of, among other things, double counting.

The funds aligned, for example, to pension schemes including Calpers of the US and the Church of England retirement fund would mostly be managed by companies that are also signatories, including Vanguard, State Street Global Advisors and Legal & General Investment Management.

Calculating total assets in this way also fails to strip out the money investment groups manage for each other via subcontracted funds.

Gfanz said it tried to avoid double counting by excluding assets associated with insurers and investment consultants that have also made commitments, but admitted there would be some overlap between investment companies and asset owners.

It said it followed the methodology used by the Task Force on Climate-Related Financial Disclosures, another Carney initiative.

Campaigners also said that to include investment managers’ total assets under management and banks’ total lending books to arrive at the $130tn figure made some big assumptions about whether they would stick to their commitments.

This week, 43 of the 221 investment manager signatories issued a report showing that just over a third of the assets under their watch were managed in line with net zero targets.

Critics said it was a stretch to conclude that all the investment groups would eventually manage all their assets to meet net zero targets.

Peter Uhlenbruch, director of financial sector standards at ShareAction, a responsible investment charity, said: “This doesn’t signal the level of ambition the net zero revolution demands, especially given the flexible choice of methodologies available.”

Gfanz has also been criticised for allowing banks to sign up to its pledge while continuing to finance fossil fuel companies, including new gas, oil and coal exploration projects.

The Rainforest Action Network, an environmental group, said the 93 banks that had signed the pledge provided $575bn of lending and underwriting to the fossil fuel industry in 2020. “The disconnect between climate commitments and boardroom decisions is staggering,” said Tom Picken, its forest and finance director.

Gfanz has said it is taking steps to manage and monitor its members’ commitments and will establish “processes for removing members where necessary” — for example, if they fail to make good on their commitments.

It pointed to UN analysis that suggested the private sector could deliver 70 per cent of total investments needed to meet net zero goals.

Yet this was also seized upon as overestimating the role of private finance in the energy transition. Critics said that even if asset managers could be persuaded to divest from fossil fuels entirely, they were unlikely to reinvest the same amount of money in sectors such as green steel — which is expensive and difficult to produce — unless they were offered tantalising subsidies.

Carney has also been clear that the finance industry alone cannot solve the planet’s environmental problems without the world leaders with whom he shared a stage in Glasgow.

Writing in the Financial Times ahead of the opening of COP26, he said: “The imperative of a just green transition underscores the reality that finance never acts in isolation. Governments must back their net zero commitments with clear, credible and concrete policies.”

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