It is widely recognised that intra and cross-sector collaboration are key to achieving mass decarbonisation. The power of coalitions was a theme that took centre-stage at the UN-convened COP26 in Glasgow, which saw the launch of a number of public and private sector alliances aimed at supporting the goals of the Paris Agreement and reducing our addiction to carbon.
At the BNP Paribas Sustainable Future Forum (SFF) 2021 Global Edition, which took place just a few weeks ahead of COP26, experts convened to discuss some of the recent Net-Zero Alliances in the financial sector.
Financial services firms can become active climate players
The Net-Zero Asset Owner Alliance, formed in 2019, represents a step change in the financial services industry’s endeavour to contribute to the fight against climate change.
“Is there anything that can help empower financial services as climate actors? Absolutely! The results are yet to show through in terms of emissions, but we have seen a huge mobilisation globally, particularly since 2019 when, for the first time, net-zero became a full portfolio objective,” noted Eric Usher, Head of the UN Environment Programme Finance Initiative, during a presentation on the strategy and vision behind the Net-Zero Alliances at SFF 2021. “With the shift towards net-zero carbon portfolios, the industry is moving from low-carbon and climate resilience as ‘a nice to have’ to something that has to be factored in everything that an investor or a banker does.”
In 2018, we saw one of the most significant developments in recent years in terms of sustainability integration within the banking industry, when 30 banks from around the world, including BNP Paribas, sat down with the UN to draft the Principles for Responsible Banking. This framework was subsequently launched by 132 banks and the UN Secretary General António Guterres. Today, 250 banks representing over 40% of global banking assets are signed up.
“Impact targets and management setting for Carbon Zero is at the heart of the Principles for Responsible Banking. There’s a lot of empowered leadership coming from the financial sector,” Usher said. “What you do has the double dividend of both preparing and positioning the organisation for the low-carbon sustainability transition, but also sending the signals to governments at Glasgow that now is the time to make history and to get on with the economy and society of tomorrow.”
With the shift towards net-zero carbon portfolios, the industry is moving from low-carbon and climate resilience as ‘a nice to have’ to something that has to be factored into everything that an investor or a banker does.Eric Usher, Head of the UN Environment Programme Finance Initiative
The need for a single voice
“The four UN-convened Net-Zero Alliances for the financial services industry, including asset managers, asset owners, banks and insurers – all gathered under the umbrella name of GFANZ, the Glasgow Financial Alliance for Net-Zero – will have an accelerating impact on economies and companies transitioning to net-zero,” explained Hervé Duteil, Chief Sustainability Officer, Americas, BNP Paribas, in opening the discussion.
For Paul Bodnar, Global Head of Sustainable Investing at Blackrock, the establishment of GFANZ is an important signal. “You have the different parts of the investment chain that have been gathered into those individual alliances and brought together to serve as a single voice for the financial sector in dialogue with industry and governments so that we can collectively undertake this transition to a net-zero economy,” he said during the panel at SFF. For him, we need greater consistency in the way that asset managers, asset owners, banks and insurers and others organise the transition and drive it forward.
The launch at COP26 by the IFRS Foundation of the International Sustainability Standards Board (ISSB), is eagerly awaited to provide the industry with further clarity. ISSB will sit alongside the IASB to set common standards for impact disclosure and measurement.
“On climate risk disclosure, we’ve seen continued uptick from across the financial sector and private sector more widely. Initially this has been voluntary, but we are seeing increasing engagement from regulators, particularly in the EC, UK, New Zealand and recently Brazil, who have started to implement climate risk disclosure as part of banks’ stress testing,” Eric Usher also pointed out.
You have the different parts of the investment chain that have been gathered into those individual alliances and brought together to serve as a single voice for the financial sector in dialogue with industry and governments so that we can collectively undertake this transition to a net-zero economy.Paul Bodnar, Global Head of Sustainable Investing at Blackrock
Glasgow Financial Alliance for Net-Zero (GFANZ)
The Glasgow Financial Alliance for Net-Zero (GFANZ) is a global coalition of financial services players committed to mobilising capital at scale towards the decarbonisation of the economy.
Under the GFANZ umbrella, four coalitions have formed over the last couple of years: the Net-Zero Asset Manager Initiative, the Net-Zero Asset Owner Alliance, the Net-Zero Banking Alliance, and most recently the Net-Zero Insurance Alliance.
In April 2021, BNP Paribas joined the Net-Zero Banking Alliance, which brings together over 90 banks to mobilise capital at scale directed towards tackling climate change. Member banks hold a collective US$66 trillion in assets and represent 43% of banking assets worldwide.
The four UN-convened Net-Zero Alliances for the financial services industry will have an accelerating impact on economies and companies transitioning to net-zero.Hervé Duteil, Chief Sustainability Officer, Americas, BNP Paribas
Alliances: risks and opportunities
Bertrand Millot, Head of Climate Risk and Issues, CDPQ, remarked that climate change is much more than a numerical goal, but has become a mindset within the industry. “Climate change represents opportunities and risks. Opportunities in renewable energy, green buildings, but also in new sustainable fuels and technologies. It also presents quite a few risks – physical and of transition – and impacts on businesses directly or indirectly through their supply chains.” The big questions facing the industry are which new regulations are likely to emerge, the sectors that will be positively or negatively impacted and what the pathways to decarbonisation are. “This understanding helps articulate the dialogue with portfolio companies to decipher their own disclosures so that we, as an asset owner, can appraise the risk-return profile of the company in a climate change context and structure the appropriate engagement message.”
Nathalie Jaubert, Deputy Head of Group CSR, BNP Paribas, said during the same panel that she expects a lot to happen during the transition to a cleaner economy that constitute risks or uncertainty, and could make joining alliances a challenge. However, it is one worthwhile taking. “There is a big step between the 2C scenario and the 1.5C scenario. It’s quite a challenging choice for us to join the 1.5C alliance but we expect to have big technological change in the middle”.
Renaud Guidée, Group Chief Risk Officer, AXA and Chair of the Net-Zero Insurance Alliance commented: “We, insurers, are uniquely positioned to have a comprehensive impact on climate change because we are asset owners with a large balance sheet, investors and underwriters, providing coverage and protection to our clients, both corporate and households. Historically, there’s been a bit of a lag between the actions we could take on the investment side and on the insurance protection side.” AXA, for instance, pioneered the industry by removing coal from its investment portfolio back in 2015, and replicated this approach to the underwriting side 18 months later. “The metrics to measure carbon intensity are less mature for insurance than for investment, it’s something we are building within the Net-Zero Insurance Alliance.”
Beyond Glasgow, all eyes will be on the financial sector to define what the concrete next steps will be in order to finance and accelerate the transition.