Discipline needed if GFanz $130tr is to affect climate change
More than just huge sums of money are needed to get the job done
Mark Carney says that his Glasgow Financial Alliance for Net Zero has mobilised $130tr to shift the world to net zero emissions. It’s a mind-boggling figure — but without robust regulation, that’s all it will remain.
At the COP26 forum this week, ex-Bank of England boss Carney drew great attention when he announced that GFanz had more than $130tr of committed private capital from 450 firms across 45 countries. Banks, insurers, pension funds, export credit agencies and stock exchanges are just some of the financial backers.
It must feel like you are really doing something important when that much money is being thrown about. But without those in charge of deploying it being held accountable for doing so correctly, it will do very little to stop the world from heating up.
The ESG financing market is rife with greenwashing and grey areas. The stuff that lurks in the grey zones, needs to be scrutinised and its ESG credentials evaluated. Take sustainability-linked loans, for example. These have quickly become the bread and butter of investment grade lending in Europe, but what if a company fails to meet its targets? Does that still count towards the $130tr? How about lenders that sign SLLs without finalising the key performance indicators on the deal? Can Carney still say that forms part of the GFanz war chest?
The real problem is that the ESG market runs on guidelines — soft suggestions provided by trade bodies like the Loan Market Association and ICMA in Europe. This was fine when the ESG market was nascent and finding its feet, as guidelines give plenty of wiggle room. But the market is a lot bigger and hairier now. It’s time that the rules governing it grew up too.
COP26 has brought the world’s political focus on slowing climate change and on ESG financing. The time for guidelines, best practice and trial and error in markets for ESG-themed products that have ballooned in size is over.
Guidelines must become rules, otherwise $130tr of good intentions and good publicity will not be enough to slow global warming.