When the world’s “mission-aligned” banks came together in Glasgow at COP26 last month under the banner of the Glasgow Financial Alliance for Net Zero to outline their role in the transition to net zero – the key finance sector contribution to the climate change conference - only two Australian banks were involved.
GFANZ was formed in April and by the time its chair Mark Carney presented at the conference it had attracted 450 members. Its banking sub-group, Net-Zero Banking Alliance, has 92 members with US$63 trillion of assets – an estimated 40 per cent of global banking assets. Members have given a commitment to align their lending and investment portfolios with net-zero emissions by 2050.
Macquarie Group chief executive Shemara Wikramanayake is a member of the GFANZ principals group. The only Australian members of the Net-Zero Banking Alliance are Macquarie and ANZ.
Carney said GFANZ’s goal is to transform the global financial system in order to finance investment in a net zero economy and to achieve this through an orderly transition to sustainability.
Describing GFANZ as the “core of the financial system”, Carney said it was developing best practice tools and methodologies so that “the climate is at the heart of every financial decision”.
It has produced a program of work that includes net zero alignment. Members must set and publish net zero transition strategies, commit to transparent reporting and accounting on progress against those targets and adhere to strict restrictions on the use of offsets.
It will set financial sector expectations of transition plans that GFANZ members invest in, insure and finance. And it will work with financial institutions on the design and implementation of their transition plans “to encourage upward convergence in their level of ambition”.
GFANZ is aligned closely with the Task Force on Climate-Related Financial Disclosures (TCFD), the Sustainable Markets Initiative, the World Economic Forum and other “mission-aligned” organisations.
The outcomes from COP26 will accelerate the flow of money away from businesses and projects that cannot demonstrate sustainability, increase investment in climate adaptation initiatives in the developing world and enhance transparency over commitments businesses make to curb emissions.
The focus on public and private sector green financing represents a growing opportunity for the banks, which a number of Australian banks have talked up in recent months.
The quid pro quo will be stricter lending practices, greater scrutiny on fossil fuel financing, a requirement for detailed transition planning and demands for greater transparency and more detailed reporting. The banks are less vocal about this.
ASIC underlined this point in a statement this week, saying the International Organisation of Securities Commissions recently examined corporate sustainability disclosure practices globally and found that investor demand for transparent, comparable sustainability related information is often not being met.
ASIC said the International Sustainability Standards Board, established by the International Financial Reporting Standards Foundation last month, “would address these challenges”. The ISSB will be responsible for developing global standards for sustainability disclosures for the capital market, building on existing work done by the TCFD.
ASIC said that in the meantime companies should use the TCFD recommendations