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What is the Glasgow Financial Alliance for Net Zero (GFANZ)?
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In 2021 at COP26 in Glasgow, the creation of the Glasgow Financial Alliance for Net Zero (GFANZ) was announced. Now representing over 550 members from major financial institutions around the world, GFANZ is a voluntary coalition that aims to accelerate the global transition to a net zero economy and achieve the target of the Paris Agreement in keeping global temperature rises under 1.5℃.
👉 In this article we’ll explore why GFANZ was created and how it aims to support the global net-zero transition.
The Glasgow Financial Alliance for Net Zero
Launched in April 2021 during the COP26 climate conference in Glasgow, The Glasgow Financial Alliance for Net Zero (GFANZ) was formed as a global coalition of leading financial institutions committed to bringing together existing and emerging finance under one sector-wide coalition.
It provides a forum for financial institutions to accelerate the transition to a net-zero global economy.
Why was the GFANZ formed?
The Paris Agreement was adopted by 195 countries at the UN Climate Change Conference (COP21) in 2015. It aims to keep global temperature increases under 1.5℃ from pre-industrial levels, which will help to avoid the worst impacts of climate change.
In order to achieve this ambitious but crucial target, the whole economy is going to have to transition to net zero - from the government, to individuals, to private companies. Mainstream private finance was recognised as a tool that can be effectively used to help facilitate this transition.
“ Private finance can be utilised to help companies to adjust their business models, and to create realistic plans to transition to net zero by providing the financial backing needed to innovate and push initiatives forward. It has the potential to turn billions in committed climate investment into trillions. ”
However, it was acknowledged that if this is to be successful, coordination across the entirety of the financial system would need to be facilitated to ensure coherency and consistency. This is why the GFANZ was formed.
The purpose of the GFANZ
The Glasgow Financial Alliance for Net Zero (GFANZ) was formed by Mark Carney, UN Special Envoy for Climate Action and Finance and UK Finance Advisor for COP26, alongside the COP26 Private Finance Hub in partnership with the UNFCCC Climate Action Champions, the Race to Zero campaign, and the COP26 Presidency.
“ GFANZ focuses on broadening, deepening and raising net-zero ambitions across the financial system and demonstrating firms’ collective commitments to supporting companies and countries to achieve the goals of the Paris Agreement. It also supports collaboration on steps firms need to take to align with a net-zero future. ”
GFANZ works to:
- Increase participation - encourage financial sector players to participate in Race to Zero.
- Support ambition - net-zero commitments need to be backed by effective targets and transition plans.
- Coordinate action - in order to achieve an economy wide transition to net-zero, coordination across sectors is required.
- Encourage collaboration - the transition to net-zero can be accelerated through technical collaboration that addresses challenges and aligns investment with net-zero targets.
- Highlight efforts - showcase the most ambitious and effective action in the sector.
GFANZ is rooted in Race to Zero
Race to Zero is a UN led campaign that aims to motivate non-state bodies such as companies, cities, educational bodies and financial institutions to join the Climate Ambition Alliance and to take immediate and meaningful action to halve their emissions rates by 2030. It has the primary goal of reducing emissions in line with the Paris Agreement and promotes the use of transparent action plans and targets to achieve emissions reductions.
GFANZ is rooted in the Race to Zero campaign, which means that net-zero commitments adopted by financial bodies must be founded on science-based guidelines, incorporate all emissions scopes (scopes 1, 2 and 3), include interim 2030 targets, and deliver transparent reporting and accounting.
How does GFANZ operate?
GFANZ is led by what's known as the Principals Group, which is made up of leading figures from the financial sector. An Advisory Panel supports their work by centring climate science in their operations and ensuring that GFANZ’s work is of the highest standard. The Advisory panel is made up of NGOS and technical organisations and provides strategic and technical support to facilitate best-practice expertise.
Members of GFANZ are made up of over 550 different financial organisations (including banks, asset owners and managers, financial service bodies, investment consultants, and insurers) belonging to seven different net-zero alliances from across the global financial market. The net-zero alliances that they cover include: Net-Zero Asset Owner Alliance, Net-Zero Asset Managers Initiative, Paris Aligned Asset Owners, Net-Zero Banking Alliance, Net-Zero Insurance Alliance, Net-Zero Financial Service Providers Alliance, and Net-Zero Investment Consultants Initiative.
“ All members have committed to the Paris Agreement target of net-zero emissions by 2050, and have also adopted interim targets for 2030. ”
How does GFANZ achieve its goals?
GFANZ works to provide a forum for best practice innovation and thinking in the financial sector, NGOS, and the economy, in order to propel advancement and promote cohesion in the financial sector’s net-zero efforts.
It focuses on three pillars as part of its ambition to help the global economy transition to net-zero.
- Net-zero implementation - GFANZ supports plans to reach net-zero that are rooted in science, are action oriented and also incorporate short to medium term targets. GFANZ also works to encourage the financial sector to align on methodologies, frameworks, and resources.
- Availability of capital - GFANZ supports the mobilisation of capital to emerging markets and developing economies in order to facilitate their decarbonisation and transition to net zero.
- Public policy - GFANZ leverages its influence in order to promote the creation of robust and ambitious public policies and regulations that promote the net-zero transition.
In order to achieve these three pillars of ambition, GFANZ facilitates a number of working groups who specialise in specific priority areas. They work together with technical experts and a team of COP and UN advisors to transform net-zero pledges into actionable transition plans. In the next section we’ll take a closer look at their work.
Net-zero implementation
The good news is that many financial bodies have already started to develop strategies that align both their business operations and financial portfolios to net zero. Recognising this movement, and also the need for support, GFANZ developed a working group that aims to bolster efforts to create net-zero plans through the provision of best-practice guidance.
By providing clear and robust guidance GFANZ hopes to be able to facilitate the creation of credible strategies that deliver on global net-zero targets.
Let’s take a closer look at how is is achieving this aim.
Net-zero transition plans for financial institutions
GFANZ is working to create global, cross-sector recommendations and guidance for financial bodies to use as they work towards implementing their net-zero transition strategy. Their most recent report, published in 2022 identified and published key financing strategies that are crucial in driving net-zero transition.
Sectoral pathways
Sectoral pathways provide a path for specific sectors to reduce their greenhouse gas emissions within a particular time frame. They set benchmarks for timings and pace of the emissions reductions needed in order to achieve a specific target. They also identify the actions or changes needed to propel emissions reductions within the sector - for example, the innovation of technology, market changes, the implementation of specific policy etc. GFANZ is working to create guidance that will promote the use of sectoral pathways by financial bodies.
Economy transition plans
Rooted in existing net-zero transition plans and climate guidance, GFANZ has developed a guide for use by financial institutions and the companies they invest in, that serves as a reference for financial organisations as they develop their own transition plans.
Portfolio alignment
The financial sector has an important role to play when it comes to redirecting capital flows towards activities that support the net-zero transition and away from those that are harmful. It’s therefore crucial that financial portfolios align with the Paris Agreements net-zero ambitions.
GFANZ is working on the development of voluntary guidance and metrics that will help to establish best practice portfolio alignment strategies, read their most recent report on their website.
Phaseout of high emitting assets
High emitting assets are assets that are incompatible with net-zero ambitions, it’s therefore crucial that these sorts of assets are phased out of use. GFANZ provides guidance on a progressive, managed phaseout approach that helps to facilitate the early retirement of such assets.
Mobilising capital
“ The mobilisation of capital is another one of GFANZ’s core ambitions. The transition to net-zero requires significant financial investment in emerging markets and developing economies and current levels of investment in these areas are far from sufficient if we’re going to be successful in achieving the Paris Agreement by 2050. What’s more, is that attempts so far to expand private financing have been fragmented and challenging to scale up. ”
In order to tackle this challenge, GFANZ established a working group to focus on the mobilisation of private finance in a way that supports transition planning. It aims to achieve this by:
- Influencing international financial architecture needed to funnel investment into both emerging markets and developing countries, balancing both the need for economic and sustainable development.
- Supporting initiatives that have the potential to scale-up capital flow that supports the net-zero transition.
- Participate in the development of a G20-backed country platform architecture that aims to funnel donor money and facilitate economy-wide net-zero transitions. The platform would be supported by donor governments but led by emerging markets and developing economies.
Public policy
Government’s across the world have committed to the Paris Agreement and net-zero transition. However, despite the enactment of laws, regulations and initiatives at a country level to facilitate the achievement of these targets, there have been global challenges that are making reaching these goals difficult.
GFANZ recognises the difficulties that these geopolitical challenges have created but also highlights the need for further global policy frameworks that fix existing market flaws and encourage action on a global scale. GFANZ supports such policy development by offering policy recommendations and guidance on other actions that governments should take in order to better restructure the global financial system in a way that optimises the facilitation of net-zero.
GFANZ also offers strategic input and advice with the intention of influencing global policy and regulatory frameworks. One of the methods it employs to achieve this is public sector and stakeholder engagement.
The future of GFANZ
Experts believe that the private sector has the potential to deliver as much as 70% of the total investment required in order to reach net zero. GFANZ promised to help deliver this investment and to support global economies as they work towards achieving these climate targets. However, for GFANZ to truly prove a success, members will need to be held accountable when it comes to transparency on their carbon contributions, they will need to set detailed, immediate and medium-term targets, and the targets will need to align with credible scientific models.
GFANZ clearly has the intention and the drive to push for net-zero transition, however, it will take more than just good will to succeed. Success requires the backing of governments and international institutions. GFANZ can do the work to highlight what kind of international financial architecture is required to support a global net-zero transition, but its implementation requires actual policy makers to bridge the gap between climate commitments and policies.
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