An uprising by banks in a United Nations-sponsored climate coalition has been quelled but opened wounds that could weaken an alliance meant to funnel trillions of dollars to fund the transition away from fossil fuels.
Getting banks to sign on to the coalition was a marquee achievement of the UN climate conference in Glasgow. Since then, fuel shortages and pressure from politicians and regulators led banks to push back against what they thought were tighter rules.
Some banks regret joining the group, known as the Glasgow Financial Alliance for Net Zero, people familiar with the matter said. The UN body will likely survive, but its impact could be limited.
“GFANZ is no longer in control,” said Margaret Peloso, a partner at law firm Vinson & Elkins who advises Wall Street firms on climate strategy but not on issues involving the group. “I don’t think they have any authority left.”
Banks and other businesses, under pressure from customers and investors to address climate change, have made commitments to reduce their funding and usage of fossil fuels and offset what they can’t eliminate. Ahead of the climate conference in Glasgow last November, banks and investors signed up for the UN group.
Even before Russia’s invasion of Ukraine highlighted the world’s dependence on fossil fuels, banks said they couldn’t reduce funding for producers as quickly as climate advocates wanted. That belief fuelled tension within the bank group in recent weeks.
Lenders including JPMorgan, Morgan Stanley and Bank of America threatened to exit after the UN published language recommending they restrict funding for fossil-fuel companies and end financing for new coal projects, people familiar with the matter said.
The threat was averted last week when the head of the group reminded them that the UN groups can’t unilaterally set criteria for the lenders.
They are worried about complying with US banking regulations and are facing political pressure from Republican officials about their use of environmental and other criteria in their business decisions.
The group’s organisers, other members and environmentalists are frustrated that the UN coalition appears to be another voluntary climate group with little muscle to force the aggressive changes needed to slow global warming.
“GFANZ needs to answer the question: ‘What is it for and what is it trying to achieve?'” said Ben Caldecott, director of the University of Oxford’s sustainable finance group and an adviser to investors and the UK government on climate issues.
READ Net-zero goals will need $100tn of green finance
The group’s co-chairman and former central banker, Mark Carney, has said publicly that no one told him they thought about leaving. The language in the UN guidelines was too strong and needed to be changed, he said. He has defended the group as valuable and told a UK Parliament group this week that GFANZ had grown to more than 500 members with about $150tn in assets.
A GFANZ spokeswoman said that the work was always going to be challenging and that the group is working with members to resolve their challenges and meet climate goals.
The alliance is in focus ahead of next month’s climate summit in Sharm El Sheikh, Egypt.
The group was launched in April 2021 to bring together industry alliances for banks, insurers, asset managers and other financial sectors. Last November, it said pledges from members to deliver $100tn in private-sector funding by midcentury were “at the scale needed” to meet the goals of the Paris Climate Accord.
It was hailed as the moment the industry was committing to combat climate change.
Some big US banks were among the last to join, signing up only after cajoling from Carney.
The former head of central banks in the UK and Canada, Carney convinced the last holdouts including JPMorgan and Goldman Sachs because the lenders thought he understood their concerns.
The trends in climate finance haven’t changed much since then, in part because of the war in Ukraine. Companies are on track to borrow about $1tn in green and sustainability-linked bonds this year, down from a record of roughly $1.3tn last year, Dealogic data show. Rising interest rates and market volatility have slowed financing in most sectors.
Bonds and loans to fund oil-and-gas companies nearly match borrowing for green projects, as they did last year, the data show. Scientists say green funding needs to be several times more than fossil-fuel financing to avoid the worst effects of global warming.
Meanwhile, Republicans started criticising banks for their climate investing practices and claiming they represent divestment from fossil fuels. Attorneys general in several states last week launched an investigation into the banks joining the UN industry group.
READ Deutsche Bank sets net zero targets to clean up €250bn corporate loan book
The dispute between the banks and the UN group began this summer when a key UN body published guidelines for the group’s members. These included restricting fossil-fuel financing and ending funding for new coal projects.
Banks objected, saying the language went too far and posed legal risks to them. The UN then tweaked the language to recommend practices in line with keeping temperatures from rising 1.5 degrees Celsius, as countries agreed to in the Paris agreement. The change was cosmetic because compliance with the Paris deal entails winding down fossil-fuel funding and ending financing for new coal plants.
Several banks still believed it was moving the goalposts. They threatened to leave unless they got reassurance that the UN couldn’t set binding criteria on its own, the people said. The banks say they remain committed to their climate pledges and will publish progress reports as they go.
The head of the banking alliance gave the upset members the reassurance they wanted in a public letter last week.
Some of the banks also baulked at what they thought were attempts by the UN group to audit their climate plans, the people said.
Critics say the banks are dragging their feet.
“It seems the real reason they’re not willing to comply is they’re not willing to take immediate action on cutting their financed emissions,” said Paddy McCully, a senior analyst at environmental nonprofit Reclaim Finance.
Write to David Benoit at David.Benoit@wsj.com and Amrith Ramkumar at amrith.ramkumar@wsj.com
This article was published by The Wall Street Journal, part of Dow Jones
