The collapse of the idea that a voluntary alliance of financial sector firms could drive sufficient climate and nature ambition is an opportunity to focus on the real issues. This article was written by our Head of Climate and Nature, Jon Dennis, for Buisness Green. The original article can be found here.
2025 has begun with the rapid unravelling of the Glasgow Financial Alliance for Net Zero – GFANZ – which was established amid much optimism in 2021 to help drive financial sector alignment with climate targets. For some time there have been cracks showing, with a series of high-profile departures from GFANZ’s banking, insurance and asset management alliances within the past year. This has accelerated since the turn of the year, with the biggest US banks all jumping ship in quick succession. Most recently, this week saw the suspension of activity of the Net Zero Asset Managers, following the departure of its biggest member, Blackrock.
This unravelling has come against a backdrop of increasing politicisation of net zero and the ‘ESG’ agenda, especially in the US. It has undoubtedly been exacerbated by the result of the US election. The alliances have also long struggled with the – now scrapped – entry requirements imposed on participating members, a point of contention for external pressure groups, especially given the absence of meaningful accountability mechanisms for any targets set.
The failures of GFANZ should prove once and for all that voluntary initiatives alone will never be enough to bring the finance sector in line with climate targets. While GFANZ has provided some value as a venue for cross-entity collaboration and contributed to the development of certain standards and practices, this has not been enough to drive market-wide change at the speed and scale which the transition demands. At the same time, vast sums have continued to flow into fossil fuels and other harmful sectors. Market action on a voluntary basis must be accompanied by strong policy and regulatory measures that set and enforce higher standards across the board. Though GFANZ was never intended to be a substitute for government action, it often came to be seen as such, including by governments. This has been a dangerous misinterpretation and has arguably delayed the implementation of more effective and proactive policy and regulation.
Aligning the financial system with climate and nature goals relies on government leadership now more than ever. The resurgence of industrial strategy in western countries, and the major lead that China has taken in green technologies, demonstrates the important leadership role that governments can play to proactively shape markets. The pressing question now is whether these efforts will be enough to mobilise the substantial capital needed in the time there is available, while rapidly phasing out finance for the most harmful sectors. The UK’s ambitious clean energy 2030 goal serves as a good example of progressive leadership, but finance sector policy is yet to catch up. For example, the major shake up of the pensions sector announced last year has so far failed to address sustainability, climate and the need to transition the sector. This is especially concerning given the vulnerability of pension funds to the long term impacts of climate change.
The key challenge now lies in generating the political momentum necessary to bring about more ambitious finance sector policy change. Growing political push-back on areas of climate action, in the UK and elsewhere, has become an urgent concern and a real hurdle for government action. The re-opening of EU sustainability files, with their deregulatory implications, serves as a stark reminder of the risks ahead. It is essential that this is countered by the voices of those calling for more and better climate action, from the public and civil society, but also from forward-thinking leaders within the finance sector itself. Financial institutions and their trade bodies will need to overcome some deep-rooted tendencies to oppose the strengthening of regulation. Real leadership will mean proactively advocating for stronger, simpler forms of intervention that promote sustainable investment at scale and accelerate the end of fossil fuel finance.
The collapse of GFANZ as we know it has proved we cannot rely on voluntary market-led initiatives to solve market-generated problems. As the initiative charts a new direction – focused on removing barriers for mobilising capital – attention should now be firmly placed on governments and financial regulators to step up, fill the void and bring about the changes necessary to drive the financial sector and the economy it serves toward a rapid and just transition. The UK positioned itself as a global climate leader during the Glasgow COP with the establishment of GFANZ. Now is the time to reclaim that leadership, meet new challenges head-on and fulfill their promise of making the UK the world’s green finance capital.