This is my second attempt at this month’s op-ed. The first is best summarised as a long-form I-told-you-so essay about what net-zero initiatives should have done differently. My personal experience is that people love to hear “I told you so”, especially from somebody who doesn’t have a “I told you so” reputation, so this felt like a firecracker!
Joking aside, “I told you so essays” can be important. They help us collectively learn from mistakes. But at the same time, we are where we are (I know, incisive stuff!). We can talk about the mistakes, sure (like sticking to the 2050 yardstick under US political pressure and thus closing the door to swathes of emerging market financial institutions, or a comms strategy that cashed checks with their mouth that the body couldn’t cash). All fair game.
More interesting than that though is a different question: where does GFANZ go from here? The next months will be dedicated to resetting the agenda – for GFANZ as well as the net-zero target-setting initiatives. What should that look like?
This is what the conversation needs to be about now. Like Eminem in the cinematic masterpiece “8 Mile”, GFANZ will have to see whether they can capture the moment, or “just let it slip”.
One of the key original criticisms of GFANZ was always the “letting policymakers off the hook” narrative that suggested the net-zero initiatives led policymakers to believe that the private sector would sort it out.
Well, that narrative has been “chewed up and spit out and booed off stage”. You would be hard pressed to find a policymaker still believing that narrative (if they ever did).
GFANZ can now reset that narrative, using its platform for some brutal honesty about where policy is working, where it is falling short, and what is needed to get capital to align with net zero. Moving away from hypothetical scenarios to defining the concrete policy gap to scale capital at home and abroad.
In this sense, Carney’s recent decision to leave GFANZ is perhaps an unintended asset. Unmoored from the UN process, GFANZ – at least behind the scenes – may actually be freer to drop truth bombs to policymakers about the climate policy gap.
I am not naive enough to think financial institutions won’t act self-interested. I appreciate some NGOs may shudder at the idea of more financial institution lobbying. And there is a big cultural reset required to play that role.
On the other hand, a dose of reality from the financial sector may actually spark more, not less policy action. Someone has to put out the fires, whether that is in Los Angeles or around the world.
GFANZ will also have to reset its relationship to the net-zero initiatives, themselves in a flux. This is where the next existential crisis looms (if it hasn’t already landed). Somewhat lost in the “exodus” that has even forced Responsible Investor to source new “exit” stock images, is the looming 1.5C crunch.
What will the net-zero initiatives do when the 1.5C no-overshoot goal is fully off the table? Sure, the 2050 net-zero targets are not necessarily tied to the temperature goal, but there will be a moment when “the clock’s run out, time’s up, over, blaow!”
Target-setting straitjacket?
There are other issues. As I argued in my last op-ed, there are meaningful challenges to a target-setting protocol that continues to centre on portfolio emissions reductions. Target-setting initiatives always struggled to address the different realities of financial institutions in different jurisdictions.
All of these challenges are difficult to negotiate within the current straitjacket of target-setting initiatives.
Tackling the climate crisis is a multi-decade challenge. Setting private sector action on firmer footing, as painful as this process inevitably will be, may be good for the long run.
While GFANZ no longer serves its original function in relation to the net-zero initiatives, it can be an ally and friend to trial and test alternative ways of thinking and doing business that drive the transition to net zero, building on what is now 10-plus years of climate target-setting experience.
Of course, GFANZ has already defined another key focus – mobilising capital for emerging markets. This is a sensible path, shadowed by the newly spun-off Global Capacity Building Coalition. Maybe this renewed focus will allow GFANZ to “lose itself in the moment of emerging market action” (paraphrasing here ever so slightly).
Trump’s election and the year preceding it involved, for some, “snapping back to reality”, after what can only be labelled a responsible-investment honeymoon.
For many, it will have been a rude awakening, not least GFANZ itself. But the world is a big place, and emerging and developing markets are inevitably where much of the transition will be made or broken.
Ultimately, crises breed opportunities. In this case, there is a clear opportunity to create something that doesn’t actually currently exist – an honest “lab” that can interface with the net-zero target-setting initiatives, NGOs and climate (and financial policymakers).
Such an honest conversation will create strong disagreements, undoubtedly. But those conversations can help identify the opportunity set that private sector actions represent – and where, without policy – these actions will fall short. A crucial piece of the net-zero puzzle.
Some may simply want GFANZ to go away now, to let the net-zero initiatives crack on with their work.
I don’t think we will be well served if that happens. After all, as Eminem teaches us: “Success is my only option, failure’s not.”
Jakob Thomä is co-founder of Theia Finance Labs (formerly Two Degrees Investing Initiative), research director at Inevitable Policy Response and professor in practice at University of London SOAS.
