Although news of BlackRock Inc.’s departure from the Glasgow Financial Alliance for Net Zero may call into question the future of the climate action initiative, the road to net zero is still a priority for many financial institutions, says Sebastien Betermier, associate professor of finance at McGill University’s Desautels Faculty of Management.
The alliance, which was launched in 2021 and co-led by former Bank of Canada governor and Liberal Party leadership contender Mark Carney, introduced major initiatives that aim to strengthen the information, tools and markets required for the global financial system to support the transformation to net zero. By the end of that year, more than 450 financial institutions across 45 countries counted themselves among its participants. As one of the world’s largest asset managers, BlackRock’s departure from the GFANZ earlier this month, as reported by Bloomberg, is significant and comes on the heels of several other financial institutions parting ways with the alliance.
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In light of growing anti-environmental, social and corporate governance movements across the globe, particularly in the U.S., asset managers are re-thinking their approach to achieving net zero, says Betermier, noting they’re catering to multiple clients in various industries that call for a more tailored approach.
“What you’re seeing is the funds are re-shifting their approach to have more of a transition focus than a net-zero focus . . . to help the firms inside their portfolio shift to net zero, rather than having their portfolio per se being net zero. [They’re] divesting in some cases, but keeping that flexibility, so that they’re not stuck in a situation where their assets are green but everything else is not.”
He says that component wasn’t very consistent with the way GFANZ was setup, which has led the coalition to implement several changes to remove barriers to participation, including restricting its net-zero targets so that it can focus on the transition component itself. “So you’re seeing the trend [of] the alliance . . . adapting to the needs of the asset owners. So this is, in my view, broader than the political dimension itself.”
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Indeed, in a statement released in December, the GFANZ announced it’s opening up participation to “any financial institution working to mobilize capital and lower the barriers to financing energy transition.” It’s also broadening the scope of direct participation, which effectively removes the need for organizations to have a net-zero finance or investment commitment already in place.
Betermier notes this inward shift in the financial industry, in which investments organizations are focusing more on individual net-zero goals, has its drawbacks. “The benefit of the alliance brings a forum where its members can commit, discuss and act in a more powerful way together. My fear, though, is that by exiting an alliance and acting more individually, a lot of the collective force is weakened.”
He hopes to see continued collective action, especially in cases where firms have disaggregated ownership and the only way for asset owners to push the needle is to act together. “What I would hope is that moving away from the alliance doesn’t mean that you’re giving up on any commitments in any shape or form. The commitments may change in the way that you’re setting them up, but commitments are good because they establish a vision for the years to come.”
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