Campaigners claim new rules ‘throw down the gauntlet’ to the various net zero alliances in the finance sector
The Race to Zero campaign has significantly raised the threshold that investors, companies, cities, and sub-national governments must meet to credibly claim to be working towards net zero emissions by mid-century, in a move that should, in theory, turbocharge the near-term decarbonisation of corporate and investment activity around the world.
The group, an initiative from the UN climate convention, this morning published new criteria that its ten thousand members must meet within a year or risk exclusion from the campaign.
The document focuses in a large part on what is required of members to achieve the 50 per cent cut in global CO2 emissions that leading climate scientists say is needed by 2030 if the world is to move on to a 1.5C warming trajectory.
Members of the campaign must commit, at a minimum, to halting deforestation and “phasing down and out” all fossil fuels, by restricting the development, financing, and facilitating of new fossil fuel assets. No new coal projects should be enabled through the acitivities of Race to Zero members, it stresses.
Nigel Topping and Mahmoud Mohieldin, High-level Climate Champions for the COP26 and COP27 climate summits, said the criteria would shine a light on those members failing to take meaningful action to drastically reduce their emissions.
“The clarity these criteria provide, together with strengthened data transparency, will help us identify the progress made and gaps remaining,” they said in a joint statement. “They will clearly show those actors who are truly moving ahead versus those who are trying to find loopholes. We urge all Race to Zero actors to keep stepping up, or risk being removed from the Race.”
The new rules will apply to a huge chunk of the global economy, including the 450 financial institutions that make up the Glasgow Financial Alliance for Net Zero (GFANZ), a coalition of bankers, insurers, investors, and asset managers responsible for more than $130 tr of assets under management, or roughly a third of the global economy.
Since its launch at the COP26 Climate Summit by former Bank of England governor Mark Carney, GFANZ has faced fierce criticism with some environmental campaigners alleging it has become a vehicle for some of the world’s most prolific fossil fuel financiers to claim to be working towards a low -carbon economy, despite being the enablers of the activities that threatens climate goals.
The group, which includes many of the world’s largest banks and institutional investors, does not set its own compulsory decarbonisation requirements for members but requires them to comply with the Race to Zero’s criteria. Up to now, Race to Zero’s criteria have not included any explicit rules around phasing out or down fossil fuels, despite coal, oil, and gas being the main contributor to glabal warming.
As such the new Race to Zero rules could present a significant challenge to large numbers of investors and corporates that have net zero targets in place, but are continuing to invest in fossil fuel assets while arguing that they are working to transition over time to a zero carbon economy. Specifically, the new criteria will mean GFANZ members must now ensure their headline climate targets account for the emissions produced by the projects they help to finance and facilitate. This inclues all emissions caused by their investments, lending, underwriting, and insurance, as well as the Scope 3 – or indirect – emissions of the companies they provide services to.
Climate targets must also include “land-based emissions”, under the new rules, posing a particular challenge to large numbers of multinationals that operate with sprawling global supply chains that can have huge land use impacts.
In addition, the Race to Zero campaign has now mandated that all its members develop transition plans which show how they intend to meet their climate ccommitments, setting out a schedule of actions for the coming 12 months, for the next two to three years, and for the period through to 2030.
And Race to Zero members must ensure their direct and indirect lobbying and engagement activity is aligned with science-based climate goals and as they are required to publicly disclose all such trade association affiliations within 12 months of joining. Race to Zero members are required to leave industry bodies that do not align their activities with scientific decarbonisation pathways.
The new criteria stress that all state and private sector actors signed up to the campaign must commit to a “fair share” of the required 50 per cent developing emissions cut by 2030, acknowledging that members in countries “may require more flexibility” and could find It is challenging to meet the goal.
The implication is that financial institutions and businesses operating primarily in richer nations will need to go further than halving their emissions before the decade is out if they want to ensure a ‘just’ transition where they account for a fair share of the remaining global carbon budget .
Paddy McCully, senior analyst at the Reclaim Finance campaign group, said the new criteria “throw down the gauntlet” to GFANZ and its co-chairs Mark Carney and Mike Bloomberg, noting that the rules should precipitate “major improvements” in what alliances demand from their members.
“GFANZ is going to have to stop waffling on fossil fuels, and will have to insist that its members stop providing financial services to the companies driving the climaticide of coal, oil and gas expansion, while massively increasing their financing of the clean energy transition, he said.
The Race to Zero said its official partners – the various initiatives and networks that comprise its membership – would be for ensuring their members meet the new criteria. Its own ‘expert peer review group’ will then review all partners’ activities, it added.
Beyond the various alliances that make up GFANZ, Race to Zero partners include the SME Climate Hub, the Certified B Corporation sustainable business group, Cities Race to Zero, The Climate Pledge, and the Business Ambition for 1.5C initiative.
Race to Zero confirmed it was also developing an “accountability mechanism” that would ensure members who “persistently fail to comply” with criteria would be ejected from the group.
It expressed hope that its new criteria would ultimately lead to a higher level of international standard-setting around private and public sector climate plans and goals.
“The criteria consultations showed both how far the world has come on operationalizing credible net zero pathways, and how much more there is to do on implementation,” said Thomas Hale, co-chair of the Race to Zero’s expert peer review group and professor at the Blavatnik School of Government. “We now have a much stronger consensus around what makes a company, city, region, or investor’s approach to net zero weak, acceptable, or exemplary. The challenge to them now is to sprint ahead.”
On top of setting a minimum ‘floor’ for companies, investors, and local governments signed up to the initiative to comply with, the report outlines “leadership practices” for firms and groups to strive for. These include commitments to protect biodiversity and halting deforestation, and efforts to extend decarbonisation efforts beyond their own value chain or territory.
In related news, GFANZ has this morning published new net zero transition plan framework for the financial sector, a tool that is designed to help financial institutions prove their climate plans align with credible emissions reduction pathways.
The group is now inviting views on the framework, which sets out four “essential approaches” that institutions must follow. These are: financing the development and scaling of net-zero technologies or services to replace high-emitting sources; increasing support for companies that are already aligned to a 1.5C pathway; enabling high and low-emitting real-economy companies to align business activity consistent with a 1.5C pathway for their sector; and accelerating a “managed phaseout” of high-emitting assets through early retirement.
Mark Carney, co-chair of GFANZ, and UN Special Envoy for Climate Ambition and Solutions, said the framework would encourage investors to redirect capital towards companies with “robust and credible” plans to reduce emissions.
“The supporting tools will promote the responsible and transparent phaseout of stranded assets as part of an orderly transition,” he said. “Together, these tools, frameworks, and resources will guide the financial sector to support real-world decarbonisation, not the false comfort of portfolio decarbonisation. In the process, they will reveal the contribution of financial institutions to solve one of humanity’s greatest challenges. “
But campaigners were less than impressed, arguing the framework stopped short of requiring members to stop financing the expansion of fossil fuel projects that climate scientists and the International Energy Agency have warned is urgently required to reach global climate goals.
“All this talk of ‘transition’ is worrying when you consider that no major oil client of a financial institution is transitioning in the right direction,” said Beau O’Sullivan from the Bank on our Future campaign. “They are all expanding oil and gas production. For financial institutions to make good on their net-zero commitments, it requires GFANZ members to stop financing the expansion of fossil fuels, and rapidly increase capital for clean energy. We need to see quick evidence. that today’s guidance will lead to exactly that.”
The significance of the new rules from the Race to Zero campaign should not be understated. The group counts just shy of 10,500 members, including the financial giants whose decisions underpin the direction of the global economy. The update also comes in the same week as a separate report highlighted how over 80 per cent of the global economy and 90 per cent of global GDP are now covered by net zero targets, even as questions remain over the effectiveness and credibility of the strategies designed to deliver on those targets.
If the new net zero requirements set out by Race to Zero are heeded, they could usher in a step change in the global effort to reduce emissions in the short to medium term by ensuring companies ramp up decarbonisation efforts and investors drastically curtail the amount of capital flowing into polluting fossil fuel projects. They could also bring fresh credibility and help enhance the reputation of the corporate and financial net zero movement, which has taken something of a battering in recent years amid accusations of greenwash.
Thousands of companies and governments have signed up to the Race to Zero in recent years. The big question now is how many of them are willing to abide by the rules as they strive to reach the finish line?