Moving the trillions: Net-zero finance coalitions post big updates at COP27, but greenwashing concerns persist

Today (9 November) is finance day at COP27 in Sharm El Sheikh. To coincide with the theme, several of the world’s biggest collaborative initiatives on net-zero finance, across various parts of the finance space, are posting progress updates and confirming new members.

The Net-Zero Asset Managers Initiative (NZAM) has confirmed that it now represents 291 organisations, collectively responsible for some $55.3trn of assets under management. A further 86 of its members have announced initial targets for addressing their portfolio emissions today, bringing the total number of members with specific targets to 169. These 169 organisations collectively manage $21.8trn of assets.

NZAM has emphasised that the new targets are “a starting point only” and only “represent what asset managers can feasibly commit to today”. In other words, initiative members will be required to ratchet up targets and broaden their scope as the global market for net-zero-aligned asset management opportunities grows.

The Institutional Investors Group on Climate Change (IIGCC) is one of NZAM’s network partners. The organisation’s chief executive Stephanie Pfeifer said: “Building on the initiative’s positive start, the focus must now be on supporting managers to increase their targets and turning commitments into action with an emphasis on supporting real world emission reductions – without this, the likelihood of limiting temperature rises to no more than 1.5C becomes more distant.”

The UN stated last week that the world is currently on track for a 2.5C increase in global temperatures by 2100 on pre-industrial levels.

Also posting progress today is the Paris-Aligned Asset Owners (PAAO) initiative, which has released its first annual progress report. It confirms that 40 asset owners have set their initial interim targets on the road to net-zero by 2050 at the latest, out of the 57 signatories to the initiative. Overall, the initiative represents $3.3trn of assets under management.

PAAO interim targets should be for 2030 and cover emissions across all scopes. They should be consistent with asset owners playing “their fair share” in contributing to a global halving of emissions this decade.

Also posting a small update today is the larger Net-Zero Asset Owners Alliance (NZAOA), which has confirmed that it now represents 80 members collectively managing around $10.9trn of assets. Its most recent progress report published in September, confirmed that 44 members have set 2025 and 2030 decarbonisation targets.

Banking on it

Away from the asset owner and manager space, the Net-Zero Banking Alliance (NZBA) has launched its first progress report, confirming that it has tripled in size since it was founded in April 2021 with 43 founding banks. It now comprises 122 members that collectively represent around 40% of the global banking sector.

The progress report captures interim decarbonisation targets of around 60 NZBA members and notes that 90% of members submitted such targets on time. Targets, the report’s introduction states, should prioritise high-emission sectors and be aligned with 1.5C-aligned transition pathways that are “credible” and “science-based”. It also emphasises that initial targets must be built upon in the future.

ShareAction argued earlier this week that many banks participating in the NZBA are making decisions which will undermine their targets and called for members to close loopholes in target-setting. For example, many members have targets covering some high-emission sectors but not others.

A report from ShareAction states that while 80% of NZBA members have at least one sector-specific target, just 16% of NZBA members have set interim targets that cover financed emissions in all sectors. Members included in this cohort include Lloyds Banking Group and NatWest.  Target-setting was found to be particularly weak for the agriculture and chemicals sector.

ShareAction has also raised concerns that NZBA members are allowed to set emissions intensity metrics. They could support high-emission companies which are growing and producing more emissions on an absolute basis, so long as the intensity of their production decreases. ShareAction argues that this is not a science-based approach.

Xavier Lerin from ShareAction’s research team said: “Banks have a vital role to play in financing the transition to net zero that people around the world are counting on for a liveable future – they should act now to ensure their decarbonisation goals are far more ambitious. The NZBA needs to demonstrate stronger leadership to keep members on track, for example through compliance monitoring and an accountability mechanism.

“It’s clearer than ever that we can’t rely on voluntary initiatives alone – governments should step up with robust regulation to ensure companies are taking meaningful rapid action to get us to a 1.5C world.”

Elsewhere, the Glasgow Financial Alliance on Net-Zero, which launched at COP26 and now covers around $150trn, has not posted a major progress report, but has provided guidance to members on producing net-zero transition plans. The UK is pushing ahead with plans to mandate large, high-emission companies to publish transition plans and other nations may well follow suit in the coming years. Earlier this week, the Transition Plan Taskforce commissioned by the UK Government published its first guidance on creating ‘gold-standard’ plans, applicable to finance sector players and to corporates.

Related news: Finance sector failing to measure or report impacts on society and the environment, report shows