It is a quiet way to run a revolution. The Glasgow Financial Alliance for Net Zero, usually a source of constant source of pronouncements, commitments, strategies and statements about tackling climate change, has been borderline mute this year.
Gfanz, as it’s known, billed as a “watershed” by former Bank of England governor Mark Carney when it was announced in 2021, could be forgiven for keeping a low profile. A furious US backlash against all things ESG, led by Republican politicians and attorneys-general, has left the coalition of banks, asset managers, insurers and other money managers in peril.
One of Gfanz’s subgroups effectively disintegrated last week when a series of its biggest global names quit the Net-Zero Insurance Alliance, after 23 Republican state attorneys-general wrote to members suggesting that the commitments involved violated antitrust laws.
This cage-rattling was simply another front in a US political battle that seems increasingly detached from corporate or planetary reality. Those involved in the banks and asset managers grouping have received similar letters. But the insurance collapse emphasises that climate collaboration will need to adapt if it is to survive in useful form.
The insurers, in fairness, were a soft target. From the get-go, they had moved more slowly than other sectors, in part because of competition concerns from a small number of members. State-level regulation of insurance perhaps gave the AGs’ bark more bite. The concentrated nature of some insurance markets may have exacerbated concerns about uninsurability if companies pulled back from certain risks. Changed energy needs in Europe since Russia’s invasion of Ukraine had prompted governments to express concerns about gaps in coverage.
The strong sense is that the attorneys-general were a political annoyance rather than a genuine legal threat. “They’re walking away from the hassle factor,” said Mark Campanale, founder of Carbon Tracker and adviser to Gfanz, of the departing companies. “There is a compelling fiduciary case for this kind of collaboration.”
The real risks of climate change to underwriting business, loan books and portfolio companies are reason to think work on net zero will continue outside alliances. Most companies said as much, with French reinsurer Scor setting new restrictions on oil and gas coverage as it departed. Gaps in coverage are already emerging: US companies State Farm and Allstate have stopped accepting new home insurance policies in California thanks to the state’s wildfire risk. The UK and Europe are moving towards requirements for large companies to have transition plans in place. Even in the US, split asunder politically and with new disclosure rules bogged down, 90 per cent of S&P 500 companies produce an ESG report, according to McKinsey.
But the insurance alliance’s unravelling is a warning. Other boards are alert to the risk that legal departments will be gummed up dealing with umpteen anti-woke letters. The Gfanz purists that have resisted a broad church approach in favour of prescription and compulsion must accept that the effective end of collaboration on these questions is a possibility.
These alliances have often been criticised as unambitious in terms of their goals. But they also have value as technocratic conveners of expertise and facilitators for the development of good comparable plans — not just for current big name members but for the many smaller firms that have yet to get started on transition work.
It is entirely depressing that the insurance alliance fell over while still at the accounting and measuring phase of work — before targets, hard or soft, were set this summer. Ultimately the 2021 conviction that finance can set the pace for transition, as the enabler for most economic activity, is crumbling along with that coalition.
In a conversation characterised by division, there is increasing agreement that it is for governments and regulators to set the markers on what must be done and by when — something that is starting to happen, in Europe at least. “Anyone who thought we could just set up a body like Gfanz and not have governments play the central role was mistaken,” says Ben Cushing, of the Sierra Club’s fossil-free finance campaign. “We should not be deferring that role of setting regulation to voluntary alliances that industry itself has created.”
If Gfanz as a force for change is going quiet, others will need to turn up the volume.