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Weekly round-up: April 18-22

April 22, 2022

The top five climate risk stories this week

1) GFANZ pressured to raise climate ambitions

Strong leadership is needed to stop the Glasgow Financial Alliance for Net Zero (GFANZ) from becoming a “smokescreen” to mask inaction by banks, asset managers, and asset owners on decarbonization, climate groups say.

In a letter sent Thursday, on the first anniversary of GFANZ’s founding, nonprofits including Reclaim Finance, Rainforest Action Network, and Urgewald argue that “without a major increase in ambition” the goal of halving financial institutions’ portfolio emissions by 2030 is unlikely to be achieved.

GFANZ was set up in April 2021 by UN Special Envoy for Climate Action and Finance Mark Carney as a forum for top financial institutions to drive the net-zero transition. It hosts a series of sector-specific coalitions including the Net-Zero Banking Alliance, Net-Zero Asset Managers Initiative, and Net Zero Investment Consultants Initiative.

The letter says that despite joining GFANZ, major financial institutions have shown few signs of cutting financing to the fossil fuel industry. Data gathered by the Rainforest Action Network indicates that the 44 largest members of the Net-Zero Banking Alliance pumped $143.6 billion into 75 oil and gas expanders in 2021 alone. Reclaim Finance’s coal policy tool shows that just 60 out of 240 of the largest GFANZ members have rules barring support for coal companies that are developing new coal projects.

To make GFANZ more effective, the climate groups say it should require member firms to set interim decarbonization milestones for 2030, make them adopt absolute emissions targets, and prohibit the use of carbon offsets in reaching their emissions goals. They also say the constituent alliances should establish processes to kick out members that do not comply with GFANZ’s policies.

2) Asset managers continue to back fossil fuels — report

Major asset managers have $550 billion invested in companies expanding coal, oil, and gas production, an analysis by climate group Reclaim Finance shows.

The assessment found that weak policies and patchy investment guidelines allow the asset managers to continue financing fossil fuels even though many have pledged to zero out the emissions associated with their portfolios. Reclaim Finance covered 30 asset managers in its analysis — including BlackRock, Vanguard, and PIMCO — of which 25 are members of the Net-Zero Asset Managers Initiative. 

“Leading asset managers are kicking the can down the road without even asking companies to stop worsening the climate crisis,” says Lara Cuvelier, a campaigner at Reclaim Finance. “Let’s be clear: drilling a new oil well or opening a new coal mine is not a normal thing to do in a widespread climate catastrophe.”

The analysis further shows that 13 of the asset managers do not have a policy on coal investment, and 18 have no policy on oil and gas. Furthermore, of those firms that do have such policies in place, only seven prohibit investments in companies building out new coal projects and none restrict financing for oil and gas supply. In addition, just 10 of the asset managers have published 2030 decarbonization targets — and then for only a small slice of their overall portfolios.

Reclaim Finance ranked the 30 asset managers using an in-house scorecard that covers their fossil fuel investments, exclusion policies, and the content of their engagement policies. This identified Vanguard — the world’s second-largest asset manager — as the worst performer, alongside Natixis IM, Loomis Sayles, Credit Suisse AM, BNY Mellon Insight, and PIMCO.

3) Texas finance chief grills asset managers on fossil fuel policies

Texas’s state comptroller has asked 100 asset managers about their fossil fuel exclusion policies in line with a new law that bars state agencies from investing with financial institutions that boycott energy companies.

Letters sent to managers including Vanguard, State Street, and Goldman Sachs Asset Management seen by Responsible Investor request details on their restrictions on fossil fuels and lists of all funds that limit allocations to fossil fuel companies.

Under a Texas law passed last September, state agencies — including the $201 billion pension fund the Employees Retirement System of Texas — are prohibited from allocating funds to firms that restrict fossil fuel investments. 

In March, the Texas state comptroller sent a first tranche of letters to 19 financial institutions including BlackRock and JP Morgan. Responses from both rounds of letters will inform which companies the comptroller places on the list of prohibited financial institutions.

A firm that fails to give details to the comptroller of its fossil fuel policies within 60 days of receiving a letter will be presumed to be boycotting energy companies and added to the list.

4) California exposes insurers’ fossil fuel investments

Insurers in California had $536 billion invested in fossil fuels in 2019, a new analysis of the Golden State’s underwriters shows.

Head of the California Department of Insurance (CDI), Commissioner Ricardo Lara, released on Monday a new report and database tracking the state’s insurance companies’ holdings in oil, gas, and coal entities. The database also details insurers holdings in green bonds. In 2019, Californian insurers had $11.4 billion allocated to these climate-friendly instruments, up from $5 billion in 2018.

“This report is part of my continued comprehensive strategy to address insurance companies’ fossil fuel exposures and hold them accountable while letting consumers judge these companies’ progress on climate action for themselves,” says Lara.

The CDI has spearheaded efforts to improve disclosure of insurers’ climate-related risks both statewide and across the US. On April 8, Lara — along with other state insurance commissioners — successfully pushed the National Association of Insurance Commissioners to adopt a new standard for climate reporting based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The change should lead around 400 insurance companies and groups to produce TCFD-aligned reports this year, up from just 28 in 2021.

5) Investors roll out framework on corporate climate engagement

A coalition of investors with €51 trillion in assets under management has released a guide on how to persuade portfolio companies to decarbonize.

The Net Zero Stewardship Toolkit, published by the Institutional Investor Group on Climate Change (IIGCC) on Thursday, offers a framework that pension funds and asset owners can use to undertake portfolio analysis, prioritize investee engagement activities, and set net-zero alignment criteria for companies. 

It also includes a guide to communicating climate expectations to companies and implementing a standardized approach to voting on climate matters at investees’ annual general meetings.

“The toolkit provides clear parameters and a systematic framework for what good corporate engagement looks like, including escalation actions, such as filing a shareholder proposal, to be used when time bound objectives are not met,” says Stephanie Pfeifer, Chief Executive Officer at the IIGCC. “This gives investors a clear process with tangible actions in order to engage companies and pressure laggards where progress on climate-related matters is insufficient.”