One of the announcements made at COP26 that raised the most eyebrows came from Mark Carney, former governor of the Bank of England. As the leader of the Glasgow Financial Alliance for Net Zero (GFANZ) representing member banks, fund managers and insurers, Mr. Carney declared that $130tn of capital would be ‘committed to net zero’. For most of us, this is an incomprehensibly large amount of money. It is approximately 40% of global financial system assets and 6 times larger than the USA’s GDP. There had been real pressure for business to step-up to the challenge of net zero at COP26, but this promise was so colossal that it was widely met with disbelief.

The first problem was what was meant by the announcement was not immediately clear. Many misunderstood and assumed that Mr. Carney meant that there was a $130tn fund backed by GFANZ member businesses that would be spent on climate friendly projects. On realising that the figure referred instead to Assets under Management (total market value of the investments that are managed on behalf of clients), some expected the full $130tn to be directed to green investments. Instead, the sum is perhaps best thought of as the power behind the announcement that the 450 GFANZ member firms have declared their intention to reach net-zero by 2050.

In order to achieve net zero, each GFANZ member firm’s Assets under Management will need to balance. They will still be able to hold fossil fuel investments, but these will need to be balanced by green investments. Other assets included in this total, such as home mortgages, may be seen as relatively climate neutral. Ben Caldecott, director of the Oxford Sustainable Finance Group, called the announcement ‘an important development’ but stressed that ‘We need to communicate responsibly’. It is expected that approximately a third of the $130tn will ultimately be dedicated to green investments. GFANZ states that firms will be required to publish their net zero transition plans, to establish how this will be achieved. Commitments will be scaled up through 5-yearly plans from 2030 to 2050, with annual reporting to monitor whether firms are meeting their commitments.

Another concern raised is that banks, making up half of the figure, have a tendency to count the same asset multiple times due to the complicated chains of lending. The other half of the figure committed is backed by asset managers that have a similar issue due to subcontracting specialist fund management. The value of the unique (single counted) contributions to the fund is unclear, though GFANZ say that they have tried to take this into account in their calculations though admitted there would still be some overlap.

Putting aside the misunderstandings around Mark Carney’s original announcement and the possible double counting that may occur, this is a huge improvement. Before Britain and Italy assumed the presidency of COP26, the value of Assets under Management committed to reaching net zero stood at $5tn – we now have a 25-fold increase. If even a fraction of the total of GFANZ members’ commitments target green investments, there is an exciting world of possibilities for green investment that wasn’t there before. This announcement and related reporting commitments will usher in significant transparency and reporting from GFANZ member businesses and make possible a wide variety of exciting projects from the many green start-ups now entering the market.

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