Two years of GFANZ: navigating portfolio decarbonization in the financial industry

In order to achieve this goal, banks are being prompted to take a holistic approach to portfolio decarbonization, considering not only the carbon footprint of their investments but also the entire value chain of their financing activities. This will require significant effort and investment, but it will also create new business opportunities in the low-carbon and sustainable financial markets.

In the face of these challenges, the Glasgow Financial Alliance for Net Zero (GFANZ), a community of over 550 global financial institutions, will be celebrating its second anniversary in April. Established in 2021 by the UN Special Envoy on Climate Action and Finance Mark Carney and the COP26 presidency, GFANZ has been instrumental in raising awareness and creating a strong presence in the financial industry around the importance of fully decarbonizing portfolios by 2050.

GFANZ is currently working to broaden the finance sector's participation in the Race to Zero campaign by ensuring that all sub-sectors of finance have credible net-zero commitments backed by robust targets and transition plans. To this end, it is deepening the pool of financial institutions committed to net-zero emissions targets, raising ambition across the financial system through strategic coordination and collaboration, and showcasing the collective efforts and achievements of the sector in transitioning to a sustainable, zero-carbon future.

In just two years, the conversation surrounding banks' financed emissions and net-zero strategies has shifted from being a ‘nice-to-have’ to becoming increasingly common in business practices. Banks are now thinking about how they can decarbonize their portfolios, efficiently manage climate risks, and still achieve decent profits. GFANZ members have adopted tools for reducing real-economy emissions, a framework for net-zero transition planning, and guidance on measuring portfolio alignment. They are supporting the development of an open-data utility and have committed themselves to transition finance in emerging markets. 

GFANZ aims to deliver up to $100trn to help economies transition to net-zero over the next three decades. The alliance's members have committed to science-based targets and will review their targets every five years. UNEP FI (UN Environment Programme Finance Initiative) has laid out a framework for a credible, transparent and comparable science-based commitment for an FI, with 11 recommendations including setting near-term targets, striving for full scope 1, 2, and 3 emissions coverage, financing the transition, and transparency on metrics and progress.

However, the journey towards net-zero is expected to be challenging, as acknowledged by Shemara Wikramanayake, the CEO of Macquarie Group. “We know emerging market and developing economies face specific transition challenges and that current climate finance flows are insufficient to meet the ambitions of these countries,” he commented. Despite the difficulties, this transition also presents an opportunity for banks to tap into sustainable revenue markets and work together to design a more sustainable future, as evidenced by Wikramanayake’s emphasis on the alliance members’ commitment “to working together as a finance community, and in partnership with governments and policymakers, to create the conditions required to deliver the urgent step change in public and private finance flows.”

As we look towards 2023 and beyond, we can expect banks to ramp up their portfolio decarbonization initiatives and strategies. This shift will have a significant impact on the banks themselves, as well as their customers. The environmentally conscious market continues to grow, and banks will need to adapt their strategies to meet this demand.

The topic of net-zero and portfolio decarbonization in the banking sector will be explored by Qorus through a series of initiatives within the Sustainability & Regulation Community. These initiatives include an interview series dedicated to this topic, a Qorus position paper, a Leaders' Roundtable event that analyzes the outcomes of the race to net-zero emissions, and the Best Practices Forum, which will take place on March 2. 

The Best Practices Forum will bring together leading experts to discuss challenges and opportunities related to GFANZ’s aims of industry portfolio decarbonization and discuss the impact of the role of banks in driving the transition toward a more sustainable future. The Forum will provide a platform for banks to continue evolving and adapting their strategies to meet the demands of a changing landscape, and ensure their readiness for a zero-carbon future.

Click here to join our Sustainability and Regulation Community’s Best Practice Forum: ‘Two years of GFANZ – what´s next?’ to stay up to date on the latest news and developments in this space.