The Pushback: Carney Addresses ‘Tension’ After Bankers Balk at CO2 Plan

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Mark Carney has dismissed reports that Wall Street banks threatened to walk out of the climate-finance coalition he heads, but also said that “tension” within the group needed to be addressed.Responding to questions at a hearing on Monday held by the UK’s Environmental Audit Committee of the House of Commons, the former Bank of England governor who now co-chairs the Glasgow Financial Alliance for Net Zero, said no institutions had “indicated to me any decision” to leave the group.

JPMorgan Chase & Co, Bank of America Corp. and Morgan Stanley had signaled they may pull back from GFANZ should membership entail binding restrictions on fossil finance, according to people familiar with the matter. In response to their concerns, the UN-backed group Race to Zero walked back its proposal that GFANZ members commit to phasing out the financing of gas, oil and coal.

“Guidance given by one of the associated partners of GFANZ had to be adjusted,” Carney said. “It is a tension obviously that needed to be reconciled.” He also noted that GFANZ has grown over the past year, and now has well over 500 members representing about $150 trillion in assets.

“You may have read some headlines about people leaving or thinking of leaving,” Carney said later on Monday, during a speech delivered at London’s Mansion House. But, “you will be surprised to hear” that GFANZ assets have gone up, he said.

In response to the backlash from bankers, Race to Zero recently revised its language to say that it’s up to individual members of the net-zero alliance to find their own path to a 1.5C-aligned business model, without setting binding requirements. It has argued that the substance of its proposal remains the same, despite the change in wording.

The UK’s Environmental Audit Committee is trying to establish the role of finance in Britain’s national effort to meet its net-zero obligations. After being successfully sued by a group of climate activists earlier this year for putting forward an unclear net-zero plan, the UK was recently told by firms including GFANZ members BlackRock Inc. and Vanguard Group Inc. that a phase-out of fossil finance is unrealistic.

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Estimates for how much is needed to achieve the goal of net-zero emissions by 2050 vary. BNY Mellon Investment Management and Fathom Consulting put the figure at $100 trillion, while the International Energy Agency has said the amount is closer to $125 trillion.

Asset managers and banks have argued that it’s unreasonable to expect them to stop supporting oil and gas clients when governments themselves often fail to provide the regulatory and legislative frameworks needed to underpin such policies.

Carney, who has in the past cautioned against heaping too much criticism on the finance industry’s efforts to cut emissions, told lawmakers on Monday that “in order to have an economy moving to net zero, you need to have a financial system that is orientated to net zero.”

As governments and regulators get a better sense of how the finance industry is tackling emissions, it might make sense to gradually introduce stricter requirements, Carney said. It would be prudent to lay the groundwork now, “as it tends to take a couple of years” before such rules can be rolled out, he said.

“Over time we will see how financial institutions perform against those targets,” he said. “Some will miss, others will hit and some will outperform; the question will be, is it because they are not very good at it or don’t take it seriously. Or is it a lack of ambition in climate policy more broadly?”

Ultimately, companies that make progress on their climate goals will be worth more, Carney said.