The role of the financial sector in the UK’s net zero transition to be examined by MPs in new inquiry
30 May 2022
The Environmental Audit Committee (EAC) has launched a new inquiry considering the financial sector and the UK’s net zero transition.
The role of financial institutions in decarbonising the economy has been a significant focus of the UK’s presidency of COP26. The Glasgow Financial Alliance for Net Zero (GFANZ) was launched at President Biden’s climate summit in April 2021 by Mark Carney, UN Special Envoy for Climate Action and Finance, and by November 2021 had over 450 financial firms from 45 countries, responsible for assets of over $130 trillion, as members. GFANZ members now account for nearly 40% of total global private financial assets. The firms represented made commitments to “accelerating and mainstreaming the decarbonisation of the world economy and reaching net-zero emissions by 2050”. GFANZ provides a “practitioner-led forum for financial firms to collaborate on substantive, crosscutting issues that will accelerate the alignment of financing activities with net zero and support efforts by all companies, organisations, and countries to achieve the goals of the 2015 Paris Agreement.”
Given the global reach and total assets covered by GFANZ initiatives, and the potentially pivotal role of UK financial institutions in supporting reductions in fossil fuel extraction, EAC considers such initiatives as crucial in determining whether the UK Government’s carbon budgets and its net zero target are likely to be met.
However, despite the significant role of fossil fuels in contributing to carbon emissions globally, few nation states, nor financial institutions, are yet to make explicit commitments rapidly to phase out fossil fuels, or to be transparent regarding their exposure to fossil fuel investments.
Environmental Audit Committee Chairman, Rt Hon Philip Dunne MP, said:
“Mobilising financial institutions to support decarbonisation of the economy, for instance through the work of the Glasgow Financial Alliance for Net Zero, has been a key feature of the UK’s COP presidency. A year on from when Mark Carney launched the GFANZ initiative, our Committee is keen to explore how this work can be most effective at driving down global emissions. Collectively, the alliance represents nearly 40% of global private financial assets, and represents an enormous opportunity to influence meaningful action to cut emissions and support renewable energy generation.
I encourage anyone with views on the role of private finance in decarbonising the economy to submit evidence to our Committee.”
In tandem with the call for written evidence submissions, the Committee is writing to leading signatories to GFANZ which have their headquarters in the UK or have substantial operations here. Signatories have been asked for a public statement on: their fossil fuel policies; their policies on investment in renewable energy technologies; and on whether current geo-political events impact their view on the International Energy Agency’s (IEA) May 2021 conclusion that no new investment in fossil fuel initiatives is necessary to meet global energy needs if the IEA’s energy pathway for net zero by 2050 is followed.
Terms of reference
The Committee invites written submissions addressing any or all of the issues raised in the following terms of reference in relation to decarbonisation initiatives and their impact, by 5pm on Thursday 30 June 2022:
- Corporate approaches to the financing of existing and planned fossil fuel projects;
- The potential effectiveness of the financial sector, including through alliances such as GFANZ, in encouraging the decarbonisation of the economy in time to limit global temperature rises to 1.5°C;
- Pathways to reducing investment in fossil fuel extraction;
- Current and planned investment in renewable energy generation, distribution and storage;
- The effect (if any) on the pace and scale of disinvestment plans of disruption to supply chains and energy markets arising from the 2022 Russian invasion of Ukraine, and what is being done to mitigate any such effects, and
- Likely pathways to the responsible retirement of fossil fuel assets, in a way which is compatible with the UK’s national interest, reducing the risk of stranded assets and meeting the UK’s international climate obligations.