Race to zero
In April last year, the most significant of the campaigns to redirect investment into more sustainable ventures was announced.
The Glasgow Financial Alliance for Net Zero (GFANZ), chaired by Mark Carney, UN Special Envoy on Climate Action and Finance and former governor of the Bank of England, unites over 160 firms (together responsible for assets in excess of $US70 trillion and including ANZ) from the leading net zero initiatives across the financial system to “accelerate the transition to net zero emissions by 2050 at the latest”.
“All GFANZ member alliances must be accredited by the UN Race to Zero campaign,” the group announced. “They must use science-based guidelines to reach net zero emissions, cover all emission scopes, include 2030 interim target setting, and commit to transparent reporting and accounting in line with the UN Race to Zero criteria.”
However, no matter the good intention, putting these commitments into practice is no easy matter. Already some signatory institutions are struggling to implement or validate their commitments.
Overlaying that scrutiny is a regulatory one: central banks globally are paying much closer attention to the climate risks resident in bank lending portfolios and the measures being taken to understand and manage those risks.
For example, the European Central Bank (ECB) has launched a supervisory climate risk stress test to assess how prepared banks are for dealing with financial and economic shocks stemming from climate change.
The ECB says the test aims to identify vulnerabilities, best practices and challenges banks face when managing climate-related risk. This follows a study last year when the ECB uncovered significant shortcomings in the ability of EU banks to adequately cover their exposure to climate-related risk.
So financial institutions face considerable strategic, tactical and credit risks with their response to climate change. Then what of the opportunity?
At ANZ’s 2021 annual meeting, the bank’s chief executive, Shayne Elliott, outlined his thinking on how this might play out given the trillions of dollars of investment necessary “making it one of the global mega-trends impacting banking and society more generally”.
“Firstly, the sectors that can decarbonise, such as vehicle fleets and manufacturing, are doing so at a rapid rate. This takes considerable investment,” he noted.
“At the same time, new sources of green electricity, improved battery storage, different distribution networks and hydrogen solutions will be developed with increased urgency. Again, significant investment will be required.”
Elliott argued ANZ, as Australia’s only truly regional bank, was well placed to shape and support the required transition.
“Our strength in the natural resources sector means we have deep relationships with those companies that will lead the transition. And with our dominant position in trade finance, debt capital markets and syndicated loans, we are starting from a position of strength. In fact, we estimate we already have a share of around 5 per cent of global flows in the Sustainable Finance market.”