Despite net zero pledges, banks continue to heavily invest in fossil fuels, according to a study.

The GFANZ initiative’s participants have been accused of acting as “climate arsonists.”

Research has shown that financial institutions that have pledged to go net zero are still heavily investing in fossil fuels, leading to accusations that they are “climate arsonists.”

Mark Carney, a former governor of the Bank of England, started the Glasgow Financial Alliance for Net Zero (GFANZ) initiative as one of the main things the UK did to host the Cop26 UN climate summit in Glasgow in 2021.

At Cop26, the United Kingdom boasted that 450 organisations in 45 nations with assets of more than $130 billion had joined GFANZ to align their investments with the goal of limiting global temperature rises to 1.5 degrees Celsius above pre-industrial levels.

But since then, the pressure group Reclaim Finance has compiled data showing that its members have invested hundreds of billions of dollars in fossil fuels.

GFANZ is made up of a number of smaller groups whose members are required to cut back on their exposure to fossil fuels. According to Reclaim Finance, however, at least 56 of the largest banks in the net-zero banking alliance grouping (NZBA) have contributed $270 billion to the expansion of 102 fossil fuel companies through 134 loans and 215 underwriting arrangements.

Paddy McCully, senior analyst at Reclaim Finance, said: “GFANZ members are acting as climate arsonists. They’ve pledged to achieve net zero but are continuing to pour hundreds of billions of dollars into fossil fuel developers. GFANZ and its member alliances will only be credible once they up their game and insist that their members help bring a rapid end to the era of coal, oil and fossil gas expansion.”

Additionally, GFANZ businesses are failing to divest from fossil fuels. According to a report that was released on Tuesday, the 58 largest members of the net zero asset managers grouping (NZAM), which is another component of GFANZ, held at least $847 billion in assets in more than 200 fossil fuel companies as of last September.

Even though all GFANZ members are supposed to shift their portfolios to be in line with the 1.5C goal, which was confirmed at Cop26, the report also found that few of the members had implemented watertight investment policies that would prevent them from financing new fossil fuel projects.

Lucie Pinson, executive director and founder of Reclaim Finance, accused the alliance of greenwashing. “It is business as usual for most banks and investors [involved in GFANZ], who continue to support fossil fuel developers without any restrictions, despite their high-profile commitments to carbon neutrality,” she said. “Their greenwashing is all the more damaging as it casts doubt on the sincerity of all net zero commitments, and undermines the efforts of those who are truly acting for the climate.”

HSBC, one of the largest banks involved in GFANZ, announced last month restrictions on oil and gas financing. However, since joining a GFANZ grouping in April 2021, the Reclaim Finance report states that it has approved 58 capital transactions for fossil fuel developers totalling $12 billion.

A spokesperson for HSBC said: “HSBC’s aim is to reduce emissions in line with a 1.5C pathway, promote energy security, and ensure energy affordability and access, as part of our commitment to a net zero future. In line with our 1.5C-aligned 2030 financed emissions targets and updated energy policy we will no longer provide new finance or advisory for the specific purposes of new oil and gas fields or related infrastructure, or for the most carbon-intensive oil assets. To accelerate an orderly transition to net zero, we continue to support clients who are playing an active role in the energy transition, including through regular engagement on their transition plans.”

The spokesperson added that fossil fuels were still likely to be necessary for a transition period. “The International Energy Agency’s seminal Net Zero 2050 report outlines that an orderly transition requires continued financing and investment in existing oil and gas fields to maintain the necessary output and security of supply – with 2020 financing levels maintained through 2030 and declining to half thereafter,” they said.

Reclaim Finance, on the other hand, noted that the International Energy Agency (IEA) has made it abundantly clear that there can be no further development of fossil fuels if the world is to remain within the limit of 1.5 degrees Celsius of warming above pre-industrial levels. The report has identified the fossil fuel developers as those expanding their assets through new drilling and mining.

The report found that LGIM, the largest UK company participating in the NZAM initiative, held at least $13 billion in fossil fuel developers’ assets in September.

A spokesperson for LGIM said: “LGIM is one of the founder members of the Net Zero Asset Managers Initiative established as part of the Glasgow Financial Alliance for Net Zero (GFANZ) and as part of our commitment to the Net Zero Asset Managers Initiative and in partnership with and on behalf of our clients, LGIM has set its own interim net zero AUM [assets under management] target of 70% by 2030, and continues to make progress towards this climate transition. Financing the transition is vitally important and certain fossil fuels will need to be part of the transition to renewable alternatives. By divesting from entire sectors like oil and gas, we won’t achieve any real world outcome and investors lose their ability to exert a positive influence via active engagement.”

A spokeswoman for GFANZ said: “This report focuses on an important aspect of the energy transition. It’s clear a lot of work needs to be done to ensure the world is deploying capital consistent with a 1.5C pathway, which is exactly why GFANZ was created. Based on research GFANZ commissioned last year, we know that investment in renewables needs to be four times the levels going into fossil fuels by 2030 to restrict climate change consistent with the aims of the Paris agreement.”

She added: “GFANZ members will detail how they are financing the transition of the energy sector when they publish their interim targets and transition plans. This will allow government, investors and civil society organisations to track progress. We call on financial institutions not in GFANZ to join the alliances that comprise GFANZ to provide transparency and become part of the solution.”

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