Civil society and institutional investors face-off over climate agenda
The investment industry is increasingly engaged with conversations surrounding the climate transition. To most, this is an encouraging sign that consensus is building around the need to take urgent action on climate change. There is growing concern, however, that the investment industry has too much influence when it comes to setting the global agenda for the climate transition. These concerns have their roots in the international community’s shift to multistakeholder governance, and results in COP27 walking tightrope between collaboration and taking the necessary – and more costly - steps to avoid climate calamity.
Investors align on the climate transition
COP26 was full of hope for the climate transition. Nowhere was the hope more pronounced than from investors. COP26 was attended by a raft of large financial institutions, with one of the key themes being the role that green finance has in driving the transition. The conference also resulted in several eye-catching headlines. More than 30 leading financial institutions committed to tackle agricultural commodity-driven deforestation in their investments by 2025. It also led to the establishment of the Glasgow Financial Alliance for Net Zero (GFANZ), chaired by Mark Carney, former Bank of England Chairman and UN Special Envoy on Climate Action and Finance. The initiative is backed by 160 firms with $70 trillion in assets, and encompasses other net zero finance initiatives, including the Net Zero Asset Managers Initiative, the UN-convened Net-Zero Asset Owner Alliance and the Net Zero Banking Alliance.
Finance, seemingly, is joining forces behind the push for Net Zero. Surely this is a force for good? Civil Society says otherwise.
Civil society vs. GFANZ
In the lead up to COP27 in Sharm-El-Sheikh, Egypt, 89 civil society organisations (CSOs) published a statement criticising last year’s COP26 for allowing the emergence of GFANZ, which it argues allows financial organisations to “take control – with the blessing of governments and the UN”. They argue that GFANZ “took charge of the private finance governance agenda, leaving some of the globe’s most important financiers of fossil fuels and deforestation in charge of reforming private finance to cope with the climate challenge, while official bodies were relegated to an unassuming advisory position.”
The statement suggests that those behind GFANZ, which centres around the idea of ‘Net Zero by 2050’, did not set out a clear pathway to achieving this, nor did it envision prompt cuts in financing fossil fuels or necessitate changes to business models. Moreover, the signatories argue that the financial organisations involved “now take advantage of their powerful position to promote their preferred model of climate finance, which depends on tax breaks and onerous investment protection, yet again to the detriment of the Global South.”
This comes at the same time as a report released during COP27 by Global Witness revealed that members of GFANZ are investing $8.5 billion in agricultural businesses accused of mass scale deforestation.
The CSOs demand from governments that, with the help of CSOs and the climate movement, need to take control over private finance, taking regulatory steps to avoid “total climate collapse”, including taxation and financial market reform. They argue that organisations such as GFANZ, who they describe as the ‘Financiers of climate disaster’, “should have no platform at any COP, no seat in any advisory group, and none of their representatives should have any role at any decision-making bodies.”
It also demands that governments make the whole financial industry aligned with the Paris Agreement, as well as rules to phase out investments in fossil fuels and deforestation.
This line of argumentation is drastic. It has been a long and difficult journey to reach the point where financial organisations coalesce around the need to address climate change, and to freeze them out now would appear to some to be a step in the wrong direction.
Many of the concerns raised in the statement, however, are valid, and are particularly pertinent in the context of COP27.
"As actors holding part of the solutions to the crisis, whilst being inherently limited in their voluntary capabilities to address it, financial organisations must be takers more than makers of the global climate agenda."
From multilateral to multistakeholder governance
The concerns have their root in a trend in global governance - the shift from multilateral to multistakeholder governance. Multilateral governance refers to decision-making on global issues being taken collaboratively by the governments of different countries.
In a guest article for Civicus, a non-profit dedicated to strengthening civil society and citizen action globally, Harris Gleckman argues that multilateralism has gradually eroded and been replaced by the phenomenon of multistakeholderism. Multistakeholder governance refers to inviting different stakeholders, whether it be transnational corporations (TNCs), thinktanks, civil society organisations, or financial institutions, to sit alongside states at the decision-making table to help set the global agenda on important global issues such as climate change. Gleckman argues that “the UN’s member governments have largely stepped back from even trying to govern globalisation. They have instead invited TNCs and multistakeholder groups to implement international policy objectives such as the Paris Agreement on climate change”.
COP27 and the risks of multistakeholderism
The strength of multistakeholder governance is that it democratises the perspectives that are included in the decision-making process, in theory leading to more balanced and considered global priorities. It also poses severe challenges.
First, it reduces democratic representation as, unlike in national systems, Financial Institutions are granted a full seat at the table at events like COP27, becoming an influential part of the policy making process, without any democratic accountability. Secondly, ensuring balance in multistakeholderism is challenging. For instance, the costs of participating at COP27 in Sharm El Sheik are substantial for civil society organisations, but negligible, in relative terms, for a global bank. Additionally, CSOs have complained about challenges in gaining accreditation for COP27. The third and final challenge is conflict of interest: Financial institutions, regardless of the alliances they belong to, are in the short-term still tied to fiduciary duty, their core raison d’etre. This amounts to a significant conflict of interest, as staying within 1.5C temperature scenarios will involve placing significant constraints on financial organisations and TNCs, which will likely also constrain their profits. High up the agenda at COP27, for example, is whether to tax fossil fuels profits, which advocating for would directly impact the profits of many GFANZ investors.
"Those most impacted by climate change, and the governments and organisations representing them, must have the biggest say on the global agenda for climate change."
Financial organisations are key to driving the transition, but their role should not be self-defined
The views of all stakeholders who are impacted by climate change and who have a role to play in addressing it should be considered and have their perspective listened to. Ultimately, however, decisions must be taken which place constraints tough enough on the drivers of climate change to keep us within 1.5C temperature scenarios. This has to be grounded in realism but cannot sacrifice on ambition.
The reality is that the takers of regulation will always argue for it to put as few constraints on them as possible. Time and time again, however, capitalist systems have proven themselves to be infinitely adaptable to new norms and regulations, and once constraints are in place, momentum will build around innovative solutions to comply and make the best of a new, Paris aligned reality.
Investors and TNCs undeniably have a huge role to play in driving the climate transition, but they should not be the ones who define this role. As actors holding part of the solutions to the crisis, whilst being inherently limited in their voluntary capabilities to address it, financial organisations must be takers more than makers of the global climate agenda. Those most impacted by climate change, and the governments and organisations representing them, must have the biggest say on the global agenda for climate change.
The investment industry is increasingly engaged with conversations surrounding the climate transition. To most, this is an encouraging sign that consensus is building around the need to take urgent action on climate change. There is growing concern, however, that the investment industry has too much influence when it comes to setting the global agenda for the climate transition. These concerns have their roots in the international community’s shift to multistakeholder governance, and results in COP27 walking tightrope between collaboration and taking the necessary – and more costly - steps to avoid climate calamity.
Investors align on the climate transition
COP26 was full of hope for the climate transition. Nowhere was the hope more pronounced than from investors. COP26 was attended by a raft of large financial institutions, with one of the key themes being the role that green finance has in driving the transition. The conference also resulted in several eye-catching headlines. More than 30 leading financial institutions committed to tackle agricultural commodity-driven deforestation in their investments by 2025. It also led to the establishment of the Glasgow Financial Alliance for Net Zero (GFANZ), chaired by Mark Carney, former Bank of England Chairman and UN Special Envoy on Climate Action and Finance. The initiative is backed by 160 firms with $70 trillion in assets, and encompasses other net zero finance initiatives, including the Net Zero Asset Managers Initiative, the UN-convened Net-Zero Asset Owner Alliance and the Net Zero Banking Alliance.
Finance, seemingly, is joining forces behind the push for Net Zero. Surely this is a force for good? Civil Society says otherwise.
Civil society vs. GFANZ
In the lead up to COP27 in Sharm-El-Sheikh, Egypt, 89 civil society organisations (CSOs) published a statement criticising last year’s COP26 for allowing the emergence of GFANZ, which it argues allows financial organisations to “take control – with the blessing of governments and the UN”. They argue that GFANZ “took charge of the private finance governance agenda, leaving some of the globe’s most important financiers of fossil fuels and deforestation in charge of reforming private finance to cope with the climate challenge, while official bodies were relegated to an unassuming advisory position.”
The statement suggests that those behind GFANZ, which centres around the idea of ‘Net Zero by 2050’, did not set out a clear pathway to achieving this, nor did it envision prompt cuts in financing fossil fuels or necessitate changes to business models. Moreover, the signatories argue that the financial organisations involved “now take advantage of their powerful position to promote their preferred model of climate finance, which depends on tax breaks and onerous investment protection, yet again to the detriment of the Global South.”
This comes at the same time as a report released during COP27 by Global Witness revealed that members of GFANZ are investing $8.5 billion in agricultural businesses accused of mass scale deforestation.
The CSOs demand from governments that, with the help of CSOs and the climate movement, need to take control over private finance, taking regulatory steps to avoid “total climate collapse”, including taxation and financial market reform. They argue that organisations such as GFANZ, who they describe as the ‘Financiers of climate disaster’, “should have no platform at any COP, no seat in any advisory group, and none of their representatives should have any role at any decision-making bodies.”
It also demands that governments make the whole financial industry aligned with the Paris Agreement, as well as rules to phase out investments in fossil fuels and deforestation.
This line of argumentation is drastic. It has been a long and difficult journey to reach the point where financial organisations coalesce around the need to address climate change, and to freeze them out now would appear to some to be a step in the wrong direction.
Many of the concerns raised in the statement, however, are valid, and are particularly pertinent in the context of COP27.
"As actors holding part of the solutions to the crisis, whilst being inherently limited in their voluntary capabilities to address it, financial organisations must be takers more than makers of the global climate agenda."
From multilateral to multistakeholder governance
The concerns have their root in a trend in global governance - the shift from multilateral to multistakeholder governance. Multilateral governance refers to decision-making on global issues being taken collaboratively by the governments of different countries.
In a guest article for Civicus, a non-profit dedicated to strengthening civil society and citizen action globally, Harris Gleckman argues that multilateralism has gradually eroded and been replaced by the phenomenon of multistakeholderism. Multistakeholder governance refers to inviting different stakeholders, whether it be transnational corporations (TNCs), thinktanks, civil society organisations, or financial institutions, to sit alongside states at the decision-making table to help set the global agenda on important global issues such as climate change. Gleckman argues that “the UN’s member governments have largely stepped back from even trying to govern globalisation. They have instead invited TNCs and multistakeholder groups to implement international policy objectives such as the Paris Agreement on climate change”.
COP27 and the risks of multistakeholderism
The strength of multistakeholder governance is that it democratises the perspectives that are included in the decision-making process, in theory leading to more balanced and considered global priorities. It also poses severe challenges.
First, it reduces democratic representation as, unlike in national systems, Financial Institutions are granted a full seat at the table at events like COP27, becoming an influential part of the policy making process, without any democratic accountability. Secondly, ensuring balance in multistakeholderism is challenging. For instance, the costs of participating at COP27 in Sharm El Sheik are substantial for civil society organisations, but negligible, in relative terms, for a global bank. Additionally, CSOs have complained about challenges in gaining accreditation for COP27. The third and final challenge is conflict of interest: Financial institutions, regardless of the alliances they belong to, are in the short-term still tied to fiduciary duty, their core raison d’etre. This amounts to a significant conflict of interest, as staying within 1.5C temperature scenarios will involve placing significant constraints on financial organisations and TNCs, which will likely also constrain their profits. High up the agenda at COP27, for example, is whether to tax fossil fuels profits, which advocating for would directly impact the profits of many GFANZ investors.
"Those most impacted by climate change, and the governments and organisations representing them, must have the biggest say on the global agenda for climate change."
Financial organisations are key to driving the transition, but their role should not be self-defined
The views of all stakeholders who are impacted by climate change and who have a role to play in addressing it should be considered and have their perspective listened to. Ultimately, however, decisions must be taken which place constraints tough enough on the drivers of climate change to keep us within 1.5C temperature scenarios. This has to be grounded in realism but cannot sacrifice on ambition.
The reality is that the takers of regulation will always argue for it to put as few constraints on them as possible. Time and time again, however, capitalist systems have proven themselves to be infinitely adaptable to new norms and regulations, and once constraints are in place, momentum will build around innovative solutions to comply and make the best of a new, Paris aligned reality.
Investors and TNCs undeniably have a huge role to play in driving the climate transition, but they should not be the ones who define this role. As actors holding part of the solutions to the crisis, whilst being inherently limited in their voluntary capabilities to address it, financial organisations must be takers more than makers of the global climate agenda. Those most impacted by climate change, and the governments and organisations representing them, must have the biggest say on the global agenda for climate change.
