Climate Finance Groups Are Misunderstood, BMO Says

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(Bloomberg) — Climate finance groups that press companies to decarbonize are wrongly confused as being regulators that set rules for businesses to reach net zero emissions, according to Dan Barclay, chief executive officer of BMO Capital Markets.

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Entities such as the Glasgow Financial Alliance for Net Zero don’t set rules and there is no “regulatory” outcome from what they do, Barclay said.

“People think that GFANZ, for example, is now the regulator of ESG,” he said Tuesday at the BNEF summit in New York. “It’s not the regulator. It’s a collection of firms that have alignment on where we’re headed. And in many ways, it’s a misunderstanding about what the power of that is.”

Some asset managers and insurers have left subgroups of GFANZ as high energy prices disrupted the move away from fossil fuels. At the same time, the Republican backlash against the finance industry’s environmental, social and governance strategy is prompting firms to review what climate-related groups they’re willing to be part of. Some have complained that being part of the alliance has increased their administrative burdens and potentially exposed them to legal risks.

“We’ve seen several hiccups in various alliances over the last 18 months when that line got blurred,” Barclay said. “When the line gets blurred about what is the function of the entity, you start to have unintended consequences.”

BMO Global Asset Management is a signatory of GFANZ’s Net Zero Asset Managers initiative.

Separately, sustainability professor Ken Pucker, wrote Monday in a Harvard Business Review article that Vanguard Group Inc.’s decision last year to quit the NZAM initiative was a “return to reason.”

“Vanguard’s withdrawal was a coherent and honest approach, unlike the decisions of many of the asset managers who remained in the NZAM coalition while still owning fossil-fuel stocks and overselling ESG products,” said Pucker, who teaches at Tufts University.

GFANZ was created two years ago ahead of a key UN-led climate conference in Scotland. The group is co-chaired by Mark Carney, a former governor of the Bank of England, and Michael Bloomberg, the founder of Bloomberg News parent Bloomberg LP.

(Adds comments from Tufts professor in seventh and eighth paragraphs.)

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