The recent  Environmental Audit Committee’s (EAC) Finance and Net Zero Inquiry, gives us an opportunity to look  how policymakers and regulators can mobilise a step change in finance flows to drive the transition to a low-carbon economy which scientists warn has to be accelerated if we are to keep global warming below 1.5C.

MPs were joined by representatives from AXA, Aviva Investors, HSBC and Legal and General Investment Management (LGIM) on Wednesday 8 March 2023 to discuss the UK’s ambition of being a net zero leader, the progress each company is making towards their net zero target, and how GFANZ and the finance sector is accelerating efforts to decarbonise the economy.

This third instalment of witness hearings comes after GFANZ Co-Chair Mark Carney’s appearance in front of the Committee in October 2022 (see previous blog ), and Carbon Tracker’s Founder Mark Campanale presenting to MPs with other think tanks and green finance experts in December 2022.

UK Position in the Net Zero International Landscape 

All witnesses agreed that the UK was an attractive market for investment. However, they also acknowledged the need to ramp up green investment in the economy wide transition to maintain a leading position. Chris Skidmore MP recognised this in his independent Net Zero Review published in January this year, stating that the UK is at a competitive disadvantage and risks losing out to the US and EU[i]. This is a response to the $369bn US Inflation Reduction Act, designed to boost energy security and climate change mitigation, and the EU’s Green Deal legislation – especially the plans which have now developed in the Net Zero Industry Act, intended to develop incentives to drive growth and support the transition to a net zero economy.

To reach net zero by 2050, the UK Climate Change Committee estimates that investment levels must rise to £50 billion a year by 2030[ii]. Yet the Chancellor’s budget in March was criticised for not strengthening the windfall tax imposed on the record profits of oil and gas companies or unlocking the UK’s renewable energy potential. Recent publication of the 2023 Green Finance Strategy sets out the government’s plan to strengthen its position within the green finance market, however, the strategy shies away from steering finance towards winding down the UK fossil fuel sector – as required by climate science.

Considerable attention was paid to the role of transition plans during the evidence session, with Aviva’s Steve Waygood calling on the government to announce a UK whole economy transition plan with clear policy trajectories to inform investor decision making. He also recommended that transition plans be put to vote at company AGMs, and that the UK Climate Change Committee should monitor transition plans and review progress being made. Mandatory transition plans, as championed by Aviva and AXA, would help with accountability, increase comparability and prevent system level economic failure.

The recent report from the UN High Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities also endorses the use of transition plans as a means of showing capital expenditure plans and how they align with a net zero pathway[iii]. The UK Government also reaffirmed its support for company transition plans within last week’s Green Finance Strategy and announcing a forthcoming consultation on introducing requirements for the UK’s largest companies to disclose their transition plans, covering both listed and private companies[iv].

All were keen to stress international operability of sustainability disclosure standards, such as the International Sustainability Standards Board (ISSB), and keeping regulatory alignment wherever possible with the EU, for example on science-based taxonomies. Finally, LGIM acknowledged the FCA’s work on transition finance and the need to allow capital for transitioning fossil fuel assets to green. However, this area continues to go under the radar for UK Government as the Green Finance Strategy failed to address the challenges of financing the energy transition.

UK as a Fossil Fuel Financing Centre

There was a lengthy discussion about the fossil fuel exclusion strategies imposed by those giving evidence. HSBC’s Tim Lord commented the bank’s new policy is based on driving emissions reductions in the real economy, providing clarity around how to decarbonise in a way that maintains energy security and respects the need for a just transition. He also mentioned that the policy was set using a number of inputs, including the IEA’s net zero scenario and its conclusion of no new finance to be allocated to new oil and gas expansion: a global first for banks of a similar size.

In response to MP Caroline Lucas’ comment on AXA’s oil and gas policy only covering 43.5% of currently planned oil and gas expansion, AXA’s Rosyln Stein responded by noting that fossil fuel policies are “subject to regular review”, and that the insurer is trying to find the right balance and identify clear no goes. She also mentioned “that each large project is subject to consideration and review when it arises in the future”, indicating a further review of projects before insuring future expansion.

Witnesses emphasised the growing importance of oil and gas company transition plans when reviewing expansion plans of existing clients. Given the finite limits of the carbon budget, a credible transition plan should not include new oil and gas expansion. Aside from direct financing for projects, the underwriting practises of AXA and Aviva were also raised, to which both investors asserted their ongoing work to curb underwriting practises for fossil fuel companies.

The discussion on fossil fuel finance turned to divestment vs engagement, with all financial institutions keen to engage with investee companies as their preferred way of driving the energy transition. Michael Marks noted that LGIM uses divestment as a “last resort” and balances out the need for hydrocarbons for years to come alongside investing in clean energy. He also emphasised the need to wind down assets properly to prevent stranding, or an “energy-insecure world”.

While stating that divestment was the easiest way for an individual financial institution to decarbonise, Tim Lord also acknowledged that “if those emissions continue happening then obviously no benefit is gained” to the economy overall. Lord noted HSBC uses engagement as a tool to lead to real economy decarbonisation. Ms Stein remarked on the importance of striking a good balance between engagement and constructing portfolios and divestment, and that it doesn’t need to be a binary decision. Mr Waygood agreed with this and asserted asset managers should not use divestment as a “badge of honour”, but more because of failed engagement. He also noted Aviva Investors have engaged with 30 of the fund’s largest emitters over the last two and a half years, many oil and gas producers, and two thirds now have transition plans.

Limiting temperature rises to 1.5C is becoming an increasingly heated topic, and some within the business community, particularly within the fossil fuel sector, continue to prioritise industry expansion over the production reduction requirements needed to prevent a climate catastrophe. Yet fossil fuel demand will fall on account of the low carbon energy transition, and the cheaper cost of renewable energy provides a clear economic justification for a well-managed phaseout of the fossil fuel energy system.

An orderly transition will involve banks and investors changing their financing practices by focusing on the following principles in their strategies to align with the Paris Agreement: contributing to real economy decarbonisation by aligning with a 1.5C low/no overshoot trajectory and adopting robust engagement policies, including a commitment to divest from fossil fuel companies when they are unresponsive to extensive efforts and dialogue.  This case for divestment would be grounded in a company’s failure to convince investors that their business strategy is aligned with the Paris Agreement, resulting in significant financial risk as a result of fossil fuel assets being stranded by the energy transition.


All witnesses acknowledged the positive impacts of joining GFANZ, citing the ability to workshop methodologies with peers, set decarbonisation  targets and contribute to discussions around practise and policy. On accountability mechanisms, the GFANZ signatories named the publishing of progress against targets and linking remuneration with the company’s climate progress as key indicators. All condemned the prevalence of climate laggards within the initiative, and when discussing Vanguard’s decision to leave GFANZ, large index investor LGIM announced that Vanguard’s approach is not the only one and index investors can stay true to fiduciary duty and drive ahead with the climate agenda.

On GFANZ dropping that UN Race to Zero accreditation, participants discussed the US anti-ESG and so-called “woke capitalism” movement, which refers to the number of laws being passed, e.g. anti-boycott bills (of energy companies) or bills targeting ESG sustainability ratings or ESG investing[v]. Witnesses remarked that this was an unhelpful politicisation of the ESG agenda, and was counterproductive given the massive influx of capital received due to the Inflation Reduction Act and the needs of long-term shareholders who could be exposed to stranded fossil fuel assets or obsolete technologies[vi].

Article 2.1c of the Paris Agreement focuses on the need to align financial flows with a pathway towards low greenhouse gas emissions and climate-resilient development[vii]. In the absence of an international financial regulatory regime that ensures private finance aligns with this requirement, the voluntary GFANZ initiative could play a considerable role scaling up the financial flows needed to strengthen the global response to the threat of climate change. On fossil fuels, GFANZ could support the recent IPCC report announcement speech by UN Secretary General Antonio Guterres, who called for an end to all private funding of coal, and the stopping of any expansion of existing oil and gas reserves[viii].

Carbon Tracker’s Expectations for Net Zero Aligned Financial Flows

Carbon Tracker is involved with the ongoing EAC inquiry into GFANZ and the net zero commitments of the financial sector and we wrote a supplementary analytical note for EAC MPs. Further information on our involvement can be found here. Carbon Tracker intends to build upon the previous analytical note ahead of  publication of the final EAC report outlining the committee’s recommendations.

In our previous blog, we called on GFANZ to raise its level of ambition by strengthening its set of requirements for signatories to follow when it comes to setting net zero targets and developing climate strategies, declaring its support for no new fossil fuel expansion, and making greater strides to ensure that finance is more ‘Paris aligned’ as a whole by ramping up transition finance for so-called ‘brown’ fossil fuel assets as well as dialling up green finance. Analysts and commentators may wish to use our recommendations as benchmark to assess on climate finance the various Government plans published last month.


[i] UK Government, Mission Zero: Independent Review of Net Zero, available online at, accessed Wednesday 5 April 2023.
[ii] UK Climate Change Committee, Independent Assessment: The UK’s Net Zero Strategy, October 2021, available online at, page 11, accessed Wednesday 5 April 2023.
[iii] UN High-Level Expert Group on the Net Zero Commitments of Non-State Entities, Recommendation 5: Phasing Out of Fossil Fuels and Scaling Up Renewable Energy, available online, page 7, accessed Wednesday 5 April 2023.
[iv] UK Government, Mobilising Green Investment: 2023 Green Finance Strategy, available online at, accessed Wednesday 5 April 2023.
[v] P. Bindman, ‘How climate denial became the anti-ESG movement, 20 December 2022, Energy Monitor, available online at, accessed Wednesday 5 April 2023.
[vi] B. Masters, ‘State Street boss says facts ‘left aside’ in attacks on ESG funds’, 23 January 2023, available online at , accessed Wednesday 5 April 2023.
[vii] UN Framework Convention on Climate Change: the Paris Agreement 2015, Article 21c, page 3,  available online at , accessed Wednesday 5 April 2023.
[viii] UN, ‘Secretary-General Calls on States to Tackle Climate Change ‘Time Bomb’ through New Solidarity Pact, Acceleration Agenda, at Launch of Intergovernmental Panel Report’, 20 March 2023, available online at, accessed Wednesday 5 April 2023.