November 16, 2021
Finance is particularly well placed to save the planet, but has already funded 1.5 ֯ C of global warming, warns Michael northrop
Carbon Tracker, the London Financial Analytics store, told us about it in 2019. Perhaps because Covid-19 stepped in, we didn’t fully absorb it.
What does it mean that we have already funded 1.5 ° C of warming? In short, that the cumulative impact of the fossil fuel projects that banks and investors have funded will be 1.5 ° C of global warming. In other words, we will have funded our way through our remaining 1.5C carbon budget, if all of these projects are completed and run through their intended lifetimes.
Indeed, according to Carbon Tracker, just over 1.5 ° C of warming has already been funded. We are already on our way to 2 ֯ C and beyond.
This means that if we are serious about keeping global warming at 1.5 ° C, we will have to close some of these already funded projects before the end of their expected operational lifespan.
It also means that we have to stop funding – immediately – any new additional oil and gas projects, because every part will also have to be canceled, which obviously becomes more and more difficult to do in the real world.
Private sector financial actors with assets totaling $ 130 trillion, who are beginning to recognize that they are part of the problem and have a role to play in shaping a solution, have flocked to COP26 to sign a pledge that former Bank of England Governor Mark Carney facilitated called the Glasgow Financial Alliance for Net Zero (GFANZ). It commits banks and investors to decarbonize their portfolios by 2050.
Unfortunately, there are no plans, deadlines or short term commitments to do anything real that have been announced by the Alliance or any of its banker or investor members.
It seemed to cynical observers that this was an empty vessel designed to relieve private players in the financial industry and delay any real action for the indefinite future. Each signatory has two to three years to develop a plan and there is no obligation for members to reduce the carbon contained in their loan and investment portfolios before 2050.
We know from a report called Banking On Climate Chaos that the 60 largest commercial banks in the world have funded $ 3.8 trillion in fossil fuel development since the Paris Accords were concluded at the end of 2015. This represents about $ 750 billion in fossil fuel financing per year.
Another recent and related report indicates that private equity has funded an additional $ 1.1 trillion of fossil fuels since 2010.
All of this suggests that an incredible amount of private funding has been working to build up a massive pile of future carbon emissions without paying attention to the brake pedal.
These are startling numbers, given the profile and importance of the Paris Agreement for most economic sectors. He points to one of the major flaws in our planetary effort to stabilize atmospheric emissions: finance is not a party to the Paris Agreements. (Neither does the fossil fuel sector.) They are totally outside the UNFCCC Convention and the Paris Agreement, and apparently have not taken on any of the climate science or the imperative to preserve the planet in the first place. serious. It is a spectacular and tragic gap in the system of global climate governance.
“The trendline of bank financing for fossil fuels is increasing and not decreasing, and not a single major commercial bank has published a plan to stop financing new fossil fuels.”
At this year’s COP, Wednesday November 3 was Finance Day and the GFANZ Alliance was the highlight of the day.
Given the build-up, you would have thought this would be the most ambitious international financial deal since Breton Woods. Before, during and in the days that followed, the headlines carried the following message: “130 trillion dollars of private financial assets agree to fight against climate change”.
In Glasgow I was not alone as I struggled to see anything in the fine print that looked like a contribution to stopping the development of fossil fuel projects – which the International Agency for the energy said last March must arrive if we are to limit warming to 1.5 ֯ C.
Yet the bank financing trend line for fossil fuels is up, not down, and not a single major commercial bank has released a plan to stop financing new fossil fuels.
It is striking that unlike all the other sectors involved in accelerating global warming, there is not a single one of the 60 major commercial banks that has taken a leading position on decarbonization.
On the other labeled days of the COP, there were all kinds of interesting mixes of governments, private sector actors and think tanks offering a network of creative announcements about their determination to set ambition on a something or another. On the other hand, during the Private Finance Day, the one and only announcement concerned GFANZ. Banks and investors haven’t even tried to come up with other good ideas. Everyone took cover in the darkness of GFANZ then fell silent.
Insiders reported that Mark Carney expected specific institutions to announce credible plans ahead of Glasgow and that he was counting on a wave of announcements of additional specific plans by banks and investors that would trigger a cascade of commitments serious in the sector. He didn’t get a single significant one.
Some in Glasgow have speculated that GFANZ is in fact a psychological deterrent for banking leadership because these banks and big investors are all safe in GFANZ’s cocoon of support, having some really interesting conversations going on on a variety of issues. very technical linked to economic problems that are difficult to reduce. sectors such as steel, cement, shipping and aviation, and that it is in fact more difficult for an individual institution to break away from a leadership role. What an irony.
One observer in Glasgow compared him to a giant crowd of bankers in the titanic’s ballroom, cocktails in hand, band playing, having fascinating conversations, but doing nothing to remove the urgency of getting to the rafts of rescue.
More interesting to anyone who is serious about finding ways to cut fossil fuel funding, several other commitments took place during or just before the COP, including China’s decision to halt all foreign public funding for coal; the announcement by the G20 the weekend before the COP that its members would similarly renounce public financing of coal abroad; the agreement of more than 20 nations at the COP to stop all overseas development funding for all fossil fuel projects; and a commitment from 12 governments, including Denmark, Costa Rica, France, Sweden, California, Quebec, Ireland, Greenland, Wales, Portugal, New Zealand and Italy , phase out fossil fuels.
“The blatant separation between their chest-beating but surprisingly empty GFANZ ad and the reality of continuing to pour oceans of new dollars into new carbon-reducing fossil fuels is immoral and unacceptable.”
These announcements were preceded by the Oct. 26 report that 1,500 investment institutions overseeing a total of $ 39 trillion in assets under management had made some form of fossil fuel divestment decision for their portfolios.
To their credit, several banks have participated in a very laudable package of forest conservation commitments by pledging to stop funding deforestation. It was not clear how this would happen, but it was striking that these banks agreed to stop doing something particularly bad.
None of this was contained in GFANZ’s announcement. There was general agreement to be available for increased clean energy funding, and yes, there is significant growing support for clean energy funding around the world, but it won’t take much It matters if these banks continue to extravagantly fund the development of new fossil fuels that takes us all further and beyond the 1.5 ֯ C threshold.
Banks and investors must do better. The blatant separation between their beating but surprisingly empty GFANZ announcement and the reality of continuing to pour oceans of new dollars into new fossil fuels that reduce the carbon budget is immoral and unacceptable.
Just think what it would mean if financial institutions committed to ending funding for the development of new fossil fuels. It would be one of the most powerful levers that anyone on the planet can pull to solve the climate problem.
Finance is particularly well placed to save the planet. Choosing the planet over profits, however, has not yet become a priority despite science and everyday reality showing that the climate is already changing in terrifying ways.
As a senior banker told me not too long ago: “It is not our role to fix climate change; it is the role of government ”.
To the children and grandchildren of bankers and investors, please immediately insist that your fathers and grandfathers – and most of them are men – immediately take responsibility for their actions and withdraw from exploration and development. new fossil fuels.
They should do it for you – their children and grandchildren – and for everyone else as well.
Michael Northrop is Director of the Sustainability Program at the Rockefeller Brothers Fund.
Read Environmental financefunction of on net zero commitments of asset managers here.
Read Environmental financefunction of on net zero liabilities of asset owners here.