Interview: Banks break promises in the climate crisis – 03/30/2023 – Environment
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Lucie Pinson is Executive Director of Reclaim Finance, a France-based NGO affiliated with Friends of the Earth. At Friends of the Earth, she began to focus on holding financial institutions, particularly banks, accountable for climate change and social injustice.
It seeks to carry out this surveillance, however, in a collaborative way, pointing out with technical data how the declared objective of decarbonizing investments ends up not being met, in practice, and how this can affect the reputation of banks — for the better, if they act consistently.
“Our attitude is very prescriptive. We know exactly what kind of measures we want banks to take to have a real impact on key value chains in the real world, in order to really move away from supporting the expansion of the sector [de combustíveis fósseis] and push for their phase-out.”
One of the problems, according to Pinson, is the short-term funding for energy projects based on fossil fuels that will remain active for two, three or even four decades. However, as they are paid off within three or five years, they pass like a comet through the bank’s portfolio, without leaving a trace in the sustainability reports.
Central banks, in his view, have a role to play. Sooner or later, they will have to assimilate into their preventive norms the reality that inflation is also rooted in the dependence of national economies on climate pollutants, such as oil, mineral coal and natural gas.
For that, however, the monetary authorities would need to abandon the American model of regulation, which only takes into account the financial risks of investments in sectors that are more and more unsustainable in the face of the climate emergency.
“Central banks see their role as maintaining a neutral approach to the economy, in order to support all sectors equally,” he says. “However, we know that a neutral approach by definition supports the status quo, i.e. it benefits the big fossil fuel companies and thus makes the situation worse.”
In 2020, you received the Goldman Award for efforts to stop the flow of funding to the coal industry. How would you describe the situation of the industry at the moment, considering the increase in consumption in Europe, particularly in countries like Germany, as a result of the War in Ukraine? We are seeing a coal resurgence. It is still difficult to draw great conclusions, as only a few months have passed. It is not possible to say if this increase is here to stay, or if it is something that will not reverse the general trend.
We do not believe that financial institutions will decide to go back and reverse their previous commitments, that is, a significant number of them are still committed not to support the construction of new coal projects.
What really matters is to what extent the current coal infrastructure will continue to be used. Will it be used on a large scale, as we saw last year, or will we organize closures in the coming years to seek alignment with the 1.5°C target [de aquecimento do planeta, objetivo do Acordo de Paris]?
How does Reclaim Finance’s unique approach to building relationships with key institutions while holding them publicly accountable, as described by the Goldman Prize team, work? Contrary to what some NGOs do, Reclaim Finance congratulates financial institutions that are doing the right thing, or something positive. We also seek to work with them because we don’t just want them to adopt a coal policy. We want policies with specific criteria.
We work together with some partners, in particular a German NGO that built a database of companies worldwide that operate in the coal sector. From this database, which includes just over a thousand companies, we can identify what the key criteria are.
It is not just a question of whether companies operate in the coal sector. The key is whether the company is building or planning to build new coal plants. This type of criteria is not used by financial institutions, because they have obtained their data from private providers that do not consider future criteria. Therefore, talking to financial institutions, explaining the sector’s reality and disclosing data are important elements of our work.
Second, before thinking about punishing, we can consider a rewards approach, talking and trying to show financial institutions that their actions can benefit their image and reputation.
A report by Reclaim Finance reveals that, despite promises in the Glasgow Financial Alliance for Net Zero, which was born at COP26, banks are still investing heavily in fossil fuels. What are the main findings of this study? The financial institutions that are part of the alliance have committed to align their financing portfolios with the 1.5°C target and to zero their net emissions (net zero) by 2050. We seek to identify the extent to which commitments are being met with actions concrete actions, in particular actions aimed at eliminating financial services that make the expansion of fossil fuels possible.
We analyzed energy sector transactions to find out if, after joining GFANZ [sigla da aliança, em inglês]a certain financial institution was still doing business with some of the biggest contributors to the expansion of the oil, coal and gas sector around the world.
Sadly, we found that 56 of the core alliance members provided $270 billion to fossil fuel expansion, with no less than 134 loans and over 200 transactions. It seems that, all too often, financial institutions are breaking their own climate promises.
Another problem with decarbonisation targets, such as those adopted by banks like BNP, is that they are often set for 2030. When a loan is provided to a company, it is short-term, something that will be paid back over three to five years.
Therefore, even if a bank provides financing to a company that is actively developing new oil, gas and coal projects, that bank can still remain on track to achieve its goals. The loan will disappear from your portfolio when the target is reached in 2030.
Seventy-five percent of investments are still directed towards the oil and gas sector. Given the 1.5°C target, is there enough time for the financial sector and society to reverse course and adjust to a clean energy transition? First of all, the 1.5°C target represents a big challenge, but it is not beyond our reach. However, we are doomed to failure if banks and financial institutions do not very quickly revise their lending, underwriting and investment policies.
We need to significantly expand investments in renewable energy and, more broadly, in solutions. Renewables and grid energy efficiency require a lot of investment: we need to more than triple that investment by 2030.
However, the money is simply not going to the right place. It’s mostly going into fossil fuels and into shareholders’ pockets.
You recently said that central bank divestment policies are inefficient. Why? Central banks focus primarily on their primary mandate, which is to monitor inflation. However, they have not considered what the root causes of inflation are. Perhaps that is changing, particularly in Europe. The ECB recently made a very important statement in which it recognized that inflation has its roots in climate change and our dependence on fossil fuels, especially gas.
So if we understand this, knowing that central banks’ primary mandate is to respond to inflation and monitor it, they should, in this case, focus on climate change and dependence on fossil fuels. The big question is how they will do it.
Some people say that the financial sector lacks skills to deal with the development of a low-carbon economy and that there are still no financial products available for a positive agenda. What do you think about this? Much depends on the jurisdictions and the various financial and savings products that are being placed on the market. However, in most countries, we have a situation where green products are mismarketed and mislabeled without telling half the truth about where our investment goes.
In France, 17% of all sustainable investments are part of TotalEnergies, and 94% of funds labeled sustainable invest in fossil fuels, armaments companies, or companies associated with human rights violations. So they are very far from being 100% sustainable, but unfortunately investors don’t know that.
How to reform the financial sector in developing countries like Brazil to deal with the climate emergency? I don’t know Brazilian financial institutions well. I would say that, even before approaching banks and private investors, which in certain cases are subsidiaries of larger groups headquartered in Europe such as some Spanish financial institutions that operate in Brazil, a very important thing would be to analyze the regulatory framework and understand what makes the Bank Central. I believe these institutions have more capacity to generate a broader impact.
I would also say that studying what is being done in Europe would be the right decision, avoiding norms and standards that are influenced by the US. In the European Union, we increasingly consider the dual materiality approach and try to introduce it into regulation, thereby ensuring that financial institutions not only try to protect themselves from financial risks related to climate change, but also mitigate their own climate impacts. and in communities.
As long as we operate using a single materiality approach, as the US is doing, considering only financial risks, we are doomed to fail in the transition.
X-RAY
Lucie Pinson, 37
Born in Nantes, France, she founded and directs the NGO Reclaim Finance. She previously worked at the NGO Friends of the Earth. She holds a degree in political science from the Sorbonne University. She was the winner of the Goldman Prize, dedicated to environmental activists, in 2020.
UNDERSTAND THE SERIES
Planeta em Transe is a series of reports and interviews with new actors and experts on climate change in Brazil and worldwide. This special coverage also accompanied responses to the climate crisis in the 2022 elections and at COP27 (UN conference held in November in Egypt). The project is supported by the Open Society Foundations.
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