At the UNFCCC COP21 Climate Summit in Paris, France, eleven banks including the World Bank, European Investment Bank and Credit Agricole, announced the launch of ‘Five Voluntary Principles for Mainstreaming Climate Actions Within Financial Institutions’. The potential importance of this is that banks have a great deal of control over what our society chooses to do. How? It’s the banks that decide which projects to underwrite, meaning that it doesn’t matter how cool and wonderful a solar farm or wind farm is, the banks can block construction by refusing to loan the money necessary to fund the project.
As the announcement document puts it:
The financial industry – in particular – has a key role and interest in addressing these changing risks, as well as financing shifts in market demand and supply. Public and private financial institutions need not only to adapt to but also to anticipate this new reality.
Financial institutions have the ability . They play a pivotal role in helping investments and assets support implementation of low-carbon, climate resilient development pathways.
Another way to put it, that these banks will not explicitly say, is that they are the gatekeepers of what will or will not happen. In theory this announcement means these banks will now green-light projects meant to mitigate climate change.
The problem with the nice things the banks are promising to do, is what they’re not promising to do. Which we’ll get to in a minute after looking at the principles.
1: COMMIT to climate strategies Be strategic when addressing climate change. Institutional commitments to address climate change are demonstrated by senior management leadership, explicit strategic priorities, policy commitments and targets, which allow for the integration of climate change considerations within a financial institution’s lending and advisory activities over time.
2: MANAGE climate risks Be active in understanding and managing climate risk. Assess your portfolio, pipeline and new investments. Work with clients to determine appropriate measures for building resilience to climate impacts and improving the long-term sustainability of investments.
3: PROMOTE climate smart objectives Promote approaches to generating instruments, tools and knowledge on how best to overcome risks and barriers to investment in low carbon and resilient investments. This may include mobilizing and catalyzing additional financing and developing specialized financing vehicles/products, such as green bonds, risk sharing mechanisms or blended finance. Engage clients and other stakeholders (e.g. rating agencies, accounting firms) on climate change risks and resilience, and share lessons of experience to help further mainstream climate considerations into activities and investments.
4: IMPROVE climate performance Set up operational tools to improve the climate performance of activities. Financial institutions track and monitor indicators tied to climate change priorities, including GHG reporting, lending and advisory volumes supporting green investment, climate related asset allocations, and the institution’s own climate footprint.
5: ACCOUNT for your climate action Be transparent and report, wherever possible, on the climate performance of your institution, including increases in financing of clean energy, energy efficiency, climate resilience or other climate-related activities and investments. Be transparent and report, wherever possible, the climate footprint of the institutions’ own investment portfolio, and how the institution is addressing climate risk.
These principles sound great, don’t they? But do they say anything specific about what the banks will actually do? Nope. It’s a lot of high-sounding phrases, full of good words, but where is the actual steps or actions?
A collection of activist groups, BankTrack, Friends of the Earth France and Rainforest Action Network, issued a joint statement at the Paris COP climate talks which address this question:
These voluntary principles highlight the lack of climate leadership at the world’s largest banks. Not one mention is made of the major role financial institutions have to play in decarbonizing the global economy – first and foremost by phasing out financing for coal mining and coal-fired power worldwide.
In other words, where the banks have the role of financing (or not) climate change projects, they also have the role of financing (or not) projects related to fossil fuel infrastructure. The problems we’re all facing are due largely to fossil fuel consumption. Canceling financing for expansion of the infrastructure to deliver fossil fuels would go a long way to limiting fossil fuel consumption.
“The urgency to address the biggest drivers of climate change has never been more pressing than it is here at the Paris COP summit, and yet the words “fossil fuels” still don’t appear in these new climate principles,” said Yann Louvel, Climate and Energy Campaign Coordinator at BankTrack. “While some financial institutions have recently started to cut their financing for coal mining and coal power, the sector still refuses to collectively recognize that the one key climate action they need to take is to phase out their financing of fossil fuels.”
“These new principles still focus on the risks by climate change for the business activities of banks. What we urgently need is for banks to focus on the risks their business poses to the climate”, said Lucie Pinson, Private Banks Campaigner at Friends of the Earth France.
“The principles are vague, incremental and distracting from the real work that needs to be done by financial institutions to address their role in climate change”, said Amanda Starbuck, Climate & Energy Program Director at Rainforest Action network. “They represent pure and simple greenwash.”
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