Here in the EU, several lawmakers and politicians have vocally committed to environmental protection and climate action. At the same time, European politicians have begun to pay more attention to the impact of the financial sector on progress in other fields, including social inequality, climate change, environmental degradation, etc. . President-elect of the European Commission Ursula von der Leyen shared a vision for a greener Europe, promising an immediate proposal of a European Green Deal while aiming to make Europe “the first climate-neutral continent.” Yet, more than words, we still need actions.
The fight against climate change is a costly battle. Any climate action plan will require major long-term funding from both public and private investments. Talks remain mere talks when an EU Member State, which has declared a climate emergency and led international efforts for sustainability, continues to pour billions of euros through public finance to subsidise fossil fuel industries. Meanwhile, the EU still needs to deliver a comprehensive and mandatory sustainability taxonomy regulation, which includes a classification of ‘brown’ activities to guide capital flows away from unsustainable economic areas.
Despite citizens’ demands, we miss measures to decidedly redirect financial resources away from emission-intensive activities and toward the sustainable economy. In solidarity with the upcoming global climate strike, Finance Watch urges EU lawmakers to double down on their commitment to sustainable finance as an inseparable component in the EU climate change and environmental policy agenda.
We cannot achieve climate justice for all without a sustainable financial system. To redirect capital so that it better serves our society and the planet, we need a policy framework that allows us to:
- Define and distinguish sustainable from unsustainable projects and investments.
- Disclose environmental and social impacts of corporations and financial institutions.
- Divest our money from fossil fuels.
- Direct private capital flows from unsustainable activities by adequately pricing negative externalities, including CO2 emissions and exhaustion of natural capital (i.e. deforestation, water consumption, and biodiversity loss). In addition, lawmakers must enable citizens to decide where they invest their savings and pensions.
- Demand public finance to invest in sustainable infrastructure and climate transition projects.
- Diversify banking models. We need more than giant banks!
At a systemic level, the short-termism and herd behaviour of financial markets lurks as a major driving force behind the disintegration of the ecological system. Policymakers should impose on companies and financial institutions the duty to take into account long-term sustainability factors, which will help to prepare the economy for physical and transitional risks.
Preceding discussions on any Green Deal or Just Transition, we have to redefine the mission of the financial system. The financialisation of the economy has accelerated environmental degradation, on top of leading us to the 2007-2009 crisis. Finance must be reconnected to the real (and sustainable) economy.
As Greta Thunberg said, our house is on fire. Large financial institutions are still adding fuel to it. Financial reforms, often successfully blocked by the financial lobby, must progress with the same sense of urgency as our response to the climate emergency.
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The Network for Greening the Financial System, which comprises of more than forty Central banks and supervisory authorities, encourages policymakers to develop a ‘brown taxonomy’ in its first comprehensive report.
In addition, Pentti Hakkarainen, Member of the Supervisory Board of the European Central Bank, said “To get the full picture [of sustainability classifications for assets], we would also need to classify “brown” assets.” (speech at the Hannes Snellman Financial Law Seminar, Helsinki, 9 September 2019.)