Economists, banks and investors say G20 leaders must intervene to prevent global financial collapse caused by fossil fuel investments

Leading economists, bankers and investors have said G20 leaders must prioritise ambitious regulation to prevent a global financial crash caused by continued financing of the fossil fuel industry.

  • Open letter calls on G20 leaders to ensure that banks and insurers rein in the risks of financing the fossil fuel industry and irreversible climate change.
  • The 60 largest global banks have around USD 1.35 trillion of exposures to fossil fuel assets, which are incompatible with the net zero transition.

Leading economists, bankers and investors have said G20 leaders must prioritise ambitious regulation to prevent a global financial crash caused by continued financing of the fossil fuel  industry.

In a letter ahead of the G20 summit, experts from organisations including Finance Watch, the European Federation of Ethical and Alternative Banks and Financiers (FEBEA), and the Association of Ethical Shareholders Germany warned that “The climate crisis is creating a feedback loop where financial institutions are financing activities that are accelerating irreversible climate change. This in turn increases their exposure to climate-induced financial crises.”

The letter, also signed by environmentalist Bill Mckibben, economist Alain Grandjean and author Dr Jason Hickel, recommends that fossil fuel investments should be recognised as “high risk”, pointing out that “The current practice of not treating banks’ fossil fuel exposures as higher risk is effectively a subsidy to the fossil fuel industry”, which recent estimates reveal to be worth around USD 18 billion a year.

A recent report by Finance Watch found that the 60 largest global banks have around USD 1.35 trillion of exposures to fossil fuel assets that risk becoming stranded in the transition to a carbon-neutral economy. With the recent volatility of the energy market and the accelerated pivot toward renewable energy in the wake of the Russian invasion of Ukraine, these exposures look increasingly unstable in the long run.

Daniel Sorrosal from the FEBEA said: “The current financial instability is nothing compared to the financial catastrophe that will unfold when the fossil fuel sector collapses in the transition to net zero. Even the greenest of banks could be engulfed in the chaos. G20 countries have a responsibility to defuse this ticking time bomb, and safeguard the globe’s financial system.”

Bill McKibben, environmentalist and signatory of the open letter, said: “The importance of moving away from fossil fuel assets in the fight against climate change cannot be understated, which is why it is so crucial that the big banks take steps to protect the risk that fossil fuel assets are presenting. Funding fossil fuels is the very definition of risky business, and we need regulation to reflect that.”

Alain Grandjean, economist and cofounder of Carbone 4, said: “Moving away from fossil fuels will inevitably lead to stranded assets – this loss, in combination with the other effects of climate change, create a new situation and the financial system must reform in order to survive.”

Julia Symon, Head of Research & Advocacy at Finance Watch said: “We are calling on global policymakers to take a precautionary step to protect taxpayers from looming risks related to fossil fuel financing and the possible chain of failures in the financial industry. The losses will be inevitable as governments take steps to transition away from the fossil-based economy. Denying action now would effectively mean governments give up on the climate commitments they made under the Paris Agreement”.

Tilman Massa from the Association of Ethical Shareholders in Germany said: “Even if your investments are ethical and sustainable, they could be at risk from a fossil fuel driven global financial crisis. So it is disheartening to see this lack of protections in the financial system. It is time for the financial institutions of the world to start implementing action which will ensure they can put up with the risk they take with climate aggravating activities and prevent taxpayers from picking up the bill. Lessons learned from the last financial crisis need to be applied to the rapidly growing damage and risks posed by the climate crisis”.

About Finance Watch

Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.

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