Why should we be concerned?
Climate scientists are agreed: even a 1.5°C, let alone 2°C, rise in global temperatures will have devastating impacts, and at the same time ‘limiting global warming to 1.5°C would require “rapid and far-reaching” transitions in land, energy, industry, buildings, transport, and cities.’ To make this transition, we need to massively increase financing for alternative energy sources such as wind and solar. At the same time, we need to leave fossil fuels in the ground. For banks this means stopping the finance of further fossil fuel extraction.
But instead of falling rapidly, bank funding for fossil fuels is rising and rising fast. The Rainforest Action Network’s Fossil Fuel Finance Report Card reports that bank funding for fossil fuels rose from $612 billion in 2016 to $654 billion in 2018. This marks a rise of $42 billion since the Paris Agreement was signed, which committed governments to reductions in carbon emissions. In total ‘33 global banks financed fossil fuels with $1.9 trillion since the Paris Agreement’. The International Energy Agency’s 2019 World Energy Investment report states clearly: ‘bolder decisions required to make the energy system more sustainable’ They show ‘investment in renewable energy falling for the second consecutive year in 2018 and spending on fossil fuel extraction rising’.
What should we change?
If short term financial profit determines which energy production we build in the next ten years (within which time we need to make massive changes), then we are headed for catastrophic climate change. If we are to have a chance of avoiding the worst then society needs to take control of where credit is allocated. This can be done in various ways: by encouraging different types of financial institutions such as public and stakeholder banks; by a return to taxation as a source of finance for large projects; by setting limits on the amount of credit banks and investors can give to polluting sectors; and in addition to such measures, by shifting incentives with changes to capital rules. You can find more detailed policy ideas elsewhere on the Finance Watch website and on the Change Finance website.