Banks continue to act against their own financial interests – and their own green pledges – when they keep investing in fossil fuels, writes Halima Begum.
This summer has been packed full of ominous warnings for our future: we’ve had intense heatwaves and forest fires across Europe as well as food insecurity, floods, and drought across the Global South. Banks reiterate their commitment to fighting the climate crisis and know that meaningful change can only be achieved with their support, but they’re still a greater part of the problem than the solution.
Since the Paris Agreement, banks including HSBC and Barclays have pumped $3.2tn into fossil fuel businesses and a further $370bn into unsustainable agriculture and farming, according to new research published by ActionAid. HSBC investments have gone to offshore oil projects in Ghana that stand accused of displacing Indigenous communities. In Brazil $17.2bn in investments have been linked to deforestation in the Amazon and Cerrado biomes. As for Barclays, they are the largest funder of TotalEnergies in the Global South, providing US$2.1 billion since 2016 to prop up one of the fossil-fuel supermajors.
A commitment to achieving net zero in a bank’s investment portfolio or its operations and supply chain, pitched as a 27-year project, feels increasingly like a sticking plaster response. But what is becoming more and more apparent is that tackling the climate crisis isn’t just a question of the chairman and board’s morality, or the banking sector’s place in the social contract. It’s also about what constitutes good old-fashioned, long-term business sense.
Any bank seriously committed to shareholder value might take note of Swiss Re Institute, and their finding that the global economy risks shrinking 10 per cent by 2050 because of climate change, and that GDP could take an 18 per centhit if global temperatures rise by 3.2°C in the same time frame. It’s high time that every responsible bank start treating climate change and its drivers – such as fossil fuels and industrial agriculture – as a clear and present danger to their long-term profitability, not a short-term cash cow.
Factors like the declining cost of renewable energy, the possibility of stranded fossil fuel assets, and mounting regulatory pressures on carbon emissions are generating momentum among both retail and institutional investors for coordinated divestment from sectors like oil and industrial agriculture. There is a palpable surge in demand for sustainable and responsible investment options. The smart money is in seeking opportunities that align with ESG criteria.
In fact, the banking sector has both the power to cut off money flows to industries that are pushing our planet to the brink of destruction, and to simultaneously make smart investments elsewhere. Such an approach would have far-reaching consequences, not only for the global economy but also for the health of the planet. Banks wield immense influence over the global economy and so their investment decisions send powerful signals to the public, investors, and policymakers alike – they can and should play a leading role in this crucial work.
This strategic shift is not just pearl clutching over a perceived morality or social contract. It’s about managing financial and regulatory risk, enhancing profits and reputations, and making investments that contribute to a more sustainable and resilient financial system, supporting the broader goals of mitigating climate change and promoting responsible environmental policies – all issues that can have huge long-term impacts on global markets.
As the world collectively strives to secure a sustainable future, the financial industry’s role in divesting from fossil fuels cannot be overstated. It’s time for our bankers and boardrooms to do what they do best – follow the money and grow their profits. To do that while protecting the planet can only make sound financial sense.