A shocking report by the Rainforest Action Network reveals that the world’s 60 biggest banks have collectively provided financing to the fossil fuel industry amounting to over 3.8 trillion dollars, in just the 5 years since the signing of the Paris Agreement alone. While the COVID-19 pandemic has seen demand for energy fall, funding for fossil fuels maintains its upward trajectory. To illustrate, the volumes of finance provided to the industry in 2020 (the peak of the pandemic disruptions), was more than that provided to the industry during either 2016 or 2017. This has prompted calls for banks to sincerely look at cleaning up their fossil fuel financing and concentrate more on green energy.
G7 Ministers Meet to Discuss
Against this backdrop, G7 finance ministers met during mid-April 2021 to discuss expanding the private sector’s role in climate finance ahead of COP26, in an attempt to guide banks towards cleaning up their financing of fossil fuels. The discussion highlighted the need for amplifying the role of the private sector in financing climate action. Companies and banks are being urged to work together to make the switch to more sustainable forms of energy, which is crucial if the targets of the Paris Agreement are to be met.
The Right Moves Are Being Made
Many firms are demonstrating strong commitments to adopting and supporting climate initiatives. For example, BP has vouched to cut oil and gas production by 40% by 2030, while several other firms and banks, such as Shell, Citi, Total and Barclays have committed to zero green house gas targets by around 2050. Although, they are yet to publish concrete plans explaining how they will achieve such lofty ambitions.
Demonstrable Progress
Financiers have also been working together to establish more robust climate policies, while reducing their support for fossil fuels in recent years. This is not mere rhetoric as the figures certainly back up these claims. The cost of financing for renewables driven projects has been dropping steadily, while the cost of borrowing for ‘dirtier’ projects, such as coalmines and power plants, has shot up by 40%. However, similar effects are yet to be witnessed in the oil and gas sectors.
Concerted Effort Will Determine Success
The main target of the Paris Agreement is to limit global heating to under 2 degrees Celsius. If the world is to achieve this goal, it will require that governments, banks, and the private sector work together to create an environment that prioritizes, supports, and fosters the financing, development, and propagation of renewables driven projects over fossil fuels.
