Recently eleven banks including the World Bank, European Investment Bank and Credit Agricole, announced the launch of ‘Five Voluntary Principles for Mainstreaming Climate Actions Within Financial Institutions’. On Monday December 7, at the UNFCCC COP21 Climate Summit in Paris, France, BankTrack, Friends of the Earth France and Rainforest Action Network jointly issued a statement in response. The potential importance of this is that banks have a great deal of control over what our society chooses to do. How? It’s the banks that decide which projects to underwrite, meaning that it doesn’t matter how cool and wonderful a solar farm or wind farm is, the banks can block construction by refusing to loan the money necessary to fund the project.
The announcement document describing the principles alludes to the power banks have in approving (or not) different projects. The financial industry has a “a key role and interest in addressing these changing risks, as well as financing shifts in market demand and supply” and have the ability “to direct capital and demonstrate to markets the opportunities, risks and potential returns of investments.” On the one hand this means banks and other financial institutions have the power to enable climate change projects by providing the investment capital necessary to build the project. It also means financial institutions can prevent those projects from ever starting by denying the funding.
The purpose of these principles is to “Mainstream” climate action. What that means is a shift from “financing climate activities in incremental ways” to make climate change “a core consideration and ‘lens’ through which institutions deploy capital.”
The principles are:
- Commit to climate strategies — Address climate change strategically, with institutional commitments demonstrated by senior management leadership.
- Manage climate risks — Assessing climate risks in both the existing investment portfolio as well as in the investment pipeline.
- Promote climate smart objectives — Promote approaches to generating instruments, tools and knowledge on how best to overcome risks and barriers to investment in low carbon and resilient investments.
- Improve climate performance — Set up operational tools to improve the climate performance of activities.
- Account for climate action — Be transparent and report, wherever possible, on the climate performance of your institution, including increases in
financing of clean energy, energy efficiency, climate resilience or other climate-related activities and investments.
The statement from BankTrack, Friends of the Earth France and Rainforest Action Network says the statement of principles simply highlight the “lack of climate leadership at the world’s largest banks.” How? No mention in the principles is made of the major role financial institutions have to play in decarbonizing the global economy, such as by “phasing out financing for coal mining and coal-fired power worldwide.”
The banks statement alludes to this power, that the banks can finance climate change projects. But, as these activist groups point out, the banks are the ones who determine which projects are financed or not, and the banks can not only start financing climate change projects but also prohibit financing of projects which harm the environment.
“The urgency to address the biggest drivers of climate change has never been more pressing than it is here at the Paris COP summit, and yet the words “fossil fuels” still don’t appear in these new climate principles,” said Yann Louvel, Climate and Energy Campaign Coordinator at BankTrack. “While some financial institutions have recently started to cut their financing for coal mining and coal power, the sector still refuses to collectively recognize that the one key climate action they need to take is to phase out their financing of fossil fuels.”
“The principles are vague, incremental and distracting from the real work that needs to be done by financial institutions to address their role in climate change”, said Amanda Starbuck, Climate & Energy Program Director at Rainforest Action network. “They represent pure and simple greenwash.”
This isn’t the first time big banks have announced plans for adopting a unified approach to financing climate change projects. Similar announcements had been made before the Copenhagen COP climate summit in 2008.