The financial sector must play its part in addressing our climate emergency

Business Green

Published: 2nd April 2019

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Green MEPs Molly Scott Cato in the UK and Bas Eickhout in the Netherlands make the case for a far stronger EU green investment framework

Since the Paris Agreement on climate change in 2015, 33 global banks have poured $1.9 trillion into financing fossil fuel projects worldwide. Two reports out this week reveal the implications of this. The World Economic Forum says in 2018 coal use inched up and progress on energy efficiency slowed while the World Economic Forum concludes that growth in renewables is too slow to meet Paris goals. The result is energy-related greenhouse gas emissions have jumped by almost 2% in the last year.  

It’s time for the financial sector to play their part in addressing our climate emergency by helping to drive the transition through sustainable finance. The European Commission has already presented pioneering legislative proposals on this. 

Greens have been assigned rapporteurship for the so called “taxonomy” for sustainable investments – a classification system of economic activities identifying which investments are and aren’t sustainable. We have proposed three crucial ways to beef-up the Commission’s draft proposals.

Firstly, a framework that goes beyond merely building a niche of green investment running parallel to a mainstream financial sector which continues with business as usual. All finance must be help shift the trillions of investments from unsustainable to sustainable economic activities. This is why we proposed to enlarge the taxonomy from just those financial market products with a specific environmental objective, to a much wider range of products including ordinary shares and bonds sold to investors and also to bank accounts.

Second, a framework to facilitate sustainable investment should identify what the most environmentally harmful investments are. This will send a strong signal to public and private investors that putting money into activities like burning coal or extracting shale gas should become a thing of the past. It will also provide transparency on the amounts of sustainable and unsustainable investments, which in turn can help drive investor and shareholder pressure to change unsustainable commercial activities. This transparency should not be limited to capital markets, but also include bank lending which is the dominant source of finance for the European economy.

Third, we need to prevent greenwashing. We must be clear that there is no such thing as ‘clean coal’, sustainable nuclear energy, or ‘green’ gas infrastructure. This is why we propose to explicitly exclude fossil fuels, fossil infrastructure and nuclear energy investments from being considered ‘sustainable investment’. Investors must also understand that environmentally sustainable investment requires respect of high human rights standards.

These ideas for improving the Commission’s proposal have faced opposition from right wing groups at committee stage. They have chosen to side with vested interests rather than with future generations who face climate breakdown.

But we will not settle for a sustainable finance agenda which only scratches the surface of the environmental and climate challenges we face. Investments today cannot be allowed to put in danger the viability of our planet tomorrow; finance must work to safeguard future generations rather than continue to serve the interests of fossil fuel corporations. Sustainable finance provides a useful check and rebalance to fund the necessary transition.