Congress passing the most ambitious climate bill in US history is cause for celebration, which some estimates can reduce the country’s emissions by up to 40%. But even with this much-needed breakthrough, the United States, other countries and the private sector have delayed cutting emissions for so long that the door is open to limiting warming to 1.5 degrees Celsius, needed to avoid the worst impacts of the climate change, always closes. Violating this Paris Agreement goal means more extreme weather events displacing millions of people, costing hundreds of billions of dollars and exacting an unacceptable human toll. The Paris agreement slipping out of reach is no excuse to stop acting now. Instead, the door closing at 1.5 degrees is a wake-up call to mobilize the entire economy and work harder. This is especially true of policy makers at all levels and the financial sector and will remain so even after the Inflation Reduction Act (IRA) is passed.
As the new IRA law is enacted, a new climate pathway is needed that leads to action and tough choices by government and the private sector, rather than encouraging talking points. The private sector, and especially the banking sector, has started to set the right targets, but it is still too invested in activities and industries that put more carbon pollution into the atmosphere. The amount of capital funding from banks that is allocated to fossil fuel projects is a major factor in the worsening global climate situation. The world’s 60 largest banks have lent nearly $742 billion to 100 companies building their fossil fuel businesses in the past year alone and a total of $4.6 trillion to fossil fuels since 2015 (the year of the adoption of the Paris Agreement). Upstream oil and gas capital expenditure is rising and assessment of more than 100 of the largest emitters shows that no company in their analysis is meeting investors’ expectations for climate-aligned capital allocation .
By dragging its feet, the company lost the luxury of embracing a managed transition and now faces a series of increasingly difficult decisions and trade-offs. Russia’s war on Ukraine should be used as an example of the economic and security damage caused by the failure to transition to fossil fuels fast enough, rather than as an excuse to double down on fossil fuels, as some have argued. . These trillions of dollars in fossil fuels translate into unfair global politics and climate pollution that puts the goals of the Paris Agreement out of reach.
Changing the trajectory of billions of dollars of investment will require regulations from policymakers to establish standardized benchmarks for disclosure and correct market inefficiencies such as negative externalities. The Securities and Exchange Commission’s (SEC) Climate Risk Disclosure Bill, which helps create more transparency on climate risks, is an example of policy that can help mitigate risk and support capital formation. for the transition we need to make. While many banks have spoken out in favor of more transparency and disclosure, especially in a voluntary context, very few have come out in favor of the SEC’s draft regulations and many, in fact, have sought to weaken and delay a final rule. It’s easy to marry the good feeling. But we need the big financial institutions to do much more. This includes explicit support for the Inflation Reduction Act.
How are we progressing? For starters, not all banks are investing in fossil fuels today, and many lenders are increasingly doubling the benefits of renewables. More banks need to establish transparent net zero targets in their funding operations. Most importantly, these pledges must be delivered with transformational actions that match the ambition of the pledges and detailed transition plans with short-term benchmarks to measure progress. Banks and financial firms must aggressively use their expertise and political capital to push policymakers to adopt the big and bold policies we need to decarbonize the economy.
An alarming new study by the Institutional Investors Group on Climate Change of 27 global banks makes it clear that “the banking industry needs to dramatically accelerate its decarbonization efforts to align with a 1.5 [degree] trail.” The banks that are leading the way in the clean energy transformation are poised to reap the economic benefits of embracing the transformation and outpace the decisions that will be made for us. Congressional action on climate change is encouraging and the news that the 1.5 degree target is getting out of reach is sobering. It will be a source of growing anger, fear and frustration. But it should also fuel the impetus to redouble our efforts. in climate action With the door closing at 1.5 degrees, another window may open: it’s time for us to change the way we bank on the future of our planet.
Ivan Frishberg is the Director of Sustainable Development for Merged bank.
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