Global finance is shifting as a result of the climate problem – Graham Vanbergen questions whether we want to pay for it now or later.
In 2019, study revealed that the world’s major investment banks have lent over $700 billion to fossil fuel businesses expanding rapidly into new coal, oil, and gas projects since the Paris (climate) Agreement was signed in 2016.
Between 2016 and 2018, thirty-three prominent financial organizations contributed an estimated $1.9 trillion to the fossil fuel industry. To put this in perspective, this sum is sufficient to abolish world poverty for a decade.
And JPMorgan Chase, the Wall Street behemoth, has been one of the most prominent of those financiers. It lent $75 billion (67 billion euros) to energy corporations developing in fields such as fracking and Arctic oil and gas development. However, Barclays, one of the most heavily involved banks, has spent $85 billion (£65 billion) in fossil fuel companies and carbon-intensive projects.
Barclays was legally challenged in January by a group of its shareholders to cease supporting fossil fuel businesses that are causing the climate catastrophe, in the first resolution of its sort filed against a European bank.
Eleven pension funds with a combined asset value of £130 billion have filed a petition urging Barclays to bring its operations into compliance with the Paris Agreement.
This is just the beginning of the process of ‘uncoupling’ big finance from the fossil fuel sector.
Mark Carney, the departing Governor of the Bank of England, recently said that financial corporations had been too sluggish to cut their investment in fossil fuels and warned that many assets were at danger of becoming “worthless” as a result of the climate issue. In December, the Bank of England became the first central bank in the world to announce what it is calling a climate change-related financial stress test. If a British bank lends money to a firm developing a coal-fired power station, for example, the Bank of England will require the bank to retain significant extra capital to cover the risk of the project being abandoned due to new legislation or other climate-related factors.2
Similarly, if an insurance firm provides coverage for homes located on a flood plain, coastal properties that may be exposed to sea level rise, or mortgages secured by such properties, extra funds must be put aside.
Environmental worries surpassed long-term global threats for business executives, investors, and policymakers at Davos for the first time, echoing BoE warnings. In its annual risk assessment, it ranked climate and other environmental hazards ahead of geopolitical conflicts and cyberattacks. Even Klaus Schwab, the company’s 81-year-old founder, has said that the globe is in a “state of emergency.”
Following more than a year of dire scientific forecasts, environmental calamities, and mounting activism, international leaders and the general public are increasingly recognizing the severity and urgency of the climate issue. Extinction Rebellion (XR), the world’s fastest-growing political pressure organization, and climate activist rockstars such as Greta Thunberg are tipping the scales.
Counterbalance to climate change
However, a growing global population weighs substantially in favor of fossil fuel consumption. Each year, a population the size of Germany (80 million or 1.1 percent of the world’s population) is added to our globe, increasing the strain on energy supplies. Additionally, research indicates that we are on course to generate 120% more fossil fuels in 2030 than we did in 2020. Simultaneously, a recent poll indicated that in seven of the eight nations studied, climate breakdown is considered as the most pressing global problem, surpassing migration, terrorism, and the global economy.
From physical to financial danger
Inevitably, this asset-environmental tragedy will soon present the financial system with two types of risks: physical risk from natural catastrophes and financial risk associated with the move away from fossil fuels.
Even if every nation met its existing carbon reduction commitments under the Paris Agreement, we would still be on track for a 3.2 degree Celsius rise in global temperatures. This is twice the threshold at which the climate problem becomes a daily crisis for millions, requiring billions of dollars in response.
According to the International Energy Agency, renewable energy will provide a third of the world’s power by 2024 (a 50% increase worldwide over the next five years) – yet we will still be “far short” of meeting any of the objectives established.
While governments are rapidly embracing solar and wind energy, the IEA predicts coal will continue to be the world’s biggest source of energy in 2024. However, China is anticipated to replace the EU as the world leader in solar panel usage as early as 2021.