Impact divestment is what really matters when it comes to sustainability 13 October 2021
Lucie Pinson, from the organization Reclaim Finance, discusses the many areas where financial institutions are falling short in their climate pledges.
Financial institutions are increasingly communicating on their sustainability strategy. Do you notice any progress on their part in the last two years?
Not much to be honest. Dozens of financial institutions have committed to be net-zero by 2050 but they keep providing billions of dollars of financing and investment to companies developing new coal, oil, and gas projects, which are all inconsistent with the remaining carbon budget under the crucial 1.5°C scenario. French banks are a striking example of this hypocrisy. They claim to be leading on climate finance, but they have increased their fossil fuel financing by an average of 19% every year since the adoption of the Paris Agreement.
Is it possible to measure the impact of these plans and actions launched by financial institutions?
The underlying questions are “Do financial institutions follow or drive changes?” and “Can we link a specific change to a decision taken by a financial institution?” While certainty is impossible, there are cases for which we can say with 99% certainty that finance did not have complete responsibility for making ‘green’ projects happen. For example, when a green bond is being issued, assuming that the project is really green, it’s very unlikely that the project would not have been financed without this green bond. The principle of additionality is not met. Studies, including one by Ivar Ekeland and Julien Lefournier, have shown that green bonds and standard bonds are emitted in similar conditions, there is no “green bonus”, and they are negotiated at similar prices on the secondary market.
On the contrary, we have examples of projects definitely cancelled after losing the support of their financial advisors. In 2014, Société Générale withdrew from its advisory mandate for the Alpha Coal mines in Australia. The mine has not been built. In 2015, Crédit Agricole said it would not honor a contract for the Plomin C coal plant in Croatia. The project was cancelled. In 2017, BNP Paribas committed to no longer proceed with its advisory mandate for the Texas LNG terminal in the US. That project as well has not made any progress. These projects faced different challenges but the decisions of these banks, based on climate factors, represented major blows to the success of the projects.
More broadly, we know that the coal exclusion policies adopted by the top 20 global insurers and reinsurers explained the industry-wide difficulty in developing new projects and maintaining operations. We can’t measure the impact of one global exclusion policy, but we can measure the impact of these policies taken together.
What steps can be taken to make sure they have a real impact on the environment?
Impact divestment must be considered a top priority. All debates around the decarbonization of financial flows tend to focus exclusively on how to increase financing for green solutions. Yet, transitioning requires green financing to replace pollution financing. Today, it is merely an addition. We must urgently refocus on how to cut down financing to fossil fuels.
First, financial institutions need to stop providing direct support to projects that climate science and even the IEA identify as inconsistent with the globally-agreed 1.5°C target. Second, because the majority of financial services are channeled at a corporate level, banks, insurers, and investors must condition the provision of new financial services to companies committed to stop developing such projects, starting with the opening of new fossil fuel fields.
On a global level, are there geographic areas where financial institutions are more advanced than others? Are there any best performers and if so can you name them?
The answer varies depending on what we are looking at. As reflected in the Coal Policy Tool, French financial institutions are more advanced on coal, with the majority of robust coal exit policies coming from France. Yet, French banks and French insurer AXA are among the main financers and insurers of oil and gas expansion worldwide, even supporting the development of highly risky projects in the Arctic.
What do you offer at Reclaim Finance?
A promise to track financial institutions for as long as they aren’t walking the walk on climate. We will keep revealing, through our reporting and analysis, the reality of their practices and we will keep opposing their greenwashing. Yet, it is not enough to denounce, we must also convince, which is why all our campaigns are based on proposals supported by recognized expertise. When we meet with financial actors, we come armed with our data. Half our team is made of researchers and analysts who get deep into the reality of the financial and energy sectors. Our job is to understand both worlds so that we can design proposals that are both ambitious but also realistic and, above all, relevant, adapted to the business model of the players we meet.