Bank bonuses screw the planet

This article, by Tracey Davies, was first published in the Financial Mail on 17 December 2020.

Have you ever been at a hospital smoking area and been shocked to see a patient in a wheelchair, hooked up to drips and an oxygen machine, puffing away at a cigarette?

In the context of climate change, that patient is the planet — and our banks are lighting the cigarette.

Saturday December 12 was the fifth anniversary of the signing of the Paris climate agreement, when almost every country committed to take urgent action to keep global warming well below 2°C — above pre-industrial levels —and to pursue efforts to limit the temperature increase to 1.5°C.

Just two days before this anniversary, 18 global NGOs released a report titled “Five Years Lost: How Finance is Blowing the Paris Carbon Budget”.

That report details how just 12 fossil fuel projects, now planned or under development, will use up three-quarters of the earth’s total remaining carbon budget if we are to have a 66% probability of limiting global warming.

If global banks were serious about their commitment to the goals of the Paris agreement — and all say they support it — these projects would have no hope of getting off the ground. And yet, all have financiers lining up to provide the capital.

And these are only the biggest planned projects. There are hundreds more, each of which would further increase the amount of carbon pumped into the atmosphere. All are being planned despite global scientific consensus that if we are to stand any chance of reaching the 1.5°C target, global greenhouse gas emissions must fall by 7.6% every year between now and 2030.

In 2020, due to pandemic-related lockdowns and travel bans, global emissions dropped — but by only about 7%. In other words, we need to achieve pandemic-like levels of emission reductions every year for the next decade.

One of the three objectives of the Paris agreement is to make finance flows compatible with the transition to a low-carbon economy. So, if you’re a bank that claims to support the Paris goals, you’d be setting ambitious targets for rapidly and responsibly phasing out funding to existing fossil fuel projects and excluding finance for new ones.

But in the banking world, it seems you can simultaneously support the Paris goals and plan to expand fossil fuel funding hugely.

Most of the banks financing the projects that are highlighted in the “Five Years Lost” report, like JPMorgan Chase, BNP Paribas, Barclays and HSBC, have made what they claim to be “Paris-aligned” pledges.

Standard Bank provides Africa’s most extreme example of this cognitive dissonance on climate action.

On the same day the “Five Years Lost” report was launched, Standard Bank released its fossil fuels financing policy. The bank states, predictably, that it supports the Paris agreement — then sets out why this means it must, as a responsible bank, committed to “driving Africa’s growth”, continue to fund fossil fuel projects, in particular oil and gas, across the continent for the foreseeable future.

It is surely no coincidence that the Industrial & Commercial Bank of China, which has provided $24.7bn in fossil fuel financing since 2016, owns 20% of Standard Bank.

Like other local banks, Standard Bank claims that new fossil fuels are key to helping Africa become energy secure and free from poverty. But given the continent’s history of fossil fuel-related devastation and the resource curse, it is unlikely that anyone genuinely believes this.

It’s also a particularly cynical assertion when much of the oil and gas extraction planned for Africa is destined for export.

Large-scale, decentralised renewable energy is now far cheaper than developing fossil fuels. If banks really cared about Africa, surely financing least-cost energy options would be a no-brainer for them?

The reality is that fossil fuel projects are big, complicated and expensive. And from a financing point of view, the bigger and more expensive, the better.

Short-term remuneration — not the wellbeing of the planet — is the incentive for the bankers making these decisions.

But if governments, investors and customers don’t put an end to this climate hypocrisy, these bankers, acting on these incentives, will determine the planet’s future.

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