Bankers trying to get their net-zero CO2 targets certified, now face hard deadlines to reduce capital flows to fossil fuels.
The Science Based Targets initiative (SBTi) which is backed by the United Nations, plans to only verify emissions targets that include clear limits on financing oil, gas and coal, said Nate Aden, who heads SBTi’s financial industry project. The stricter process will also apply to asset managers.
The move follows from growing signs that many net-zero goals lack credibility; over half of the 150 biggest financial institutions globally face no restrictions on financing oil and gas, and two-thirds of the world’s largest banks and asset managers are failing to set concrete climate targets for this decade, according to two separate analyses by NGOs.
Alarmingly, 83% of the world’s biggest polluting firms are yet to map a meaningful path to net-zero emissions, a leading investor alliance found. In addition to that, a new report from Reclaim Finance, found nothing but broken promises on the part of bankers and asset managers who a year ago at COP26 had pledged to fight global warming: None of the world’s largest asset managers has definitively called on fossil-fuel companies to stop the development of new oil and gas projects.
For investors, financing the fossil fuel industry is simply business as usual. Over the past 12 months, banks provided more than $600 billion in capital to oil, coal and gas producers, roughly unchanged from the previous year, according to Bloomberg data.
“We are in a situation now where you’ve got some of these net-zero initiatives that aren’t taking a very rigorous approach here, and it is starting to become a credibility issue,” Aden, SBTi’s chief, said in an interview.
SBTi aims to set a 2030 deadline for financial firms to divest from coal and a 2040 deadline to exit oil and gas firms that don’t commit to net zero. Aden said the group plans to demand disclosure of all fossil-fuel investments and an immediate stop to new fossil-fuel investments
A fossil-fuel deadline might be seen as something of a “blunt instrument,” Cynthia Cummis, technical director and founding partner of SBTi, said in an interview earlier this year. But it’s also a “simple way to set a target,” instead of “just having an emissions based target, which is more complicated.”
The deadlines proposed by SBTi would give asset managers and bankers time to first use their influence to try and force oil and gas companies to change, in part to avoid the sale of assets to new owners that aren’t likely to reduce emissions. “The idea is that there is engagement of the fossil-fuel investors and clients, to get them to be 1.5 aligned,” Aden said.
More severe measures in the financial sector are highly needed as investors continue to refuse to adapt to the climate change emergency and leave their investment plans unchanged: For example, on Tuesday the news emerged that during the annual shareholder meetings, investors refused to back resolutions demanding stricter fossil fuel financing policies at three major US banks; Wells Fargo, Bank of America and Citi.
The proposals called on the banks to align their fossil fuel financing policies with achieving net zero emissions by 2050, and to ensure financing did not contribute to “new fossil fuel supplies”. But, the resolutions were backed by only about 11 per cent of shareholders at Wells Fargo and Bank of America and fewer than 13 per cent at Citi, a stunning minority that reveals the state of mind of most investors.
However, not all hope is lost. At the Tuesday meetings, bank chief executives faced several questions about climate change-related issues from shareholders, many of whom are not only well aware of the climate issue but actively working to change investors’ mindsets.
“The science is clear that achieving net-zero emissions by 2050 and averting the worst impacts of the climate crisis means stopping the expansion of fossil fuels immediately,” said Adele Shraiman, campaign representative for Sierra Club, an environmental organisation in the United States.
“Banks must adjust their practices accordingly,” Shraiman added, “and it’s up to their shareholders — especially BlackRock, Vanguard, and State Street — to hold them accountable.”
While climate-activist shareholders have previously compelled companies to disclose the emissions impact of their operations and investments and set long-term climate targets, this is the first time they have called on banks to implement plans to achieve those objectives, according to Sierra Club.
Overall, the financial sector receives increased pressure coming from a minority of activist shareholders and celebrities who have declared themselves as supporters of action against global warming. But it’s not enough and the SBT initiative appears to come at a good time to help operate change. Once SBTi is fully established and comes into action, one may hope that the financial sector, if it simply follows the clear rules set by SBTi, may take some real action, and finally start reducing the capital flows to the fossil fuel industry and hopefully bring them to a full stop.
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com. In the Featured Photo: Oil refinery in Utah, United States. Featured Photo Credit: Flickr.com