Brett Fleishman | New financial conditions, same climate calculation | Company

In its latest assessment, the Intergovernmental Panel on Climate Change has offered a comprehensive overview of what it will take to keep global warming below 1.5° Celsius, compared to pre-industrial levels, according to to the 2015 Paris climate agreement.

The bottom line is simple: greenhouse gas emissions must peak by 2025.

To achieve this objective, financial flows must be quickly redirected from fossil fuels to renewable energies. In his Net zero by 2050 last year’s report, the International Energy Agency, IEA, made it clear that: “There is no need to invest in new fossil fuel supplies on our net-zero path.”

But the financing of fossil fuels continued. JPMorgan Chase, a bank that uses IEA modeling and data for its own net zero commitment, ended up providing the fossil fuel industry with $61.7 billion last year. And this year, Russia’s war in Ukraine has pushed fossil fuel stocks higher, even as stock markets broadly approach bearish territory.

Despite the rapid growth of environmental, social and governance, or ESG, investments, it is well known that mainstream financial institutions remain the primary funders of the climate crisis, financing coal-fired power plants, oil pipelines, gas infrastructure and other emission-generating projects around us. the world. But, now that the financial sector’s annual general meeting season has begun, shareholders have an opportunity to demand stronger climate policies and decarbonization strategies from financial institutions and institutional investors.

Divest from fossils

Since the ownership of commercial banks is structured by publicly traded shares, general meetings allow shareholders to leverage their relative influence over the institution’s investments and policy decisions. They are also an opportunity for civil society groups to draw attention to an institution’s practices and demand change.

Climate change activists have a strong business and financial case to make. Between the war in Ukraine, soaring energy prices and the hope of maintaining a post-pandemic economic recovery, there are many incentives to accelerate investment in renewable energy. Such investments would boost post-pandemic recovery, create many job opportunities and increase returns for investors.

Moreover, despite recent spikes in energy prices, fossil fuel investments continue to pose a huge risk to financial institutions. As the energy transition progresses, fossil assets will lose value and become locked up. Since the start of the pandemic, many global banks, pension funds and investment firms have begun to pull back from fossil fuel investments precisely for this reason.

It all started with BlackRock CEO Larry Fink’s surprising annual letter to CEOs, in which he singled out climate change as a key risk management issue. A few days later, BlackRock announced that one of its fastest growing sustainability funds would stop investing in the tar sands, one of the dirtiest sources of fuel on the planet.

We know shareholder activism works. Last year, co-registrants from Japan, Kiko Network, Rainforest Action Network and Market Forces proposed a climate resolution at the AGM of Japan’s largest bank, Mitsubishi UFJ Financial Group, which has some $3.1 trillion in assets and is the world’s third largest lender to the coal industry. The resolution sought to inform investors of the risks associated with the bank’s continued financing of fossil fuels and called on the bank to adopt a strategy aligned with the goals of the Paris climate accord. Over the following months, the bank released a carbon neutral statement, an updated business plan and a revised environmental and social policy framework.

Similarly, following shareholder-investor engagement at HSBC’s 2021 annual general meeting, the bank announced in March that it would phase out fossil fuel financing on a schedule aligned with a target of 1.5°C, as it would update its oil, gas and coal policies by the end of 2022.

ESG Headwinds

For good reason, the climate movement increasingly considers general meetings of banks as an effective theater of intervention. They provide a platform not only for shareholder resolutions but also for activists to send a clear message to the wider business community – as happened at the recent annual general meeting of the French bank BNP Paribas in Paris. Activists have also launched protests at general meetings of HSBC, Barclays and Standard Chartered, prompting some financial institutions to try to avoid being called out for their fossil fuel funding by moving their meetings online.

Certainly, with fossil fuel stocks rising and ESG commitments potentially sidelined by more immediate market concerns, the climate movement may face some headwinds this year. But other recent developments have generated forward momentum. Climate scientists are issuing increasingly stark warnings about what awaits us if we don’t decarbonize soon.

Seen in the proper context, the slight rise in fossil fuel stocks is just a blip amid record temperatures in Europe, deadly heat waves in Pakistan and India, and drought concerns in the world.

Given these warnings and the accelerating effects of climate change, it is rational for investors to expect much stricter carbon regulations and public support for renewables in the near future. These policies will have significant economic ramifications in many parts of the world. They will be part of a larger global transition that is already steering our economies in the only sustainable direction: towards carbon neutrality.

If banks want to show that they are trustworthy and serious about the risks they and their shareholders face, they will use this AGM season to advance climate resolutions and remove the expansion of fossil fuel investments from their diaries.

– Brett Fleishman is head of fundraising at© Project Syndicate

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