The report studies the balance sheet of the 11 largest banks in the Eurozone (2). It reveals that they accumulated a stock of 532 billion euros in assets directly linked to coal, oil and gas. This stock amounts to 95% of their total equity (3). These fossil fuel assets represent a very large proportion of the equity of all banks studied, ranging from 68% for Santander to 131% for Crédit Agricole.
Paul Schreiber, Campaigner at Reclaim Finance and co-author of the report, notes:“While 84% of the explored fossil fuel reserves will have to be left unexploited (4) to limit global temperatures rise to 1.5°C, thus becoming effectively stranded, European banks support companies developing new plants, mines and wells to the tune of tens of billions. In doing so, they bluntly disregard both the ongoing environmental catastrophe and looming financial unrest. If they try to hide behind the development of a so-called “sustainable” finance that can easily turn to greenwashing, it will not magically make fossil fuelemissions nor the financial risk they represent disappear. Strong financial regulation is a must to both enable the transition and consider climate risks.”
The report shows that, if fossil fuel assets were to lose 80% of their value, in the event of a rapid green transition and much like subprimes in their time (5), Crédit Agricole and Société Générale would not have sufficient equity to cover their losses and the equity of the German Deutsche Bank and Commerzbank would almost be exhausted. Any significant value loss would severely impair the capacity of the 11 banks studied to finance the ecological transition and weaken their financial strength. This is all the more serious given that fossil fuel assets are only the tip of the iceberg when it comes to activities exposed to climate risks (6).
Lorette Philippot, campaigner at Friends of the Earth France and co-author of the report, comments:“Despite having on paper some of the most advanced sectoral policies, supposed to restrict financial services to fossil fuels (7), BNP Paribas, Société Générale, Crédit Agricole and BPCE hold a total 260 billion euros of fossil fuel assets, equivalent to an astounding 106% of their equity. This although French banks are already known to be today the biggest European funders of fossil fuels (8). This is yet more evidence that financial institutions’ stricty voluntary commitments are utterly insufficient to address the climate crisis. Mandatory rules are an imperative to meet the objectives of the Paris Agreement and avoid a potential new financial shock with dramatic economic and social consequences. France cannot keep calling itself the capital of green finance while basing its entire policy on banks’ goodwill (9).”
The authors call on central banks, financial regulators, governments and legislators to adopt strong measures to stop the increasing financial support to fossil fuels and sustainably manage the stock of fossil fuel assets. Suggested measures to cut financial flows to fossil fuels include the alignment of monetary operations with the Paris Agreement (10), a strict restriction of financial services to fossil fuels and the adjustment of micro and macro prudential tools.
To handle fossil fuel stocks in a just transition approach, the report details an innovative proposal for a European “fossil bank”. Funded thanks to the intervention of the European Central Bank (ECB), this new bank would, under strict conditions –including a significant discount on the value of fossil assets –, buy a majority of fossil assets from banks and manage them to align with EU climate goals.
Gaël Giraud, honorary president of the Rousseau Instituteand co-author of the report, concludes:“To address the climate crisis and help avoid another financial meltdown, we mustend the fossil fuel finance frenzy andmanage the progressive closure of the remaining fossil fuel assets. The European Central Bank can play a key role in this process, notably by supporting a “fossil bank” that would buy fossil assets from banks to ensure the stability of the financial system and enable the financing of the ecological transition. However, it should first put its own house in order (11), by ending the support it provides to fossil fuel companies through monetary policy and considering European climate goals in all its operations.”