On Friday August 27th, the annual Jackson Hole Summit will gather central bankers to discuss policy challenges. A few days before this Summit, a new report by Oil Change International reveals that major central banks participating provide support to fossil fuel companies, thus contributing to the climate crisis. While extreme weather events and recent IPCC warnings should push them to urgently reconsider their policies, it is likely that central banks will stick to their old ways and sideline the climate issue by refusing to use the tools at their disposals to help end the fossil fuel frenzy.
As it has been the case since 1982, some of the most powerful central bankers, economists and regulators in the world will gather at the Jackson Hole Summit to discuss key economic policy challenges. As previous years, this “Economic Symposium” which has initiated some major monetary policy changes, will be closely watched by financial journalists and analysts eager to detect future trends in central banking.
This year’s symposium, to be held virtually on August 27th, will be an opportunity to check the pulse of central banks in the second year of the Covid-19 era. With the main theme being ”Macroeconomic Policy in an Uneven Economy”, it makes no doubt that the issue of addressing inequalities in a context of covid-related recovery while monitoring inflation, and ensuring financial stability will be high on the menu.
But, with extreme climate events happening everywhere, increasing social and economic inequalities, and strengthening financial risks, the big question remains whether climate change will be at the center of the attention at the Summit which largely serves as a “G7” for central banks. The recent IPCC report is quite clear: failure to limit global warming to 1.5°C or below would have dramatic consequences for our environment, societies, and economies. The impact of climate change – even if kept at 1.5°C – will be global, with major destabilizing effects that go far beyond the ones of the current pandemic. To put it mildly: an “uneven economy” will be the least of our worries if we don’t act decisively on climate change.
Certainly, climate change has found its way to the agenda of central banks which increasingly recognize it as a source of financial risk and a key factor to be reflected in future monetary and prudential policies. Even the historically conservative US Federal Reserve, whose Kansas City branch organizes the Jackson Hole event, recently awakened to the issue. However, we still do not know when and whether one can expect central banks to not talk but act on climate. As previously shown by the Green Central Banking Scorecard published by Positive Money, G20 central banks are yet to review their monetary or prudential policy to tackle climate change.
In fact, central banks continue to support polluting industries, thus contributing to the growth of carbon emissions. While aligning with the Paris Agreement entails drastically reducing fossil fuel production and – as underlined by the International Energy Agency (IEA) – the end of fossil fuel projects, a new report by Oil Change International endorsed by Reclaim Finance and 20 other organizations reveals that major central banks fail to use the tools at their disposal to direct financial flows away from the fossil fuel industry. On contrary, they help provide it with ample and cheap funding.
As the report underlines, central banks could help put the lid on fossil fuel finance by excluding fossil fuel companies from their asset purchases – whether conducted for monetary purposes or not – pushing commercial banks to scale down their support to these companies or using their regulatory and research harm to deter funding to them. It is worth noting that both the Bank of England and the European Central Bank are contemplating how to align part of their asset purchases with the Paris Agreement but are yet to clarify what it would mean for fossil fuel companies. Failure to adopt strong fossil fuel policies that notably exclude any company that develop a fossil fuel project would simply come down to greenwashing.
A few weeks after the IPCC’s last report was released and a few months before the COP26, the Jackson Hole Summit could be the moment central banks confront the climate problem and start being part of the solution by steering financial flows away from fossil fuels. Old habits die hard, and central bank may ignore the elephant in the room to focus solely on the current context and monetary policy tweaks. But they can also prove worthy of the occasion by cutting ties with fossil fuel finance. It is up to them to decide.