“Expecting banks to eliminate all financing of carbon-intensive industries is unrealistic.”
Bloomberg Green paraphrases Carney as saying that “expecting banks to eliminate all financing of carbon-intensive industries is unrealistic.” Various forms of this argument appear over and over again from the GFANZ universe. Standard Chartered CEO, and chair of the GFANZ-affiliated Net Zero Banking Alliance, Bill Winters, for example, was recently quoted by Reuters as saying that the “idea that we can turn off the taps in [sic] fossil fuels tomorrow is obviously ridiculous and naïve.”
This argument blatantly misrepresents the position of Reclaim Finance. We call for a managed decline of fossil fuel production and a progressive phase-out of existing fossil fuel infrastructure, and we repeatedly point at scientific evidence, including from the International Energy Agency (IEA) and Intergovernmental Panel on Climate Change (IPCC), showing that the 1.5° carbon budget allows no room for fossil fuel expansion. Stopping expansion quite obviously does not mean stopping all use of fossil fuels tomorrow — or next year, or next decade. It’s about not worsening the situation by developing long-lived assets that lock us into a high carbon future and hinder our ability to achieve the 50% cut in emissions by 2030 which GFANZ members (including Winters’ bank, and Carney’s employer, Brookfield Asset Management) have committed to. It is about creating the conditions to set the world on course for the long-term fossil phase out which is required to avert climate catastrophe and an unfair transition. It is worth remembering that the UN’s Production Gap Report explains that staying under 1.5° requires annual reductions in fossil fuel production between 2020 and 2030 of 11% for coal, 4% for oil and 3% for fossil gas (and given that we’re now coming up on mid-2022 and still increasing production, we actually need to start cutting emissions even more rapidly than this).
“We’re not an enforcement agency”
Carney was asked if he saw it as a function of GFANZ to hold its members accountable to their commitments. In response, he replied that while this was “a very important component,” GFANZ is “not an enforcement agency.” Instead, he implied that it was more important for GFANZ to provide “transparency” and “consistency” so that “stakeholders” can be the agents of accountability. It seems from this interview that Carney wants to keep adding more and more members to the alliance, but to outsource the job of making membership mean anything.
Currently, the members of the net zero alliances are not required to be transparent about the restrictions and exclusions they implement for polluting sectors, even for coal. It is already thus extremely resource extensive for anyone willing to track down the quality of their coal policies, as Reclaim Finance is doing in its coal policy tool (1), while this work is necessary to hold GFANZ and its members accountable.
Moreover, evidence shows the urgent need for GFANZ to adopt an enforcement mechanism to make sure that financial institutions could no longer join and then do absolutely nothing to change their financing habits or stewardship activities. A recent report by Reclaim Finance showed that 25 members of the NZAM held around 500 bn $ in fossil fuel expansionists. On the contrary, if GFANZ keeps accepting new members that benefit from UN-backed “net zero” credentials without enforcing serious carbon neutrality plans, it turns into a massive greenwashing operation for the finance sector.
Does a loan to buy a pipeline add to emissions?
Carney implies that fossil fuel financing data is misleading as not all of this money might lead to increasing emissions. He asks: “If you have an existing pipeline and I buy it from you and I get a loan for that, OK that’s fossil-fuel financing. But is … it adding to emissions the fact that you’ve transferred ownership of the pipeline to me?” He answers this by saying part of the answer is “does the buyer of the pipeline have a transition plan and what’s the horizon they are going to run the pipeline for?”
On the surface Carney is right that such a transaction would not automatically increase emissions, and theoretically it could even decrease emissions if the purchasing company were to shut down or convert the pipeline to some other use sooner than the seller would have. However, it is more likely that a buyer would seek to recoup their costs by operating the pipeline for just as long as, or even longer than the seller. And oil and gas pipelines are a bad example for Carney to use here as for a variety of reasons likely very few will ever be used for anything other than their original purpose.
Moreover, while requiring companies to phase-out their fossil fuel infrastructures in line with a 1.5°C scenario could be an impactful way to ensure that fossil fuel finance is not destroying hopes to tame global warming, this is not what the vast majority of GFANZ members are doing. Reclaim Finance research shows that the engagement led by leading GFANZ members did not lead to the adoption of meaningful emission-cutting plans. In fact, the pro-engagement rhetoric used by asset managers seems to be an easy way to justify continuing their business relationships with major polluters.
The current high levels of financing for fossil fuels are 1.5°-aligned?
The interviewer cites Bloomberg’s own data showing that banks provided about $600 billion in financing for oil, gas and coal companies over the past year, roughly the same as the previous year. And he asks Carney “how can we reconcile these numbers with net-zero commitments?” Carney replies that this number is “broadly consistent” with what the IEA says is needed for the energy sector in a 1.5° transition. He goes on to say that “nobody puts [this] in any of their articles” because “what people like to do for clickbait” is to focus on fossil fuel expansion because most people understand this to mean that “anything above zero is too much.”
Carney’s argument here completely misses the key points made repeatedly by Reclaim Finance and other organizations, including in our recent letter to the GFANZ co-chairs: GFANZ claims to support the goal of 1.5°; the IEA says that in their 1.5° pathway “there are no new oil and gas fields approved for development . . . and no new coal mines or mine extensions are required” and “once fields under development start production, all of the upstream investment in the NZE is to support operations in existing fields”; GFANZ members are pouring hundreds of billions of dollars into companies building new oil, gas and coal projects; therefore, the activities of GFANZ are incompatible with 1.5°. This is not “clickbait.” It is inescapable logic.
Differing methodologies mean that it is hard to reach a definitive number on how much finance is going into fossil fuels. The Banking on Climate Chaos report – referenced by the IPCC in its recent work – shows that the world’s 60 biggest banks provided $742 billion in loans and underwriting of stocks and bonds for fossil fuel companies in 2021. This is substantially higher than the Bloomberg number, at least partly because it also includes fossil fuel-burning utilities (2). But even the lower Bloomberg number is hardly “broadly consistent” with the IEA, which puts global investment in fossil fuels at already $575 billion annually over the last half decade and significantly reduces it in the coming years in a 1.5°C trajectory.
As for the oil and gas industry, the IEA puts global upstream investment to $365 billion annually from 2021 to 2030, with only $288 billion in existing fields and a residual $77 billion in new fields that have reached their final investment decision before the end of 2021, and states most planned LNG terminals are “not necessary”. Yet, in 2021, Banking on Climate Chaos also finds that the world’s biggest banks provided $185 billion to the 100 fossil fuel companies planning the biggest investments in new fossil fuel supply and transport, of which $154 billion specifically to the biggest oil and gas expansionists.
“[T]here is going to be more investment in fossil fuels and financing of fossil fuels in the near term.”
Carney says that “one of the things that’s going to happen is that because of Russia’s unjustified invasion” fossil fuel financing is going to increase in the near term. He also points out that as a consequence of this, more assets are going to become stranded, mainly inside, but also likely outside of Russia (this echoes a warning Carney made a couple of days earlier to the Financial Times that any LNG terminals built in response to the short-term need to get Europe off Russian gas could end up as long-term financial liabilities).
However, new fossil fuel infrastructure and production is not a solution to the current crisis. LNG has been touted by the industry as the main way to provide energy security to gas-dependent countries that cut their ties with Russia, but new terminals will take 3 to 5 years to be built. Even the CEO of Cheniere, a major US shale gas player, acknowledged that it would take 5 years to sizably increase US imports to the EU. Similarly, new oil and gas projects take years to be developed (4). In a word, all new fossil fuel infrastructures would provide energy too late to actually respond to the current crisis but would lock-in emissions for decades or become a massive amount of stranded assets.
Fortunately, greener solutions exist to the crisis. In the very short-term, as underlined by the IEA, measures to reduce energy demand are necessary to lower fossil fuel imports. Energy efficiency and heat pumps can rapidly reduce energy consumption within one to two years, while renewable energy are deployed at a massive scale.
Putin’s brutal invasion has thrown much uncertainty into hopes for an orderly climate transition. But this should not be the time for GFANZ members to just roll with the punches and pony up whatever funds the fossil fuel industry says they need to make up for the loss of their horrendously misguided investments in Russia. If anything, this should be the moment when Carney and Bloomberg use their bully pulpit as co-chairs of GFANZ to proactively contribute to the progressive fossil fuel phase-out, not to push back on it.