WE DEMAND CENTRAL BANKS STOP FINANCING FINANCIAL CHAOS

UNE POLITIQUE

MONÉTAIRE & PRUDENTIELLE
AU SERVICE DU CLIMAT

A European Central Bank (ECB) that works for, not against climate
The Banque de France as a leader in decarbonisation
A Network for Greening the Financial System (NGFS) that advocates for tangible action

Central banks supervise the monetary and financial system and hold the lever of “money issuance.” Money issuance, in turn, determines how much money is available and lending conditions. As such, central banks are key actors in building an environmentally conscious and climate-friendly financial system.

Yet central banks continue to ignore these issues in their operations and, in so doing, contribute to climate chaos.

To flip the script, Reclaim Finance is targeting three influential actors: the European Central Bank (ECB), the Banque de France and the Network for Greening the Financial System (NGFS).

The European Central Bank (ECB) is mandated to ensure the soundness and stability of the financial system. This will not be possible without the adoption of measures that allow for the immediate reduction of greenhouse gas emissions in the real economy and, in turn, reduce the exposure of financial actors to climate risks.

Three key players

Our demands from the European Central Bank (ECB)

The ECB must listen to European citizens: adapt monetary tools to immediately stop supporting polluters and financing polluting activities, thus sending a strong message to the markets. Corporate asset purchases should be reserved for companies that are aligned with a 1.5°C warming trajectory and have adopted proper fossil fuel exit plans. The most polluting assets, starting with fossil fuels, should be excluded from the ECB’s list of collaterals.

The ECB should exclude companies from asset purchases and the list of collaterals if:

  • The company is developing new fossil fuel projects (see the list here);
  • The company is highly exposed to unconventional and highly polluting coal, oil, and gas (see the list here); and
  • The company is not committed to exiting coal by 2030 in EU and OECD countries and by 2040 worldwide; as well as oil and gas by 2040 in EU and OECD countries and by 2050 worldwide;
  • The company does not adopt detailed coal exit plans by 2021 and fossil fuel exit plans by 2022.

The ECB should improve its monetary tools to align them with the Paris agreement and finance “green” activities.

  • “Haircuts,” or reductions of the loans given in exchange of collateral, should be modulated if:
    • The company has not committed to adopting absolute emission reduction targets to align their activities with a 1.5ºC trajectory and exiting coal by 2030 in EU and OECD countries and by 2040 worldwide as well as oil and gas by 2040 in EU and OECD countries and by 2050 worldwide; and
    • The company has not adopted a detailed plan for the closure, and not the sale, of their coal assets by 2021 and for oil and gas assets by 2022 (these plans should be aligned with geographical and time frames above).
  • Targeted long-term refinancing operations must be conditional on objectives to finance the ecological transition and “green” projects or reserved for banks that have adopted goals aligned with the Paris Agreement and carried out public and annual progress monitoring.

Moreover, the ECB must adopt a precautionary approach to climate risks by pushing financial actors to adopt fossil fuel disengagement policies and align their activities with a 1.5°C trajectory:

  • Capital requirements for institutions not aligned with a 1.5°C trajectory should be increased to reflect climate risks, starting with institutions most exposed to fossil fuels, namely:
    • institutions which have not adopted a coal sector exit policy aligned with the Paris Agreement by 2021 (as defined here); and
    • institutions that have not committed stop providing financial services to companies developing new fossil energy projects by 2021, starting with those developing coal and unconventional oil and gas projects, and projects tapping into previously untouched fossil fuel reserves (see the list here);
  • Once the Covid-19 crisis is over, countercyclical capital buffers should be increased to reflect overall exposure to high-carbon sectors; and
  • All ECB guidelines and recommendations should include exclusions of fossil fuels and the adoption of 1.5°C path alignment plans.

Our demands from the Banque de France

The bank of France must take a clear and public stance and use its position within the Eurosystem and the ECB’s Governing Council to favour the adoption of the measures mentioned above.

The Banque de France must set an example and lead the way for public and private financial actors by adopting a demanding investment policy for the assets it directly manages and push other central banks and the NGFS coalition to adopt similar measures, with a pledge to exit all fossil fuels by 2050. This means:

  • Adopting a robust coal exit policy, by:
    • Setting a coal exit deadline for 2030 in the EU and the OECD and 2040 worldwide;
    • Excluding companies which derive more than 15% of their revenue or electricity production from coal and progressively decreasing this threshold; and
    • Excluding companies developing new coal-related projects and companies whose annual coal production exceeds 10Mt of coal or which own, or who generate more than 5 GW of power from thermal coal.
    • Updating its shareholder engagement policy to push companies in the coal sector to adopt a coal asset closure policy by 2021 and clearly state that not adopting such policies will result in the Banque’s divestment by 2022.

  • Adopting a policy on unconventional oil and gas, by:
    • Starting by excluding companies deriving more than 5% of their revenue from shale oil and gas, tar sands, and/or oil and gas extraction in the Arctic zone; and
    • Committing to no longer invest in companies developing new projects in shale oil and gas, tar sands, Arctic zone extraction, offshore extraction or liquefied natural gas (LNG) starting January 1, 2022. These commitments must also be strengthened through shareholder engagement demanding companies cease unconventional oil and gas projects.

  • Commit to moving away from fossil fuels by 2050.

Our demands from the Network for Greening the Financial System (NGFS)

The NGFS should work towards the rapid reduction of greenhouse gas emissions and take decisive action rather than issuing mere recommendations. Using the best available scientific knowledge, the NGFS must promote concrete measures, starting with Reclaim Finance’s demands for the European Central Bank.

The NGFS must also amend its climate scenarios to reach a high environmental standard. This means:

  • Using a reference scenario limiting global heating to 1.5ºC above pre-industrial levels;
  • Integrating the urgent need to exit fossil fuels and stop further investments in the sector; and
  • Considering the high uncertainty regarding carbon capture and storage technologies, and negative emission in general, by drastically limiting their weight in these scenarios.