We are facing an emergency: the scientists of the IPCC are agreed that our window of opportunity to limit global warming to 1.5ºC above pre-industrial levels is rapidly closing, with just a few years remaining. We must radically reduce our greenhouse gas emissions to reach global carbon neutrality by 2050. The EU and OECD countries, historically responsible for the majority of heating, must accelerate their efforts to reach this objective ten years earlier.

This can only happen with a total exit from fossil fuels, and not just from coal. Yet, according to the UNEP Production Gap report, countries’ planned fossil fuel production is 120% above the level that would limit warming to 1.5°C. If financial institutions do not act, fossil fuel companies will continue to easily access the financial services needed to not only operate existing facilities but also to develop new projects.

Indeed, an analysis of the policies adopted by banks, insurers, and investors demonstrated that not a single major financial player has adopted measures to put an end to fossil fuel development. If policies around coal exclusion are lacking, then the few adopted on certain oil and gas sub-sectors – tar sands, Arctic exploration and fracking – have even more gaps.

Banks have provided $2.7 trillion in financing to fossil fuel companies since the adoption of the Paris Agreement, with annual financing increasing since 2016. Moreover, the companies behind the biggest fossil fuel project under development have benefitted from nearly $1.6 trillion in financing, including 126 billion dollars from French banks for oil and gas projects.

This must stop. Financial institutions should adopt robust engagement and exclusion policies that prevent the expansion of oil and gas and set companies on the path to decarbonise their activities.

A growing number of financial institutions are committing to reach carbon neutrality by 2050 and to align their activities with the objective of 1.5°C. This is a laudable long-term objective – reaching it will depend on taking measures in the short term which substantially reduce financed emissions, rather than increasing them. Whether they’re working alone or jointly through coalitions of institutions such as the Net Zero Asset Owner Alliance, three pitfalls must be avoided:

1. Delaying action while waiting for all data and methodologies necessary for a complete alignment of all financial services. The climate emergency necessitates drawing on the scientific knowledge at hand to act and to ensure immediate reductions in greenhouse gas emissions.
2. Joining forces with financial institutions who are patently not sincere in their commitment to carbon neutrality. For example, amongst the memembers of the Net-Zero Asset Owner Alliance are Allianz, AXA, the Caisse des Dépôts et Consignations, SCOR and even Zurich, all of whom have coal policies. But the Alliance also includes financial institutions who have none or, like CalPERS, have only a very weak policy on a sector from which an exit is mandated by science.
3. Adopt unrealistic climate scenarios which envisage a substantial excess of emission, rely on the development of hazardous massive carbon capture and storage, or don’t even aim for the targets of 1.5°C and carbon neutrality by 2050. The IEA’s scenarios are particularly problematic, but they are not the only ones: even the Network For Greening the Financial System scenarios – that gathers central banks and regulators – are inadequate.

Financial institutions must immediately stop all support to projects and companies active in intensive capital and carbon sectors and which involve the highest risks for populations, environments and the climate and in turn for financial institutions themselves: tar sands, Arctic and deep-sea exploration, fracked oil and gas all along the value chain, i.e. including pipines and terminals of LNG when they carry non-conventional oil and gas.

While the Arctic ice is melting at an unprecedented rate, fossil fuel companies are involved in at least 19 new projects, with a possibility that they might develop 200 more. Stopping them is a priority for the climate and biodiversity.

Another concerning development is taking place around non-conventional hydrocarbon basins, mainly shale gas, and to a lesser extent, tar sands in the US and Canada. This is an emergency: 85% of hydraulic fracturing and horizontal drilling between 2020 and 2025 will take place in North America, using up 26% of the global carbon allowance aimed at limiting global warming to 1.5ºC . Preventing this climate bomb from exploding means adopting sector- and value chain-wide exclusion policies, from extraction wells to LNG (Liquefied Natural Gas) export terminals.