{"id":35334,"date":"2024-12-16T01:01:57","date_gmt":"2024-12-16T00:01:57","guid":{"rendered":"https:\/\/reclaimfinance.org\/site\/?p=35334"},"modified":"2024-12-16T11:41:35","modified_gmt":"2024-12-16T10:41:35","slug":"a-fossil-fuel-elephant-in-the-financial-transition-planning-room","status":"publish","type":"post","link":"https:\/\/reclaimfinance.org\/site\/en\/2024\/12\/16\/a-fossil-fuel-elephant-in-the-financial-transition-planning-room\/","title":{"rendered":"A fossil fuel elephant in the financial transition planning room"},"content":{"rendered":"

What should a bank, investor or insurer\u2019s climate transition plan look like? With requirements for transition planning being included in new legislation or demanded by financial supervisors and specific standards being discussed, this question has taken a prominent place in the debate on the decarbonization of the financial sector. The new briefing from Reclaim Finance<\/a><\/span> outlines recommendations for robust financial institution transition plans and identifies \u201cred flags\u201d to rule out clearly inadequate efforts. While this work will be used to analyze all the elements disclosed by banks, a recent Reclaim Finance report has already revealed the massive gap before they can credibly claim to be in transition by showing how banks are continuing to support fossil fuel development.<\/strong><\/p>\n<\/div>

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A new map: robust financial institution climate transition plans<\/h2><\/span>
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Financial institution transition plans are essential because financial institutions are not financing \u201ctoday\u2019s economy\u201d, they are financing the economy of next year, of 2030, 2040 and the decades after. The services they provide enable companies to develop new projects, to launch products and to expand. By doing so, financial institutions are shaping the economy of the future. But, if they model it on today\u2019s economy they will contribute to inaction and the perpetuation of a climate-wrecking status quo.<\/p>\n

To chart a new course, we need a new map. And, providing sufficient ambition, robustness and enforcement is ensured, climate transition plans can play that role. Indeed, transition plans are progressively becoming one of the main criteria to assess how financial companies tackle – or fail to tackle – climate change in their strategies. (1)<\/p>\n

Reclaim Finance\u2019s new briefing provides recommendations to build robust financial climate transition plans. It lays out essential criteria regarding decarbonization targets, decarbonization strategies, public and private engagement, reporting and governance, and biodiversity and the just transition. Among these criteria, it identifies \u201cred lines\u201d that represent major gaps and shortcomings in potential plans. (2)<\/p>\n<\/div>

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Looking at the (fossil fuel) elephant in the room<\/h2><\/span>
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The end of financial services to fossil fuel development is an essential feature of any financial institution climate transition plan, and therefore one of the \u201cred flags\u201d identified by Reclaim Finance. Indeed, this need stems from the physical reality that consuming exploited coal, oil and gas reserves will push us beyond a 1.5\u00b0C – and even 2\u00b0C – warming. (3) It is clear in 1.5\u00b0C pathways that rely on realistic hypothesis, including the International Energy Agency\u2019s Net-Zero by 2050 (IEA NZE). (4) It is also widely acknowledged in transition planning frameworks and recommendations, including from the High-Level Expert Group of the United Nations or from the Assessing-Low Carbon Transition Collective (ATP-Col). (5)<\/p>\n

However, the 20 largest European banks are light years away from meeting that requirement because they have been involved in 982 deals to upstream or midstream oil and gas developers since 2021. And, the argument that a significant share of those deals went to companies that are also developing sustainable energy is swiftly demolished by the fact that 72% of the financing from these banks to the six biggest European oil and gas companies went to fund fossil fuels from 2021 to 2023. (6)<\/p>\n

These stark findings can only mean that the European banks analyzed cannot claim to have a transition plan. Sadly, beyond these banks, research from Reclaim Finance shows only a handful of financial institutions \u2013 whether banks, asset managers, asset owners or (re)insurers \u2013 have cut their support to coal, oil and gas development. (7)<\/p>\n<\/div>

The new briefing from Reclaim Finance provides recommendations that financial institutions should leverage to build robust transition plans. If an exhaustive analysis of current climate strategies is useful \u2013 and will soon be carried out by the NGO for European banks \u2013 we cannot ignore the fact that they cross the most basic \u201cred flag\u201d identified: continued support to fossil fuel development. Policymakers and financial supervisors must mobilize all tools at their disposal to require financial institutions to adopt transition plans that ensure an end to these services which are at odds with climate goals and any claim of being in transition. (8)<\/strong><\/p>\n<\/div>

Read the briefing<\/span><\/a><\/div><\/div><\/div>
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Notes:<\/h3><\/span>
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  1. Reclaim Finance, <\/span>Finance transition plans: driving real-economy decarbonization<\/i><\/a><\/span>, 2024<\/span>\u00a0<\/span><\/li>\n
  2. Considering the specificities of each type of financial institutions and potential constraints, the briefing<\/a><\/span> also identifies which financial services provided by banks, asset managers, asset owners and (re)insurers should be immediately included and which can be added at a later stage.<\/span>\u00a0<\/span><\/li>\n
  3. In the Technical Summary of its AR6 Working Group III report published in 2022, the IPCC writes that: \u201cEstimates of future CO2 emissions from existing fossil fuel infrastructures already exceed remaining cumulative net CO2 emissions in pathways limiting warming to 1.5\u00b0C with no or limited overshoot (high confidence). Assuming variations in historic patterns of use and decommissioning, estimated future CO2 emissions from existing fossil fuel infrastructure alone are 660 (460-890) GtCO2 and from existing and currently planned infrastructure 850 (600-1100) GtCO2. This compares to overall cumulative net CO2 emissions until reaching net zero CO2 of 510 (330-710) GtCO2 in pathways that limit warming to 1.5\u00b0C with no or limited overshoot, and 890 (640-1160) GtCO2 in pathways that likely limit warming to 2\u00b0C (high confidence).\u201d<\/span>\u00a0<\/span><\/li>\n
  4. See: \u201c<\/span>Climate Scenarios: Picking a Safe Path to a Sustainable Future<\/span><\/a>\u201d on Reclaim Finance\u2019s website (consulted in December 2024).<\/span>\u00a0<\/span><\/li>\n
  5. Reclaim Finance, <\/span>Corporate climate transition plan: What to look for<\/span><\/i>, 2024<\/span>\u00a0<\/span><\/li>\n
  6. Reclaim Finance, <\/span>European banks and transition: time for a reality check<\/span><\/i><\/a>, 2024<\/span>\u00a0<\/span><\/li>\n
  7. See Reclaim Finance\u2019s online tools: <\/span>Coal Policy Tracker<\/span><\/a> and <\/span>Oil and Gas Policy Tracker<\/span><\/a>.<\/span>\u00a0<\/span><\/li>\n
  8. Reclaim Finance, <\/span>Finance transition plans: driving real-economy decarbonization<\/i><\/a><\/span>, 2024<\/span>\u00a0<\/span><\/li>\n<\/ol>\n<\/div><\/div><\/div><\/div><\/div>

    Read also<\/h2><\/div>
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