Group 2

You can’t fix climate without fixing finance

How can we limit the devastating impact of an ever-growing number of climate-related catastrophes; from tropical storm Grace in Haiti to the deadly floods in Central Europe? A powerful remedy is money, used differently. In fact, “Mobilise finance” is one of the four objectives of UN Climate Change Conference in Glasgow (COP26), which aims to raise more than 100 billion dollars in “climate finance” per year to decelerate global warming.

15 November 2021

From linear to circular

For too long, money has been the fuel of a linear economy. It has paid for the extraction of irreplaceable natural resources, financed the manufacture of goods which generate pollution in the making, and produced things which are quickly thrown away creating mountains of waste. And all this is based on a profit-maximising logic that can depend on unfair labour conditions to produce cheap goods.

This old take-make-waste line of thinking cannot go on forever. It ignores the fact that we live on a planet with finite resources that need to be used and distributed more wisely if we wish to live in healthier ecosystems and societies.

What if money could be the engine of a circular or ‘closed-loop economy’ instead?


How money can close the loop

In other words, money also has the potential to promote environmentally friendly and fairly produced goods made with renewable resources. We have the power to consume less, as well as to reuse and recycle.

For example, investments in wind energy provide a renewable resource typical of a closed loop economy displacing the need to use coal or petrol, the finite and polluting fossil fuels familiar to a linear economy. It is key that financial institutions stop financing fossil fuels, work with their clients to reduce their emissions, and make positive choices to finance enterprises helping to deliver a low or no carbon economy.

“We cannot wake up in 2029 and decide to slash our emissions by 50% by 2030”, says Alok Sharma, COP26 President. He is right. And, importantly, banks don’t have to start from scratch. The 67 banks which make up the Global Alliance for Banking on Values (GABV), a network of the world’s leading values-based banks, have experience of what banking for a low carbon economy looks like in practice. For decades they have delivered an approach to banking that puts the good of the people and the planet alongside prosperity. Supported by millions of customers around the world, they provide a positive vision of what banking in a closed-loop system can look like.

Manage what we measure

Once banks have embraced the possibility of playing a key role in this new, greener, more equitable economy, they need to set goals and deliver on them. But you can only know if you are delivering on a target if you measure it. Fortunately, the Partnership for Carbon Accounting Financials (PCAF), pioneered by financial practitioners including members of the GABV, has created a harmonised, open-source tool to measure how carbon-intensive the loans and investments of any bank are.

But measurements are not everything. Scientists have measured the progress of climate change for decades, but banks continue to, quite literally, finance the climate emergency. This demonstrates the relevance of credible net zero commitments such as the Net Zero Banking Alliance, which already involves 25% of US bank assets and comprises GABV members including Amalgamated Bank.

Everyday decisions count

Individuals and companies, not just the banks that finance them, can act for greener finance if they choose to be customers of a purpose-driven bank. Vancity, a member of the GABV in Canada, is a great example of an institution that’s prepared to take a lead on climate finance. It went beyond the commitment of some institutions to be net-zero by 2050 and plans to achieve a net-zero loan portfolio by 2040.

In Nepal, NMB, an organisation offering inclusive financial services to a broad range of customers and another member of the GABV, actively promotes changes on the ground through initiatives including its alternative energy loans. This type of borrowing combines positive social and environmental impact. The service is offered to clients who use renewable energies such as biogas or solar power in small and medium-sized livestock facilities.

Meanwhile, in the South of Russia Center-invest Bank, the only Russian GABV member to date, launched the country’s first green bonds. “The funds from the bond issuance will be used to finance and refinance loans for energy efficiency projects, renewable energy and to finance green transport”, said Lidia Simonova, Deputy Chairman. The bank started offering green loans as far back as 2005 to finance energy efficiency projects for small businesses, retail customers and homeowners’ associations.

A cultural change

If we think about it seriously, shouldn’t all finance be sustainable? Shouldn’t its primary purpose be to help people to develop and live dignified lives? In the challenge to shift finance from take-make-waste to a circular and purpose-driven economy, we need more than just green investments. We need deep-seated change at individual, community, national and global levels.

There is evidence that this is already underway. Institutions such as Lapo Bank, a GABV member in Nigeria, organise sustainable finance events to change the culture of the financial sector in Africa. Similarly, the first region-wide study in Latin America and the Caribbean focused on finance and climate risks took place in 2020, with over half of the banks in the region participating.

The pace of change needs to accelerate substantially to meet the challenge of the climate emergency. Internationally renowned scientist Johan Rockström says, “We have ten years to transform humanity.” Many significant developments have led us to a new paradigm, such as the new EU legislation to classify investments so that all citizens know whether their money is fighting or fueling climate change. From government to regulators, businesses, and individuals, everyone has a part to play.

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