By Upendra Poudyal, Asia-Pacific Regional Representative of the Global Alliance for Banking on Values
The global energy landscape remains heavily reliant on fossil fuels, with approximately 70% of the energy mix still coming from these sources. As the urgency to address climate change intensifies and the political headwinds against change increase in some parts of the world, transitioning to a more inclusive, sustainable, affordable and secure global energy system becomes not only necessary but imperative. The Fossil Fuel Non-Proliferation Treaty offers a framework to manage that transition and aligns seamlessly with values-based banking’s mission to utilise finance for the benefit of people and the planet.
A growing group of banks from the Global Alliance for Banking on Values (GABV) are frontrunners in joining the call for the Treaty and ask their colleagues in the financial industry to follow their example. The GABV has consistently demonstrated leadership in promoting sustainable finance. In 2019, the GABV Climate Change Commitment (3C) set a precedent by obliging its signatories to measure the greenhouse gas (GHG) emissions of their loans and investments and report them under the Partnership for Carbon Accounting Financials (PCAF) standard. This initiative, highlighted in Vancouver during the GABV’s 10th anniversary, highlighted the need for financial institutions to account for their environmental impact, laying the groundwork for broader climate action within the banking sector.
The transition to a low-carbon economy is inevitable for all nations, yet it presents significant challenges. Capital investment in physical assets for energy in the net-zero transition is substantial. As we phase out high-emission assets and scale up low or no-emission alternatives, we will encounter rising energy prices, supply volatility, and asset impairment. Developing countries, particularly those reliant on fossil fuels, are most vulnerable to these shifts, despite the potential for growth.
These countries find themselves trapped in a vicious cycle, where they pay more for electricity, cannot afford the high upfront costs of clean energy, and remain locked into fossil fuel projects. This energy trap exacerbates poverty and climate vulnerability. Domestic resources are often inadequate to facilitate the transition to a low-carbon regime, necessitating innovative financial solutions.
Blended finance, which combines public and private funds supported by enlightened policy measures like carbon pricing, can play a crucial role. This approach can enhance credit ratings in emerging markets and reduce the cost of capital for transition investments. Development Finance Institutions (DFIs) and multilateral development banks are instrumental in this process, promoting public-private risk-sharing and facilitating the issuance of green bonds, as seen in Nepali GABV member NMB Bank.
A fair phaseout of fossil fuels requires that countries responsible for higher production and consumption support others. The focus of efforts to fairly phase-out fossil fuels should be on nations with the highest energy use, while also addressing the severe impacts of climate change on vulnerable regions. For instance, the development of local renewable energy resources continues to offer considerable opportunities, including solar and hydro power. The declining cost of solar energy and the significant hydro energy transition in Nepal, coupled with India’s accelerated shift to renewables, are signs of promising progress.
Countries responsible for significant emissions must shoulder much of the burden of the transition. Climate change is not an isolated issue for an individual country. It should be seen from a regional and global perspective. The melting ice caps of the Himalayas serve as a stark reminder that climate impacts transcend borders and high-emission countries like China, India or the USA must acknowledge their role and commit to addressing the issue.
The transition to a sustainable energy future necessitates a collective effort. The Fossil Fuel Non Proliferation Treaty initiative, supported by innovative financial mechanisms and fair burden-sharing, are vital in driving this transition. By leading through example and fostering global cooperation, we can build an energy system that is sustainable, inclusive and resilient for future generations.
