Tomaso Ferrando – Cabot Institute for the Environment blog

Private sector banks in the UK should have a central role in financing climate action and supporting a just transition to a low carbon economy. That’s according to a new report from the Grantham Research Institute at the London School of Economics.

Framed as a strategic opportunity that climate change represents for investors, the report identifies four specific reasons why banks should support the just transition. It would reinforce trust after the financial crisis; it would demonstrate leadership; it would reduce their exposure to material climate risks; and it would expand their customer base by creating demand for new services and products.

The report is not alone in its attempt to put banking and finance at the centre of a green and just transition. Similar arguments are presented by the World Bank, by the European Union, and by many national task forces on financing the transition, including the UK’s.

In all these cases, banks and financial markets are presented as essential allies in the green and just transition. At the same time, the climate emergency is described as a chance that finance cannot miss. Not because of the legal duties that arise from international conventions and the national framework, but because banking the green transition could help reestablish public legitimacy, innovate and guarantee future cashflow.

Twelve years after the financial crisis, we may be aware that banks and finance were responsible for the intensification of climate change and the exacerbation of inequality, but such reports say our future is still inexorably in their hands.

Is there no alternative to climate finance?

Four decades on from British prime minister Margaret Thatcher’s infamous motto that There Is No Alternative to the rule of the market, the relationship between financial capital and the green and just transition is presented as universal and inevitable. However, a vision of the future is a political construction whose strength and content depend on who is shaping it, the depth of their networks and their capacity transform a vision into reality.

UK banks haven’t recovered their reputation since the financial crisis.

In the case of climate finance, it seems that a very limited number of people and institutions have been strategically occupying key spaces in the public debate and contributed to the reproduction of this monotone vision. In our ongoing research we are mapping various groups involved in green financial policymaking: the EU’s High-Level Expert Group on Sustainable Finance and its Technical Expert Group on Sustainable Finance, the UK Green Finance Task Force, the participants to the 2018 and 2019 Green Finance Summits in London and the authors behind publications like the LSE’s Banking on a Just Transition report.

Across these networks, key positions are occupied by current and former private industry leaders. Having done well out of the status quo, their trajectories and profiles denote a clear orientation in favour of deregulation and a strong private sector.

Often, the same people and organisations operate across networks and influence both regional and national conversations. Others are hubs that occupy a pivotal role in the construction of the network and in the predisposition of the spaces and guidelines for dialogue and policy making. This is the case, for example, of the Climate Bond Initiative (CBI), a relatively young international NGO headquartered in London whose sole mission is to “mobilise the largest capital market of all, the [US]$100 trillion bond market, for climate change solutions”. Characterised by a strong pro-private finance attitude, CBI proposes policy actions that are infused by the inevitability of aligning the interests of the finance industry with those of the planet.

Let’s unbank the green and just transition

COVID-19 has emphasised the socio-economic fragility of global financial capitalism and represents the shock that may lead to an acceleration of political processes. While corporate giants are declaring bankruptcy and millions are losing their jobs, governments in Europe and across the global north continue to pump trillions into rescuing and relaunching the economy in the name of the green recovery.

Political debate and positioning will decide whether these public funds will be spent on bailouts or public investments, on tax breaks for the 1% or provision of essential services, or whether the focus will be on green growth or climate justice. But private finance is already capturing this debate and may become a key beneficiary. Getting a green and just transition does not only depend on the voices that are heard, but also those that are silenced.

Intellectual and political elites on the side of the banks are making it harder to have a serious discussion about addressing climate change. NGOs and campaign groups are participating, but only if they share the premises and objectives of the financial sector.

This crowds out more transformative voices from civil society and the academy, and establishes a false public narrative of agreed actions despite the numerous voices outside of this club. And it also normalises the priority of financial market activities, putting profit before people and planet.

The current crisis is an opportunity to rethink what a green and just transition would entail. We must continue to question the role of finance rather than taking it for granted and ensure that the “green and just transition” becomes precisely that: green and just, rather than another source of profits for banks and the 1%.

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This blog is written by Cabot Institute members Tomaso Ferrando, Research Professor, University of Antwerp and Dr Daniel Tischer, Lecturer in Management, University of Bristol. This article is republished from The Conversation under a Creative Commons license. Read the original article.

Daniel Tischer

Tomaso Ferrando

Listen! Andy Rain/EPA

Lehman Brothers filed for bankruptcy on September 15, 2008. The investment bank’s collapse was the drop that made the bucket of global finance overflow, starting a decade of foreclosures, bailouts and austerity.

The resulting tsunami hit the global economy and public sector, discrediting finance and its attempts to extract large rents from every aspect of the economy, including housing and food. An alternative was urgently needed.

Ten years later, private finance and large investors will play a central role at the COP24 in Katowice, Poland, and in the full implementation of the 2015 Paris Agreement.

Representatives from pension funds, insurance funds, asset managers and large banks will attend the meeting and lobby governments, cities and other banks to favour investments in infrastructure, energy production, agriculture and the transition towards a low-carbon economy.

Has finance cleaned up its act?

There is a US$2.5 trillion gap in development aid which needs to be filled if poor countries can adequately mitigate the effects of climate change. With little enthusiasm among rich countries to stump up, the role of private finance is inevitable. Policy makers trust financial capital as our best hope of securing investment to avoid the catastrophic warming beyond 1.5°C.

This has been the case for a while – the first announcement came at the UN Climate Summit in 2014, when a press release on the UN website said the investment community and financial institutions would “mobilise hundreds of billions of dollars for financing low-carbon and climate resilient pathways”.

Since then, networks that stress the role of private finance in rescuing the planet have multiplied, including the Climate Finance session at the Sustainable Innovation Forum, which will also take place in Katowice, on December 9-10 2018.

It is difficult to ignore that a strong reliance on private finance means putting the future of Earth in the hands of individuals and institutions that brought the global economy to the verge of collapse. It may be partially true that some are divesting from fossil fuels and funnelling their money into better projects. But before we pin our hopes on finance to solve climate change, there are some things we need to ask ourselves.

Poor countries like Bangladesh have little responsibility for climate change and need significant investment to adapt to it. Suvra Kanti Das/Shutterstock

Difficult questions for COP24 negotiators

How did we get to a point in history where it is taken for granted that public money alone can never be sufficient to finance our transition from fossil fuels? Is it an objective condition with no clear causation and responsibility, or something else?

What about the fact that global military spending in 2017 reached US$1.7 trillion while poor countries promised funding for climate change adaptation and mitigation in 2015 are still waiting?

What about the cost of bailouts to the financial sector, which in the UK alone has been estimated at US$850 billion? As Michael Lewis noted in his boomerang theory, states that have propped up financiers with public money are now asking those same financiers to step in and do the job that states should do. And this leads to the second consideration.

Climate change is historically, politically and socially complex. Although sustainable finance is not presented as the sole solution, analysing its role produces a series of strategic short circuits.

It oversimplifies and depoliticises the response to climate change. It legitimises the idea that sustainability can be achieved within continuous growth and expansion, which are essential to the survival of the financial sector.

It rewrites the way we think about our planet in the vocabulary of finance and its obsession for a return on investment. It marginalises any claim to address climate change based on present and historical injustices, redistribution and bottom-up projects organised by ordinary people.

It accepts that the financial way of defining sustainability and its achievements are inherently aligned with the rights, interests and needs of people and the planet.

Finance may be a partner in the fight against climate change, but it is certainly not a partner motivated by altruism. It’s motivated by generating profit from the transition. It is therefore unsurprising that energy generation, railways, water management and other forms of climate mitigation have been identified as priorities for sustainable finance.

Action on climate change has to involve standing up to the Wall Street Bull. Quietbits/Shutterstock

Fighting climate change on Wall Street’s terms

Wall Street can find large returns by investing in the transition to “greener” infrastructure, including the not-so-green Chinese green belt and road and dams like the Belo Monte, a project that originally applied for carbon credits and was labelled as a sustainable investment. Green bonds can help cities finance projects to reduce their environmental impact or adapt to climate change.

However, if money is the driver, we should not expect private investors to have any interest in projects that won’t generate a sufficient return, but would benefit people or cities that cannot pay for the service or for the debt, or that would protect vulnerable people from climate change. If climate change is fought according to the rules of Wall Street, people and projects will be supported only on the basis of whether they will make money.

Ten years ago, the world saw that finance had permeated every aspect of the global economy. Back then, it was clear that financial interests could not build a better and different world. Ten years later, COP24 should not legitimise large financial investors as the architects of a transition where sustainability rhymes with profitability.

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This blog is by Cabot Institute member Tomaso Ferrando, a Lecturer in Law at the University of Bristol. This article is republished from The Conversation under a Creative Commons license. Read the original article.

Tag: Tomaso Ferrando

How banks are trying to capture the green transition

Is there no alternative to climate finance?

Let’s unbank the green and just transition

COP24: ten years on from Lehman Brothers, we can’t trust finance with the planet

Has finance cleaned up its act?

Difficult questions for COP24 negotiators

Fighting climate change on Wall Street’s terms