Politics of Poverty

Bankrolling climate action and accountability

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OGB_121401_Cyclone Amphan,  Cox's Bazar, Bangladesh - Covid-19 response.jpg
An Oxfam staff member works to prepare one of the Rohingya refugee camps in Cox's Bazar, Bangladesh before the landfall of cyclone Amphan last month. Photo: Fabeha Monir/Oxfam

The global financial sector must help bring about a green and just recovery from COVID-19.

Co-written by Sharmeen Contractor.

The lockdowns at long last are starting to lift. But the global recovery from COVID-19 will not be easy—especially as the effects of climate change persist.

Look no further than Cyclone Amphan. When it struck parts of northeast India and the coast of Bangladesh last month, its toll fell hardest on the poorest and most vulnerable communities. The pandemic meanwhile continues to devastate people’s livelihoods, and governments worldwide are preparing trillions of dollars’ worth of stimulus packages to help economies recover.

In the face of these twin crises, we need bold action from companies to address the urgency of the climate crisis and tackle the structural inequalities that the pandemic has exposed. While several companies including some food and beverage giants have urged policymakers to prioritize a green recovery and committed to science-based emission reduction targets, a green and just recovery is only possible if the financial sector—and capital markets—get serious about tackling climate change.

The financial risks of climate inaction are clear

Banks, asset managers, and insurance companies are the financial backbone of the global economy—providing capital for innovation, infrastructure, and job creation. But as floods, wildfires, and droughts become more frequent, climate change is presenting serious financial risks to bottom lines that are becoming harder for companies to deny.

The pandemic is demonstrating the risks of high exposure to fossil fuels. Conventional funds have shown lower resilience to market shocks than Environmental, Social, and Governance (ESG) funds, whose better performance is driven in part by greater emphasis on identifying and reducing exposure to high carbon companies and sectors in their portfolio. In recent years, civil society has pressured huge players in the financial sector to address climate risk in their portfolios. And in a clear signal of investor support for climate action, almost 50 percent of JPMorgan Chase shareholders voted last month in favor of a resolution asking the world's largest private bank to craft an operational plan that aligns with the Paris climate agreement's goal of limiting global temperature rise to 1.5°C.

Blackrock—the world’s largest asset manager—announced earlier this year that it would make climate change central to its investment considerations. The company also joined Climate Action 100+—an investor initiative designed to ensure the world’s largest corporate greenhouse gas emitters improve their climate governance, curb greenhouse gas emissions, and strengthen climate‑related financial disclosures—and is starting to use its leverage to push US oil companies like Exxon and Chevron to reduce their massive carbon footprint.

The financial sector should stop profiting off fossil fuels and environmental devastation

Despite some of their rhetoric on climate action and ESG risk, global banks and investment firms continue to pour money into the fossil fuel sector.

According to a recent analysis by the Rainforest Action Network, financial support for the industry has increased every year since the Paris Agreement was adopted in December 2015. The analysis also finds that big US banks including JPMorgan Chase, Wells Fargo, Citi, and Bank of America continue to dominate fossil fuel financing. At a time when the US government has focused on giving the dying fossil fuel industry unpopular bailouts at the expense of those most affected by COVID-19, continued financing for this sector further risks entrenching carbon-intensive economic models. While some banks like Citi have updated their policies and recently set a target for phasing out financing of thermal coal mining, the financial sector still has a long way to go.

Environmental groups meanwhile have said asset managers like Blackrock worsen the destruction of the Amazon by investing in agricultural companies that drive deforestation and commit human rights violations. The company also hasn’t walked the talk on climate when it comes to its voting record on climate-related shareholder resolutions. BlackRock’s membership in industry associations—such as the US Chamber of Commerce, which opposes ambitious climate policy, and the Business Roundtable, which is thwarting minority shareholder rights by pushing for higher ownership thresholds for filing shareholding resolutions—demonstrates that it fails to match its words with comprehensive and concrete action.

How the financial sector can champion climate ambition and action

The financial sector needs to transform its investment and lending policies to address the urgency of the climate crisis. Financial institutions also need to step up their climate ambition and be held accountable for their actions. Here’s how:

  • Ensuring that companies in their portfolios responsible for exacerbating climate change strengthen climate-related disclosure of their activities, including disclosure of climate risks in line with the recommendations by the Task Force on Climate-related Financial Disclosures (TCFFD);
  • Setting measurable targets for lending and investment that are aligned with the Paris Agreement and the pace and scale of decarbonization needed to keep temperature rise to below 1.5 c;
  • Establishing a robust risk assessment process to identify and address environmental and human rights risks in their portfolio and refraining from engaging in greenwashing or ESG washing; and
  • Ramping up support for green investments and community resilience.

The COVID-19 crisis makes clear that it is time to rethink ESG and make it central to the financial sector’s decision-making. Recovery from COVID-19 is an opportunity to shift finance towards a more just and sustainable future, and it's time for the financial sector to set the foundation for a low carbon, resilient economy.

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