Governance, risk & compliance United front
Investing to save the planet is not a game, Hoyer stresses, and “green financing is not about reputation or idealism”. EU governments are unanimously committed to climate neutrality and understand full well that a unified approach is needed to mitigate the risks of global warming. The European Climate Law, which sets a target for an emissions reduction of at least 55% by 2030, compared with 1990 levels, is legally binding and already in effect. “The direction of travel in terms of policy and regulation – both at a European and global level – is very clear and investors become increasingly aware of the emerging landscape,” Hoyer says. Fossil fuel projects are not only more expensive and slower to roll out than their low-carbon alternatives, but also likely to become “stranded assets” due to government policies and regulations phasing them out. “We must be very careful,” Hoyer stresses, “to not invest in projects that are neither financially nor economically viable – it is, in many cases, bad business.” A new EU taxonomy, in other words, constitutes a real milestone in defining climate action investment. Providing companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable, the European Commission proposed the first section of the taxonomy back in March 2022. Yet when it came to it, three motions attempted to block the new regulations on the grounds that it should have included nuclear energy and gas power plants as green investments. Austria and Luxembourg threatened to sue the EU, while the Institutional Investors Group on Climate Change (IIGCC), which represents investors with more than €50trn worth of assets under management, wrote to EU member states and the European Parliament to demand that gas be excluded from the taxonomy. An absolute majority was required from members of the parliament, which was not reached, despite 150 campaign groups urging Brussels not to label gas as green. The commission, for its part, believes there is a role for private investment in gas and nuclear activities in the green transition. It’s clear, in short, that the specifics of what makes an investment truly ‘green’ remain contentious. For many, the looser the definition, the better – as the alternative requires radical changes to economic behaviour and a significant redistribution of investment.
The grass is greener
While good optics should not be the priority here, they are inevitably worth considering before a company makes any significant changes. ‘Greenwashing’ – the attempt to make people believe that your company is doing more to protect the environment than it really is – has been described as a systemic problem across the developed world. According to a survey of 150 UK
Future Banking /
www.nsbanking.com
banking executives by tech company Mobiquity, after all, just 59% of lenders are measuring their carbon footprint, even as the same survey found that all executives believe sustainability is crucial to business. The Glasgow Financial Alliance for Net Zero
(GFANZ), which was launched at Cop26 last November, widely grants members a so-called ‘green seal of approval’. Members, including banks, insurers, asset owners, asset managers, financial service providers and investment consultants, all agreed to limit the rise in global temperature to 1.5ºC above pre-industrial levels.
“The direction of travel in terms of policy and regulation – both at a European and global level – is very clear and investors become increasingly aware of the emerging landscape.”
Yet the criteria set out by the alliance contain loopholes that allow members to maintain their existing investment in coal and other fossil fuels beyond 2023. Meanwhile, banks that have signed up to a global climate pledge, led by former Bank of England governor Mark Carney, can still invest unlimited amounts in coal mining and coal power – despite promises to tighten the rules on lending. The disconnect between what banks and governments say they’ll do and what they are doing in reality is hard to ignore. In June 2021, for instance, a group of investors worth $2.4trn accused HSBC of greenwashing, after the London bank continued to fund coal fuel projects even as it pledged to go carbon neutral.
The UK government, for its part, has arguably neglected to prioritise the climate emergency in a meaningful way during the various leadership contests of recent years. Taking action on the climate emergency was the bottom priority for
The governments that comprise the EU acknowledge that a unanimously committed approach is what is needed to tackle climate change.
€1trn
The amount the EIB has pledged to devote in climate action and environmental sustainability investments in the decade to 2030.
EIB 49
EIB/ Caroline Martin
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