In saving the planet, banks can save themselves
December 1, 2020
Trade finance, not just project finance, must act to preserve valuable ecosystems like the Amazon rainforest
By Todd Paglia, Executive Director, Stand.earth
ORIGINALLY PUBLISHED ON THEBANKER.COM
Half of the world’s gross domestic product depends upon nature and the services it provides, such as pollination and disease control. With the world failing to meet a single biodiversity target in the past decade, these functions are breaking down fast. Yes, this is an environmental and social justice issue, but it is increasingly a financial issue too. Banks are part of the global system responsible for this collapse and they can be a powerful part of its repair.
The recent Bankrolling Extinction report by environmentalist group portfolio.earth found that in 2019, 50 global banks, including Bank of America, Citigroup and JPMorgan, provided loans and underwriting of more than $2.6tn to economic sectors that scientists agree are primary drivers of biodiversity loss, such as mining, energy and agriculture.
Financial institutions are vulnerable not only to climate- and ecosystem collapse-related financial crises, but to long-simmering societal irritation. Banker’s hours; Too Big to Fail; Occupy Wall Street: the social licence of banks is increasingly at risk as more people understand they are part of the system causing climate and biodiversity breakdown.
At the same time, several banks are taking early steps to allocate capital to projects that will restore and rejuvenate the natural world. However, sums provided to regenerative activities are dwarfed by the core business.
The Amazon rainforest — one of the most biodiverse ecosystems on the planet, providing the world with 20% of its required oxygen and home to diverse indigenous cultures — is a case in point. Rabobank, ING and BNP Paribas are well known for their climate policies and sustainable investments. Yet when you take a closer look, these banks, along with Credit Suisse, Natixis and UBS, have all financed the trade of 155 million barrels of oil from the Amazon over the past decade. This major loophole to climate policy — trade finance, as opposed to project finance — no doubt applies to other commodities, such as palm oil, soy, fracked gas and more.
However, things are shifting. Rabobank has now committed to end trade financing for oil from the Amazon Sacred Headwaters region, and Credit Suisse and other banks are working towards amending their lending policies too. Natixis and UBS, however, appear to be dragging their feet. Closing this important loophole is critical; however, one-off fixes will not work. The entire approach to climate, indigenous rights and biodiversity must be revolutionised.
So what if visionary banking actually met the challenge not of what we think we can do, but of what we must do? Regenerative banking that restored our planet would include respecting and upholding the principles of free, prior and informed consent in regions that overlap with traditional indigenous territories. It would also include the elimination of all new financing of all fossil fuel projects by the end of the first quarter of 2021 and a 100-times ramp up of wind, solar, efficiency and breakthrough technologies. Every financial institution would be shifting 10% of all financing towards green and regenerative projects in 2021 and adding 10% more each year. There would be full public transparency of all loans and all financial relationships by mid-2021; and the full use of lobbying efforts to eliminate fossil fuel subsidies and other destructive ecosystem activities with 10% of advertising and communications budgets and assets applied to these goals.
Visionaries, such as The Global Alliance for Banking on Values, an independent network of banks using finance to deliver sustainable development, and the 1000 Landscapes for 1 Billion People initiative, are already moving in this direction, but this must quickly become mainstream.
Covid-19 hammers home the lesson that our economy is a wholly owned subsidiary of the environment. The more unpredictable the environment gets, the more volatile our economy will become. We need financial institutions to put their vast power behind efforts to try to save our planet. Not just for the Amazon, but for the Great Barrier Reef, the Boreal Forests of Canada and Russia, the savannahs of Africa, and, ultimately, every person, economy and financial institution across the world.
If banks succeed in using their influence and power to help regenerate our increasingly fragile planet, they will soon find out they are, in fact, saving themselves.
Todd Paglia is executive director of Stand.earth, an advocacy organisation.