Have bankers won the moral high-ground on climate change?


Investors will be watching the results of COP17 closely ahead of the Green Climate Fund (Source: Rafael Matsunaga)

By John Parnell

As one of the most powerful groups lobbying for improved climate change legislation, the financial world is proving to be a key player in prising open funds for mitigation and adaptation.

With the development of the Green Climate Fund second only to Kyoto on the agenda in Durban, expect to hear even more from the finance and investment lobby at COP17.

Banks also have a record of leading the way in corporate and sustainability measures. They were early movers in carbon disclosure and many have integrated these into their everyday business operations, from the offices they work in to the products they offer clients.

The Lloyds Banking Group has set ambitious targets for energy efficiency and is making operational and logistical changes to its operations.

“We have a concept called ‘no travel week’, every month, in the third week there’s no travel permitted,” says Paul Turner, Group Community Investment & Sustainable Development Director at Lloyds Banking Group.

During this week staff do not visit colleagues in other offices, instead opting for video conferences and other alternatives.

“We found that it doesn’t spike in the week before or after, it truly is avoided. That not only reduces our impact, it also saves us a lot of money so it makes great business sense.”

This means doing more than installing energy efficient light bulbs (which they’ve done incidentally). The group screens all loans above a certain threshold with an environmental impact assessment. Its auto-leasing operation has adopted energy efficiency at its core and it has ramped up interest in funding clean energy ventures.

Lloyds has invested in around ten renewable projects a year for the past four years with a total investment of £2.5 billion. This is significant. To put this into context, this is about half what the UK government has set aside to seed the Green Investment Bank.

The greater role for banking and investment lies in its ability to finance the huge volume and scale of projects necessary to keep warming below two degrees. The effect of the industry’s lobbying of governments cannot be underestimated. Cynics will say there is nothing altruistic about these calls. So what? The result will be the same regardless of the motive.

The International Investors Group on Climate Change (IIGCC) represents €6 trillion of assets and largely wants precisely the same results as many other environmental groups from other backgrounds.

“What we are looking for from policy is that it shifts the risk/reward balance away from high carbon to low carbon assets,” says Stephanie Pfeifer, executive director, IIGCC.

“It’s really critical that policies supporting these have the appropriate duration so you’re considering the longer-term timescale. What’s been happening quite a bit recently is that policy changes have been made retroactively. That will damage investor confidence. That’s very difficult to restore,” says Pfeifer.

Germany is an excellent example of steady, consistent policies enabling growth and providing investors with the confidence they seek.

“If there are any changes needed to policy, for example in response to falling technology costs, there must be a path that shows investors how things might change and when they might change. This has to be clearly signalled before the investment decision is taken,” she adds.

Having said this, she is acutely aware of the balancing act governments have to perform in a time of increasing austerity measures.

“We recognise that governments feel the need to be flexible. They will react to changes in economic conditions, in climate and of course they are very aware of the electoral cycle,” claims Pfeifer. “Investors will be looking at how governments legislate, whether they have invoked retroactive policies in the past, how economically sustainable are their policies?”

So what financial policy would she like to see develop in Durban?

“An international framework would help with investor confidence. So we are very supportive of the UNFCCC process,” she says. “I think there is still a lack of understanding of the role that private sector capital can play.”

Pfeifer says the IIGCC and other investor groups will be providing a private sector perspective on the Green Climate Fund during the negotiations, a potential centrepiece of this year’s talks.

“We have done some work on risk reducing mechanisms, guarantees, the kind of thing where public sector money will leverage private sector investment. Those discussions will probably be ongoing in Durban,” says Pfeifer.

With a new report highlighting a $23.5 billion hole in public funding for adaptation and mitigation, private money could prove even more important As far as climate finance goes, it looks like it will be the banks bailing out the government’s shrunken climate funds.


Read more on: Climate finance | Climate politics | COP17 | Green Climate Fund |