Changing the plumbing of the financial system

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Windmills at the Thanet offshore wind farm off Ramsgate in Kent

Follow the money to net zero. That’s the plan unveiled today, with two-fifths of global financial assets, $ 130 trillion, led by banks, insurers and pension funds that have signed net zero targets in 2050, in particular by limiting global warming to 1.5 ° C.

This means that the giant laser beam of global finance will be directed at technologies that reduce and eradicate carbon emissions, and away from the “brown holdings” of investments in coal, oil and gas.

The goal of the initiative chaired by former Bank of England Governor Mark Carney is to change the plumbing of the entire financial system forever.

What does this mean in practice?

In essence, the cheap and easy bank financing that naturally flows to, say, an oil field or a coal mine, is diverted to renewables or a mortgage product that subsidizes energy efficient homes.

In fact, all of this is already happening in niches, with loans raised for environmental investments attracting a flood of money, and therefore cheaper financing – what is called a “greenium”.

Bank chiefs say they are having difficult conversations with their clients who want to build coal-fired power plants, pulling finance in advanced countries now and in developing countries beyond the next decade. So this is the great hope.

Promisingly, the Chinese, whose state-owned banks have been huge lenders of coal around the world, have also said they will back out of such investments.

But the negotiations in Glasgow will fail to set a global price for carbon – the kind of move that could really secure the path to net zero.

So far, they have also failed to find a globally consistent way for banking regulators to force the financial system to increase the risk and cost of lending to carbon-intensive industries.

And then there is the really fundamental question on the COP26 climate finance agenda: can such fundamental ecological, economic and social change really be achieved more by the financial carrot than by the regulatory stick?

This position is suitable for politicians who don’t necessarily want to tell their constituents to consume or travel less than they are used to.

By changing the financial system, they hope that the trajectory of every economic sector, from energy to transport, from food to clothing, the way we live, work and what we consume, will decarbonize on its own. .


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