Finance Watch has put out a meaningful report today on breaking the climate change doom loop. This report, written by Thierry Philipponnat, provides very concrete suggestions on how regulators can use capital regulation to encourage banks to reduce their financing of companies and projects that rely on fossil fuels. If implemented, this approach will make fossil fuel financing more costly to the banks. That should be encourage banks to either pass the costs on or refrain from financings that have long term negative impacts on the environment. Most importantly the recommendation works within the existing framework which should make it more likely to be implemented – although there will be challenges in doing so.
In its coverage of the report, the Financial Times noted that “tackling (climate change) through changes to global regulation may prove difficult.” But the pressure on large banks in this area is growing as evidenced by other actions cited in that article including earlier reports from ShareAction and BankTrack as well as comments from Huw van Steenis and Christopher Hohn. Clearly banks should be thinking about the impact on their capital from continuing to finance fossil fuels.
