Central banks helping funnel trillions of dollars into fossil fuels despite climate pledges

Theodore Whyte (Resilience 26 August 2021) argues that central banks across the world are being less than honest about pledges to pull out of the fossil fuel industry when they are doing the opposite. A campaign marketing to build a positive image for  population concerned about the climate crisis, is not the same thing as acting on it.

Central banks are continuing to help channel trillions of dollars into fossil fuels through policy decisions and direct financing, with overall sums rising in recent years, a new report has found.

None of the twelve banks examined are on track to meet the Paris Agreement targets despite many of them recently pledging to reach net zero emissions by 2050, the US-based environmental organisation Oil Change International (OCI) said.

The report calls on governments to update the mandates of the banks to support the managed decline of fossil fuels.

The news comes ahead of a virtual conference of central bankers on Friday, where policy leaders and investors are expected to discuss the challenges posed by climate change.

‘Tinkering Around the Edges’

David Tong, Global Industry Campaign Manager at OCI and an author of the report, said in a statement:

“Central banks have access to powerful tools to confront the climate crisis, but they aren’t using them. Instead of using their power to cut off finance for fossil fuels, they are making themselves busy tinkering around the edges of the climate crisis.”

He continued:  “The climate crisis is too dire and too urgent for such critical institutions to be dawdling when they could be leading the finance sector in a new, climate-safe direction.”

The report looked at 12 central banks from the UK, US, European Union, Canada, China, France, Germany, India, Italy, Japan, Russia, and Switzerland.

It analysed three key functions of central banks to make its conclusions: asset management; rules and support for commercial banks for financing fossil fuels; and policy and research that could guide decision making in the future.

Banks Defend Climate Record

Some central banks have taken steps to increase their transparency and reporting of climate related risks, but the report says this has been overshadowed by a failure to reduce financial flows to the fossil fuel industries, at an estimated $3.8 trillion in the four years following the Paris Agreement.

Financial flows are also increasing to projects linked to the exploration and development of new fossil fuel resources, indicating that central banks are not using their influence as regulators of commercial banks to stem the flow of capital to polluting activities.

Danisha Kazi, Senior Economist at Positive Money, a UK-based advocacy group which collaborated on the report, said the Bank of England in particular should be doing more, in light of recent commitments.

Photo by John Keeble / Getty: Extinction Rebellion protester outside the Bank of England in London

“With its new remit to support net-zero and environmental sustainability, the Bank of England is in a particularly good position to lead the way, but it has yet to turn its words into actions and actively transition the financial system to a more sustainable footing,” she said.

When asked if the bank believed it was doing enough to meet the goals of the Paris Agreement, a Bank of England spokesperson pointed DeSmog to comments made in June by its Governor Andrew Bailey.

At the time, Bailey said the bank was “on course to meet our ambitious target of reducing emissions by 63 percent from 2016 to 2030, a level of reduction consistent with the goals of the Paris Agreement and industry best practice.”

“In addition, this year we have gone further and made a new commitment to achieve net-zero emissions from our physical operations by 2050 at the latest.”

These do not include so-called “financed” emissions from banks’ lending, however.

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