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Hot money

Hot money

Fixing climate change will need dollars. How are banks facing up to the challenge?

Long stories short

  • Twenty countries most at risk from climate change said their $685 billion in debts should be forgiven to invest in climate projects.
  • China’s president Xi Jinping said his country would pursue an energy revolution, while continuing to burn coal (more below).
  • Alaska cancelled its snow crab fishing season after a population collapse which may be linked to warming seas.

Hot money

Our brains are famously bad at processing large numbers. So when bankers talk about mobilising trillions of dollars to finance clean energy, it is both thrilling and unfathomable.

The problem, on paper, is relatively simple. To keep large chunks of the world habitable for humans, we need to 

  • end investment in new sources of oil, coal and natural gas;
  • halt investment in new coal plants that are unabated – where the coal is burned without carbon capture and storage, and
  • rapidly scale up sources of clean energy, especially in the developing world.

Private finance is central to all of these changes: switching off the old world and powering up the new. The wheels are in motion: this year investment in renewables is expected to outstrip oil and gas for the first time.

Hence the excitement when the biggest forces in finance joined together last year with a goal of steering the global economy to net zero emissions. The Glasgow Financial Alliance for Net Zero (GFANZ), created last April, now has over 500 members. It has galvanised banks to announce net zero plans and spurred debate about the right way to measure progress. Its cheerleader is Mark Carney, former governor of the Bank of England.

Optimism surrounded its birth, but clouds have been gathering ever since. 

GFANZ faces two challenges: 

Powering up. Marshalling green finance for developing countries is easier said than done. 

Emerging markets may need finance at below market rates, or have political risks that are too high for commercial lenders. The fix here is to combine private finance with public money, so the role of the World Bank is crucial.

But that’s also easier said than done. David Malpass, the Trump appointee who is its president, is accused of being a ‘climate denier’. The US and Germany have both pushed the bank to make greater use of its financial muscle. A GFANZ insider praised a World Bank programme to help Zambia procure solar power, but added: “The bank hasn’t taken that and worked out how to make it universal.” 

Critics say the bank could make greater use of grants as well as loans, and target more resources at a local level, such as at green city projects, to deliver benefits faster. Pressure from its shareholder countries is likely to yield action.

Powering down. The second challenge is chewier. A UN body, Race to Zero, sets criteria for businesses taking action to cut emissions. The fear among some banks is that these criteria could create legal liabilities for directors, if their firms miss targets. 

Earlier this year, Race to Zero explicitly banned new coal financing – but this wording has since been diluted to “phase out” rather than “restrict”. Banks, like any other businesses, are resistant to the UN telling them how to operate. The UN lacks the “nuance or expertise” to decide national energy policy, one banker notes. Many GFANZ members, such as JP Morgan Chase, still have extensive fossil fuel interests.

The problem here is that if the UN’s stipulations are watered down, GFANZ risks turning into a marketing exercise. 

  • Ben Caldecott, director of the Oxford Sustainable Finance Programme at the University of Oxford, says that getting GFANZ to link itself to Race to Zero was “an important redline” for the UK’s COP26 presidency.
  • “What has happened over the last year since Glasgow is the leverage [over banks] has gone and nothing has replaced it,” he adds.

There are two risks now: one, that GFANZ breaks up as tensions grow between institutions that have more exposure to oil, gas and coal and banks with a greener portfolio. The other is that the coalition continues, but with such loose requirements that it is ineffective.

As Carney acknowledges: the road to a hotter place is paved with good intentions.


Sunflowers stunt
A video of Just Stop Oil activists hurling tomato soup at a Van Gogh masterpiece in the National Gallery has racked up over 45 million views on YouTube. Protestors from the group, whose key demand is an end to oil and gas exploration, have so far this week: closed the M25 Dartford crossing after two people climbed the QE2 bridge, sprayed an Aston Martin showroom and New Scotland Yard with orange paint and glued themselves to several main roads in London. Similar actions are planned for the rest of the month. While some have hailed the group’s “tactical innovation”, others, notably the tennis player Martina Navratilova, have described the activists behind the Sunflowers stunt as “effing morons”. It’s worth noting that radicals often burn brighter than moderates in the national memory. Case in point: the Suffragettes. Regardless, the legal consequences could be about to get a whole lot tougher: the public order bill currently before parliament includes a new offence for “locking on”, carrying a sentence of up to 52 weeks. So far, 1600 people have been arrested and 79 jailed in connection with Just Stop Oil’s actions.


EY Global Climate Risk Barometer

Companies are investing more time producing climate risk disclosures based on TCFD recommendations. However, these disclosures are not translating into actionable strategies to accelerate decarbonisation. This EY report analyses the reasons behind this by reviewing the disclosures made by 1,500 companies across 47 countries.

Find out more


China’s choices
Xi Jinping’s opening speech to the Communist Party Congress indicated an unwillingness in China to drop coal generation until it can secure enough renewable energy supply. “We’re building the new before discarding the old,” he told 2,300 party delegates in Beijing. He also spoke about prioritising “environmental protection and promoting green lifestyles” and made sure to point out blue skies above Beijing as evidence of the country’s success in bringing down air pollution. But while this week the focus is on a domestic transformation of China’s energy system, it’s clear that the party has eyes trained elsewhere: four Chinese companies recently reached the final round of bidding to become a commercial partner in Bolivia’s state lithium miner. Bolivia has the world’s largest reserves of lithium. Another Chinese inroad into South America would further consolidate its grip on a vital component in the global transition to clean energy.


The pipeline for projects to capture and store carbon has grown a record 44 per cent in the last year according to the Global CCS Institute thinktank. In order to meet net zero, the IEA says that 7.6 billion of CO2 will need to be taken out of the atmosphere annually by 2050. Currently operational projects have the potential to capture just over 40 million a year from industrial smokestacks or direct air capture. Tax breaks contained within President Biden’s Inflation Reduction Act will accelerate the business of CCS in the US – some predict a 13-fold increase in capacity by 2030 – but critics argue that most projects are a way for industry to justify the continued use of fossil fuels, while those that focus on direct removal from the atmosphere remain a long way from becoming economically viable.


Frequent floods
In 2021 it was fires, but in 2022 our changing climate has been most devastatingly marked by floods. In yet another once-in-a-decade disaster, flooding in Nigeria has killed more than 600 people and displaced 1.3 million. Many of the worst affected areas are located in the rice-producing central and northern parts of the country, prompting fears that food inflation – already at 17-year high – will rise even further, exacerbating the risk of reaching “catastrophic levels of hunger”. As is becoming routine after disasters in developing countries, the Nigerian government was quick to cite climate change as a key cause, but acknowledged that poor planning and infrastructure were also to blame. As we mentioned in the daily Sensemaker last week, expect disasters such as these to feature prominently at Cop27 as the basis for climate finance appeals.

Thanks for reading.

Jeevan Vasagar

Additional reporting by Barney Macintyre.

If you want to get in touch, drop us a line at netzero@tortoisemedia.com.

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