World’s largest central banks continue drive finance towards fossil fuels: Study

Despite overwhelming evidence of climate change impacts, these 12 central banks continue to back fossil fuels through policy and direct finance, the study says

Even as citizens of the world grapple with the effects of a warming earth, investing in climate is a risk that banks just don’t seem to be willing to take on. A new report revealed 12 of the world’s largest central banks continue to back fossil fuels not just through policy, but also through direct finance. 

The report by research, communication, and advocacy organization Oil Change International reviewed the policies and financing of central banks in Canada, China, the European Union, France, Germany, India, Italy, Japan, Russia, Switzerland, the United Kingdom and the United States. There were 10 criteria that the assessment was based on, which looked at three aspects in particular–asset management, rules and support for commercial banks and policy and research.

There is a way, but no will

“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,” said David Tong, Global Industry Campaign Manager at Oil Change International and an author of the report.

The report acknowledged the fact that some banks have taken steps to increase transparency and reporting of climate-related risks, but the inaction over fossil fuel funding overshadows any other progress that is made. The study found between 2016 and 2020, central banks made no attempts to block commercial banks from financing fossil fuels to the tune of $3.8 trillion. 

Where India stands

While the report did recognise the Reserve Bank of India (RBI) to have “pioneered credit guidance to support renewable energy projects”, it also pointed out its inaction over tilting financial flows away from fossil fuels. When it came to the 10 criteria, the RBI was found to be either “grossly insufficient” or “insufficient” under all points. 

What the report recommended

The report recommended governments step in to empower central banks to handle the decline of fossil fuel production by ending financial support to them, in line with the Paris Agreement. It also urged central banks to exclude fossil fuel investments from their portfolios and adapt their regulatory practices in a way that eliminates commercial banks’ exposure to fossil fuel production. 

Asking for accountability

Even as calls for banks to be held accountable for their fossil fueled actions increase, another report revealed just how deep the rot is. The International Monetary Fund (IMF), which influences domestic policy across countries, undermined global climate action by promoting fossil fuel expansion through its policy advice in more than half of its member countries, the analysis by ActionAid and the Bretton Woods Project found. 

As a result of this, countries, especially developing ones, have been forced to rely on coal and gas, the report added. These countries are even more at risk because of stranded assets such as coal plants, which can’t keep up with the competition from clean energy. The study also found that by pushing a third of the member countries to privatise state-owned energy and electricity utilities to cut down on public spending, the IMF has locked them in long-term agreements that won’t allow a transition away from fossil fuels. 

While the IMF urged countries to end energy subsidies as a first step towards decarbonisation, the report exposed how the monetary fund’s advice was focused mainly on ending consumer subsidies, while those related to fossil fuel production remained untouched. 

“As the IMF begins the process of creating new guidance for its staff on how to integrate

climate change into its surveillance, it must develop new policy frameworks that are inclusive and ensure low- and middle-income countries have the fiscal space they need to deliver a just energy transition for their citizens,” said Jon Sward, Environmental Project Manager of the Bretton Woods Project.

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