By Michael Shank
Banks are still investing too heavily in fossil fuels, but 30 other top investors are making a green shift
The news this month that the world’s largest banks still heavily finance fossil fuels, failed to respond to climate risks, and have yet to make substantial commitments to sustainable development hit hard. If they’re not going to finance the transition to a sustainable world, it’s not clear who would. We need them on board, and it’s in their financial interest: firms ignoring the climate crisis will go bankrupt, according to Bank of England’s Governor Mark Carney.
That banks extended $1.9 trillion in financing to the fossil-fuel industry since 2015 shows how much work is required if we’re going to halve emissions by 2030, which is what’s needed to avert climate catastrophe. Even the European Investment Bank, the largest public bank in the world, balked this week at total divestment in fossil fuels.
That is why this week’s announcement at the United Nations, by 30 of the world’s top investors, to invest in sustainable development is heartily welcomed. The Global Investors for Sustainable Development, which includes the biggest players in the financial industry, such as Bank of America, PIMCO, Citigroup, Allianz, UBS and more, are hoping to arrest the trends above.
In their UN announcement, they noted that financial investment in the Sustainable Development Goals, adopted by 193 nations in 2015, isn’t happening “at the required scale or speed”.
And that while “investment into sustainable development has become increasingly popular, it has not reached the mainstream”. And while the business case for sustainable development is widely recognized, “it is not sufficiently echoed in corporate boardrooms”.
They’re right. It hasn’t reached the mainstream, and it’s not sufficiently in corporate boardrooms. So, how we do change this?
As a first step, this alliance pledges to promote an economic growth model that benefits everyone. That means all stakeholders, not just cash-wielding shareholders, which was the precedent. This is huge.
A financial commitment to the entire community, not just the major cash contributors, represents a sea-change in investor thinking, and it comes at a time when discontent with the current economic growth model is rising. This first step reframes the focus and widens the lens.
Secondly, out-of-the-gate actions will focus on scaling up investment opportunities in developing countries, where it’s desperately needed. As income inequality, resource scarcity and extreme weather continue to wreak havoc in the poorest of frontline communities, this doubling down on the majority is a huge win.
And we have the solutions. Now they just need to go to scale, everywhere. This alliance, using their unmatched convening power to bring together investors, governments and multilateral institutions, can do just that.
Third, the problem of short-termism, prevalent on the Wall Streets of the world where investors answer to shareholders, will be replaced by long-term thinking instead. The new focus will be on creating value yearly, not quarterly – another win for sustainability as performance will be measured by realistic timeframes, not risky trade returns.
Fourth, the standards for sustainability reporting and impact assessment will see new transparency, which the alliance will prioritize, bringing harmony to a fragmented space. This is important so that policymakers, publics and private sectors know who and what to trust.
Where’s the money going, what are the projects producing in terms of positive impact, and is it helping people? We need better data and information to answer these questions. But this explicit commitment to transparency and impact is hugely helpful.
Lastly, in terms of institution-building, these investors pledge to develop tools that’ll enhance the risk-return profile of investments in sustainable development. For example, a user-friendly platform that makes it easy to pick from SDG-related investments.
Sustainable investment is still not mainstream and requires investors to search, sometimes exhaustively, for the right projects to fund – versus an efficient system that presents sustainable investments as the status quo.
This may sound pie-in-the-sky. And the shift won’t be easy. But that same concern now drives these global investors to be bolder and better, to go further and farther. This isn’t a stunt. They’re serious. But since the proof of the pudding is in the eating, only time will tell. To the pie in the sky.
Michael Shank is the communications director for the Carbon Neutral Cities Alliance and adjunct faculty at New York University’s Center for Global Affairs.