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Banking on climate change

By Meg Bowman - posted Thursday, 8 October 2009

The horror-stricken faces of shareholders and stock traders from Wall Street to Tokyo are etched indelibly in our minds. Less than 12 months ago, young professionals, seasoned entrepreneurs and retirees all stood together watching stocks plummet - their investments and life savings disappearing before their eyes. This was the wake-up call that the global financial crisis had arrived.

At the same time, alarm bells have been deafening about the rapid deterioration of our natural climate. Global warming is also upon us. We feel it in the air, we watch it on the news: fires, floods, heatwaves, droughts, death. Polar caps are melting, the world is changing. Yet where are the wild-eyed stares? The horror, the outrage? The global climate crisis is a reality for every person, just like the global financial crisis.

Our salvation in the global climate crisis could lie in visionary business practices of the very people responsible for the global financial crisis. The finance sector - particularly banking, investment and insurance - has the power to offer incentives for greenhouse gas emission reductions, to move the global economy to low-carbon and, literally, to save our skins.


The solution to the global climate crisis is disarmingly simple: more efficient energy conversion of current energy sources as well as widespread creation and uptake of renewable energies. But the real question is how to implement this. Between the role of the individual (“I’ll drive my car less”) and the role of the nation state (“let’s talk”) lies a role for the finance sector in mobilising climate change mitigation. In industry circles, harnessing the power and influence of financiers to reverse global warming - much like harnessing the power of the sea or the sun - is getting airtime as a real solution to global warming.

How can the finance sector be our weapon of mass salvation? The answer is that bankers are in a unique position to restrict financing of heavy greenhouse gas-polluting projects and to fund renewable energy and innovative technology. They also have positional power to influence the carbon-emitting behaviour of corporate clients, consumers and competitors. By cutting off their funding greenhouse gas-emitting projects can be restricted and the transition to a low-carbon economy can gather momentum.

In Europe and the US, leading financial institutions are using their power to do exactly this. Dresdner Bank and JP Morgan subject high greenhouse gas-emitting companies to the kind of scrutiny that can result in restricted or no funding for polluting projects. Other investment bankers such as the Allianz Group have developed expertise in the field of renewable energy investments and financing.

Yet enlightened banking practices are far from industry-wide. Two key strategies to mobilise the power of banks throughout the world are the “Equator Principles” and the “Climate Principles” - environmental and social development benchmarks in global project financing. In Australia, Westpac was a founding signatory and the first Australian bank to adopt the “Equator Principles”, and ANZ has since signed on. Although financing data for Westpac and ANZ reveals that most projects get the green light, these banks have taken on much more responsibility by signing on to these principles. As quasi-environmental agencies they must monitor compliance with sound practices and advise clients on mitigation and management strategies.

The Climate Principles are a different story. They aim to accelerate a low-carbon economy by assessing client projects for climate risks, and monitoring and evaluating options to mitigate emissions. The Climate Principles were launched last year, but no Australian banks have signed up. They need to get on board.

Australia needs more business leadership from our banks - especially the “big four”, whose reputations have suffered during the global financial crisis due to highly-criticised lending practices and failure to fully pass on interest rate cuts.


The inconvenient truth is that the world’s governments lack leadership and vision on the climate change crisis. Even though new reduction targets were set at the recent G8 meeting, Prime Minister Kevin Rudd was caught on-camera commenting that he has no confidence in the Copenhagen negotiations. And most of us agree. There’s too many stakeholders, too much political jockeying, too uncertain a timeline; it’s all too hard. In government hands, our chances to genuinely reduce global warming are slipping through our fingers.

The private finance sector cannot replace the law-making roles of government, but its power and expertise to mitigate climate change is a grand opportunity to make good.

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About the Author

Megan Bowman is a lecturer in International Law and Business Law at Victoria University, Melbourne.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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