I am in this post exploring the first report of France’s High Council on Climate Change published on June 17th, 2019.

The High Council is an independent body created by the decree of 14 May 2019 to issue opinions and recommendations on the implementation of public policies and measures to reduce France's greenhouse gas emissions, in line with its international commitments, in particular the Paris Agreement and the achievement of carbon neutrality in 2050. It is chaired by French-Canadian climate scientist Corinne Le Quéré and composed of ten members chosen for their expertise in the fields of climate science, economics, agronomy and energy transition.

Point #1 – Not all carbon neutrality claims are equal

Facing political resistance from some parties, governments are committing their countries to carbon neutrality at different horizons (Norway in 2030; Sweden in 2045; France, UK, New Zealand in 2050), but these may mean extremely different things for each of them.

Everyone should keep them in check and make sure the gap between “what it sounds like” and “what it actually is” is not too large.

Factors influencing this:

✔️ Inclusion of Greenhouse gas emissions (CO2 vs CO2+CH4+N2O)

✔️ Scope of emissions (e.g. inclusion of international transportation - flights and maritime) and imports (e.g. embedded carbon of products consumed in a country)

✔️ Use of international credits (i.e. possibility to outsource emission reductions)

The recently published report of the French committee on climate change in charge of keeping check of the government progress in terms of climate change makes a useful read in this regard.

Point #2 - Carbon border tax regulation can be used to avoid environmental dumping!

According to the first report of the French committee on climate change, French’s people carbon footprint has increased by 20% since 1995.

Even though domestic emissions have decreased by 20%, what happened is that emission related to imported have doubled Since 1995 and keep increasing. 🚛

🥐 In 2015, a French person carbon footprint was 11 tCO2e, including 6,6t CO2e domestically and 4.4% generated abroad.

Proposals for carbon border tax regulation makes sense in this context: avoid environmental dumping! Hence the environmental outcry over the free trade agreement with Mercosur.

Point #3 - In France, funding for climate-damaging activities remained higher than that of climate-friendly activities. Always consider one amount from the perspective of another.

In 2018, climate-damaging investments were almost twice as high as climate-friendly ones.

👎 While "climate investments" (public and private) increased over the period of the first carbon budget (2015-2018) to reach €41.4 billion in 2018, climate-damaging investments reached €75 billion (in 2017), stagnating over the last few years.

Positive investments: buildings (€20.7 billion), transport (€12.7 billion), energy (€6.7 billion), industry (€1 billion) and agriculture (€0.4 billion).

Negative investments: mainly from the purchase of fossil fuels powered vehicles.

According to OECD, fossil fuel subsidies in France have more than doubled in 10 years, from less than €3 billion in 2007 to €6 billion in 2017.

Point #4 – The social dimension of climate change is at least as important as the scientific one.

The challenges to overcome are the ones of resources, social equity and education:

✔️ Poor management of the transition to a lower-carbon economy will penalise lower-income households, leading to protests and unproductive actions (e.g. a carbon tax will penalise fossil fuel heating system owners). The yellow vests movement has illustrated this with colours;

✔️ The social dimension is much more challenging to track and very few indicators are being tracked;

✔️ In France, 23% of people do not believe climate change is real; 36% of 18-24 years old people;

✔️ In France, 12% of 18-24 years old people are not willing to make any effort to avoid climate change to worsen;

✔️ Since mitigation has not been ambitious enough, climate change adaptation (actions taken to manage impacts of the change by reducing vulnerability and exposure to its harmful effects) has to be integrated to policies.

Report: Agir en cohérence avec les ambitions, High Committee on Climate Change. 2019.

Link: https://www.strategie.gouv.fr/sites/strategie.gouv.fr/files/atoms/files/hcc_rapport_annuel_2019.pdf

A few months ago, I was looking to open a bank account in the United Kingdom. Being a part of the British Standards Institution’s sustainable and environmental finance group and having worked on various issues related to the decarbonisation and climate resilience of the financial sector, I am only too aware of the issues. I have consequently decided to only patronise the business of a bank or of a financial services provider with clear policies and activities not contributing further to climate disruption.

Banks, as well as pension and investment funds, are increasingly in the spotlight for their contribution to climate change. Money on your bank accounts or pension fund is potentially invested in arm manufacturing, mining, tobacco or other harmful industries.

The consumption of any good or services has an environmental footprint and the footprint of your money is not restricted to the materials and energy required to manufacture bank notes and coins. It is also and very much more what your money is used for. As illustrated by the recent findings of the UK Parliament’s environmental audit committee, it is not credible to claim you have decreased your emissions at home if you are sending billions of pounds of taxpayer money abroad to build fossil fuel burning power plants[1].

As of June 2019, 183 (out of 194) nations have ratified the Paris Agreement that aims to keep the increase in global average temperature to well below 2°C above pre-industrial levels and to limit the increase to 1.5°C. Governments have made ambitious pledges which require reductions of greenhouse gas emissions by at least 80% of 1990 levels by 2050.

However, while over the years pledges have piled up quicker than plastic waste in the ocean and the amount of public, private and civil society initiatives have increased almost as much as global concentration of greenhouse gas emissions into the atmosphere, we are still at least a degree off the less ambitious target.

The financial sector at the forefront of the battle

The financial sector has helped drive the carbon-intensive society we live in. It now has the chance to fuel the development of low-carbon technologies and climate-resilient activities.

While divesting existing fossil fuel assets is not enough in itself and may not always trigger the expected results (assets may simply change hands), some actors in the financial industry have already began their portfolio divestment, driven by potential reputational and financial risks. Divestment opportunities have been further enhanced as funding cleaner technology has become more aligned with investor requirements (i.e. higher returns, lower risks).

Too many are banking on the climate crisis

Recently, an alliance of NGOs, including Bank Track and the Rainforest Action Network, has published Banking on Climate Change[2]. This report found that 33 global banks have financed fossil fuels with $1.9 trillion since the Paris Agreement was adopted (2016–2018), with the biggest contributors outlined below:

• Tar sands oil: RBC, TD, and JPMorgan Chase

• Arctic oil and gas: JPMorgan Chase, Deutsche Bank and SMBC Group

• Ultra-deepwater oil and gas: JPMorgan Chase, Citi, and Bank of America

• Fracked oil and gas: Wells Fargo and JPMorgan Chase

• Coal mining: China Construction Bank and Bank of China

• Coal power: Bank of China, ICBC, Citi and MUFG

The figure below provides a visual view of this tainted ranking.

As you can see, the big European banks are not far behind the American, Chinese and Japanese ones. Paradoxically, a few of these companies have policies restricting financing for coal mining. There are 4 British banks (Barclays, HSBC, Royal Bank of Scotland and Standard Chartered) in the top 33 banks financing over 1,800 companies active across the fossil fuel life cycle.

Although things are changing, with banks like Royal Bank of Scotland and HSBC working on their policy to restrict financing to some of these assets, such a move remains too slow and poorly aligned with the required efforts.

In 2016, ChristianAid published a report[3] assessing the UK’s largest banks and their alignment with the Paris Agreement. They then graded their performance on policies to accelerate the shift to a low-carbon economy. As you can see in the table below, the large banks perform poorly, with a lack of transition plan, investments in fossil fuel and a lack of carbon footprinting for some or most of their lending, as the main drivers.

The banks on the climate blacklist

According to the Ethical Consumer[4], an independent and not-for-profit co-operative, 80% of people’s bank accounts are with the big five banks, the same that have the lowest ranking on their ethical scorecards.

If you feel responsible for your money, it may seem logical not to bank with Barclays, HSBC, Royal Bank of Scotland, Standard Chartered and their affiliates: First Direct, M&S bank, Halifax, Bank of Scotland, NatWest and Ulster Bank.

You don’t need to be an activist to prevent the money in your bank account to be used for fuelling the climate crisis as you still have quite a few alternatives.

Ethical and climate friendly banks. Excuse me?

Choose Ltd, a credit broker, defines ethical banks as always aiming to have a positive social and environmental impact when seeking profits. In addition to these criteria, Ethical Consumer considers bank ethicality through animal rights, political and human rights credentials.

According to the criteria considered, top ethical banks varies:

• Choose Ltd, without disclosing a methodology or rankings, mentions the following as ethical banks operating within the UK: Charity Bank, Triodos Bank, the Co-operative Bank, Handelsbanken, TSB and the Ecology Building Society as well as credit unions and the building societies (BS) in general;

• The Good Shopping Guide[5], that compares ethical brands uses a 9 criteria matrix to find Ecology BS, Leeds BS, Newcastle BS, Allied Irish Banks, Coventry BS, Nationwide BS and Skipton BS to be ethical banks;

• Ethical Consumer provides the most comprehensive assessment and considers tax avoidance, fossil fuel investments, investments in Israel as particularly harmful. Charity Bank, Ecology BS, Triodos, Leeds, Coventry, Cumberland, Nationwide BS and other BS, Clydesdale, Co-op, Metro Bank are the best rated and considered climate friendly. However, the only one that currently seems to invest seriously in renewables, is Triodos.

While Ethical Consumer is digging slowly into the climate impacts of banks, no specific research is publicly available on climate-friendly banks specifically.

Defining climate friendly financial service providers implies multiple and sometimes complex considerations:

• Its climate change mitigation impact: does it invest into carbon intensive fuels or commodities driving deforestation (e.g. palm oil)? Does it contribute to financing a transition to a low-carbon economy? Does it measure the footprint of its lending activities? Or does it have a transition plan to phase out any carbon intensive investment?

• Its climate change adaptation impact: does it help individuals or companies adapt to climate change and become more resilient? Does it ensure that when funding new infrastructure or project, they take into consideration climate models?

• Its own direct impact: does it measure, report, reduce or even offset the impacts of its own operations? Does it have any specific policies to reduce its energy consumption and the impacts of its data centres?

And even though ShareAction, a charity promoting responsible investment practices, seems to be praising improvements in climate-related disclosure, information is still very patchy and not accessible to the mass. Transparency is key to fight the climate crisis.

The more climate virtuous banks and financial services

If you are in UK and looking for a bank account, you still have a few options for sustainable and ethical personal or business banking.

Building societies and credit unions

These are financial institutions owned by its members as a mutual organisation. They are often acting more ethically as regulations limit the amount of money they can invest in certain industries and because they invest their profits for the benefit of borrowers and savers rather than shareholders. In UK there are plenty of them, local for many, and the largest ones are: Nationwide, Cumberland, Yorkshire and Coventry Building Societies.

Credit unions are also considered ethical as they are financial co-operatives owned and run by their members.

Traditional banks

Banks not blacklisted for their climate-damaging activities include, but are not restricted to:

• Handelsbanken, listed as an ethical bank by some but with investments in fossil fuel on possibly around 70% of their funds[6];

• Danske Bank, a Danish bank active within the UK for which no assessment was carried out, but that has experienced a range of ethical discredits;

• Bank of Ireland, while it has experienced a range of controversies and has an environmental policy, seems ambitious on paper in reducing the environmental impacts of its activities. However, it has not made any commitment to stop funding climate damaging activities;

• Metro Bank, this new bank does not have a “bespoke environmental policy”, does not seem to have a clear and transparent investment policy and has not made any commitment to not fund climate damaging activities;

• Yorkshire and Clydesdale Banks, although usually well ranked among ethical finance reviewers, these banks do not have specific restriction on banking with sector potentially damaging climate;

• TSB, the bank that relaunched in 2013, uses money invested by their customers to fund loans and mortgages to local people and businesses and don't have an investment banking or corporate finance arm; and

• Cooperative Bank, still the only major bank committed to fighting climate change and which states that it “will not provide banking services to any business whose core activity contributes to global climate change, via the extraction or production of fossil fuels (oil, coal, gas and shale gas), with an extension to the distribution of those fuels that have a higher global warming impact (e.g. tar sands and certain biofuels)”.

Modern financial solutions

In the digital era we live in, you now have even more options for banking. It actually no longer has to be a bank. There are mobile applications that offer, to some extent, similar services to traditional banks for an often more competitive package. These include CashPlus, Revolut, Coconut, Starling Bank, Anna Bank, Tide, Counting Up and Fair Everywhere. These banking services usually use customer deposits to lend to other customers as overdrafts and loans.

While these banks and financial services providers are not as bad as the big ones, you cannot guarantee they do not finance local business with climate unfriendly practices or make little effort to help finance climate change adaptation. In addition, the cumulated impact of their practices cannot be comparable to the damages caused by large banks.

Much is still needed for business and corporations to take stronger steps towards the global climate protection cause and provide the transparency their customers need to make informed choices.

Since choosing a bank or a financial service provider implies the consideration of multiple parameters, I cannot advise on a single option. However, as a rule of thumb, you could consider:

• A building society or a credit union if you have one locally where you live and do not have fancy banking needs: Nationwide, Cumberland, Yorkshire and Coventry Building Societies seems to be all good options;

• A bank that have made a clear commitment to fight climate change and offer a wider geographical coverage: Triodos seems to offer great integrity but Co-operative Bank would also work; and

• An app-based service provider that will offer flexibility when travelling, making online purchases or having to connect with other web-based apps: Starling Bank and Monzo are both credible options.

When you can align your consumption choices with your values and take decisions that reinforce sustainable means of production and consumption while getting a better service, it is time to switch!

SOURCES:

[1] House of Commons Environmental Audit Committee, UK Export Finance, Nineteenth Report of Session 2017–19

[2] Banking on Climate, fossil fuel finance report card 2019 (Rainforest Action Network, BankTrack, Indigenous Environmental Network, Sierra Club, Oil Change International and Honor the Earth, 2019)

[3] Our future in their plans (ChristianAid, 2016)

[4] Ethical Consumer, current accounts: https://www.ethicalconsumer.org/money-finance/shopping-guide/current-accounts

[5] The Good Shopping Guide: https://thegoodshoppingguide.com/ethical-rankings-banking

[6] Handelsbanken sustainability report: https://www.banktrack.org/download/sustainability_report_2017_5/sustainability_report_2017_1.pdf

With climate change set to have numerous physical impacts upon our world, it is important to ensure resilience at national, company and individual levels. Climate resilience was identified as the main issues at the 2019 United Nations Environmental Programme Finance Initiative (UNEP FI) Regional Roundtable for Africa and the Middle East.

Resilience is defined as ‘the capacity to recover quickly from difficulty’. Climate change presents us with countless difficulties, some already present and others, more difficult to predict, that will emerge and continue to worsen as average global temperatures rise in the future.

With $90 trillion of investment in climate projects needed by 2030[1], it is now more than ever that financial resilience and investment into resilient infrastructure must be developed.

Whilst in Cairo, we have attended this event, a small overlapping world of climate change and finance professionals. This post summarises the main discussion topics and issues surrounding the tools and solutions currently available to the public and private sector to build climate resilience at various levels.

Planning for resilient infrastructure

Financial investments into infrastructure in emerging markets are set to play a crucial role in building resilience, as infrastructure is designed to last decades. It is said that if infrastructure is to keep up with economic development, $3.3 trillion[2] of investments will be required per annum. This therefore means that partnership between governments and private businesses must occur to not only spread costs but also risks. If planned and implemented correctly, new infrastructure can be built to withstand future changes to the global climate. However, it is crucial that this should be done by focusing on what these changes to the climate will be imply and be like, as opposed to modelling and analysing historic data to predict the future when planning for new infrastructures and assessing the impact on existing ones.

The Organisation for Economic Co-operation and Development (OECD) analysis of flooding in Paris found that as much as 55% of the direct flood damages would impact the infrastructure sector[3]. Had future climate and flooding been modelled, the impact of the flooding could have been anticipated and reduced. There must therefore be both retrofitting and future planning for new infrastructure put in place to minimise the impacts of climate change upon society, building resilience for communities, companies and countries.

Another example could apply to new housing developments built upon flood plains. These should include buffer zones to mitigate and adapt to the changes in future water flow. Adding in vegetation, natural ponds and small hills can absorb the energy from tidal waves, reduce the amount of water reaching the infrastructure and thus reducing impact upon the area. It is an added bonus that it also adds aesthetic value! Further, modelling future climate increases the longevity of the infrastructure. For example, when building a dam historic river flow data is used when in fact future water flow should be analysed, as climate change will impact the quantities of water that will reach the dam.

Whilst these suggestions may require extra work due to the complexities of climate modelling, data collection/interpretation, infrastructure planning and space requirements, they should not be ignored. Current infrastructure systems were built over a period of decades and were not designed for either the current/future technological developments nor the changes to the climate. Due to the potential limitations this can have upon future societies, climate scenario analysis must be undergone and fully understood prior to design implementation.

Building resilient financial markets

Considering the scale of investments required, the financial sector needs to be on board. Banks and investors pursuing a different strategy will be exposed to significant and systemic risk of failure. According to William Martindale from Principles on Responsible Investment, there is now approximately 400 climate change-related pieces of legislation and initiatives for the financial sector worldwide, 50% of which have come live over the past 3 years. Here is a small number of established and emerging initiatives that have the potential to have a significant impact over time:

• Principles on Responsible Investment (PRI): in order for investment companies to holistically report, track and consider the Environmental, Social and Governance (ESG) impacts of their investment. Backed by the United Nations (UN), the Principles ask signatories to incorporate, disclose and actively work to reduce any ESG issues faced by investments made. Through doing so, it is hoped that the market will build resilience as well as consumer knowledge of the risks faced by various sectors investments may be held in.

• Principles for Responsible Banking: under development at the time of this post, 26 leading banks representing USD 16 trillion in assets are re-defining banks’ purpose and business model to align the sector with the UN Sustainable Development Goals (SDGs) and the Paris Climate Agreement. The Banking Principles are expected to direct banks’ efforts to align with society’s goals (SDGs, Paris Agreement, national and regional frameworks) through goal setting, reporting on their contribution to national and international social, environmental and economic targets, ensuring accountability and transparency on their impacts and challenging the banking industry to play a leading role in creating a more sustainable future.

• The Sustainable Stock Exchange Initiative (SSEI): initiated in 2009 and supported by a range of UN agencies, the International Organization of Securities Commissions and others, the SSEI aims to further the availability of sustainable and climate-robust investment opportunities. It does so notably through forums that support stock exchanges’ sustainability-related activities and bring capital market players together to identify, discuss and take collective actions on common sustainability issues relevant to their region or globally.

• The Sustainable Banking Network (SBN): facilitated by the International Finance Corporation, SBN is a community of financial sector regulatory agencies and banking associations from emerging markets committed to advancing sustainable finance in line with international good practice. Launched in 2012, the SBN facilitates the collective learning of members and supports them in policy development and related initiatives to create drivers for sustainable finance in their home countries. It promotes 3 pillars: environmental and social risk management, green financial products and services and eco-efficiency.

However, most of these initiatives are voluntary mechanisms that have not always proven to provide enough incentives to be fully adopted or trigger change at scale. While creating awareness is essential to get the market to initiate a shift, policy-makers have a pivotal role to play to ensure the entire market is getting up to speed. A better case needs to be made for “sustainable investment”. The chairman of the Egyptian Financial Regulatory Authority, Dr Mohammed Omran, has for instance mentioned that the ESG index in Egypt has over the past 6 years been the best performing index of the stock exchange. If that really was the case, we should soon see a surge of investors towards sustainable investments.

Deep integration of environmental and investment specialists is required to align investments, climate change, mitigation, adaptation and climate resilience. This will allow further the development of low-carbon and climate resilient instruments at an international level.

Sustainable investments and the need of complementary expertise

Many companies offer ‘Green’ or ‘Sustainable’ trackers which you can select from. However, the lack of homogeneous definition for sustainable investments means that there is no market consensus on what is a low-carbon or a climate-resilient investment. In addition, the green or sustainable attributes are often used for low-carbon investment rather than for climate resilient ones. There is also the risk of existing investments being ‘green-washed’ – making the investment appear more sustainable than they are, diverting funding from robust activities. Collaboration and integration of financial, environmental and social experts is needed to ensure that the market become more resilient and consistent.

In order for low-carbon and climate resilience investments to grow in a high-quality manner, systemic market changes must take place. With the investments required to achieve the UN SDGs, as well as to keep up with economic development, corporate investment must run alongside public investment. This would not only spread costs but also the risks involved – neither can fund the requirements alone. Whilst this will take work, collaboration and numerous experts, there must be public-private partnerships for future projects to be resilient to climate change.

While currently serving low-carbon investment rather than climate resilient ones, Green Bonds are one of the private sector solutions that can contribute in achieving sustainable growth and climate change resilience. They are loans which fund environmentally friendly and sustainable projects only. 2018 saw the largest amount invested into Green Bonds ever seen, with a record $389bn[4] loaned. Nevertheless, green bonds have been slow to take off in developing nations due to a lack of clearly defined asset classes, market standards and secure transactions.

The Adaptation Benefit Mechanism is one of the instruments under development by the African Development Bank to foster result-based payments investment into adaptation and could play an important role in meeting the Paris Agreement adaptation objectives. For instance, a project developer may get paid $50 per farmer it makes climate-resilient. Payment would be made by the investors (e.g. a commodity trader) once it has been demonstrated it has succeeded.

Resilience for the poor - the role of FinTech

In developing countries, financial Technology (“FinTech”) has the potential to act as a corridor towards sustainable and resilient development for personal, corporate and government bodies.

FinTech can provide easy access to both finances and financial information. For example, online banking through a mobile device can free up time previously spent queuing at the bank, increasing available time for economic generating activities, social care or education. This can therefore build and promote climate resilience for individuals.

It works also for companies and governments, as innovative technologies such as blockchain can process and manage complex multi-national transactions in a secure and audited platform. This can aid financing solutions for infrastructure projects, green bonds and other financial instruments required to bridge the funding gap for climate resilience.

This development requires innovation from both the technology and finance industries as well as collaboration between the two to form new products that can solve future issues generated by climate change.

In order to sustainably develop, mitigate and adapt to climate change, financial resources and physical infrastructure are required beyond that which governments alone can provide. We must therefore see partnership between public and private sectors to balance costs and risks as well as to grow economies sustainably.

Identifying issues with business resilience through risk analysis can be one way of taking an active step towards reducing pressures of climate change on your business. There are various voluntary reporting metrics which ask for companies to disclose these risks either publicly or privately such as the Climate Disclosure Project (CDP) and the Dow Jones Sustainability Index (DJSI). One framework soon to become compulsory is the Task Force on Climate-Related Financial Disclosure (TCFD) which provides a reporting methodology. This can be used to aid understanding and calculation of the risks posed by climate change and your business’s resilience.

[1] https://www.climatebonds.net/cbi/pub/data/bonds

[2] UNEP FI 2019

[3] http://www.oecd.org/environment/cc/policy-perspectives-climate-resilient-infrastructure.pdf

[4] https://www.climatebonds.net/files/reports/cbi_sotm_2018_final_01k-web.pdf