Banks Must Act Now to Address Climate Change Crisis
Banks play a critical role in shaping the future of the planet as they fund projects that can either protect or destroy the environment. Unfortunately, they seem to be headed in the wrong direction as climate change intensifies. This article discusses the urgency for intervention to counter greenwashing, short-termism, and lack of transparency in the banking sector.
Greenwashing in Investment Management
Climate change is a real and urgent problem that requires immediate intervention. However, as the world continues to suffer from the devastating impact of global warming, banks appear to be heading in the wrong direction.
Greenwashing and the Short-Termism of Banks
Greenwashing, or the practice of making false or misleading claims about the environmental benefits of a product, service, or company, has become prevalent in the banking sector. Many banks claim to be sustainable and environmentally conscious, but their actions show otherwise. Banks are focused on short-term gains and quick profits, and they continue to fund fossil fuels. Since the Paris Agreement, some banks have spent over $150 billion on funding fossil fuels.
This short-term thinking has grave consequences for the planet. For example, since the Paris Agreement, 60 banks have invested $5.469 trillion in fossil fuel companies to expand. Had they just said no, or at least attached some conditions, millions of people worldwide may have been spared the devastating impact of climate change, such as flooding and severe hunger due to drought.
ESG Funds and the Illusion of Sustainability
ESG funds, which have $40 trillion invested in environmental, social, and governance funds, are not well invested. For instance, 10% of ESG funds include BP, ExxonMobil, and Shell, making it challenging to take sustainability seriously. BP has already “dialed back” from its carbon commitment, and it was no surprise since it is a gasoline company. Despite knowing how to make renewable energy and having the funds to expand, banks are deeply entangled in fossil fuel companies, which maintain the status quo.
The Solution: Investment in Low-Carbon Infrastructure
According to the Organization for Economic Co-operation and Development (OECD), the climate goals could be met if we invest $6.9 trillion annually towards low-carbon infrastructure. This is a significant sum, but it is within our reach. In fact, there is already $40 trillion invested in environmental, social, and governance (ESG) funds, which is four times the amount needed. However, only 10% of ESG funds are well invested, and some of them even include fossil fuel companies such as BP, ExxonMobil, and Shell.
Fintechs as a Viable Solution
Some fintechs are fighting to break out of the greenwash hell and promote sustainability. Investment platforms such as The Big Exchange, CIRCA5000, and Triodos focus on sustainability and make it easier for people to invest in green infrastructure. They are also transparent and avoid greenwashing, with some like Tumelo allowing the public to have a say in their investments using pass-through voting technology. Mais Callan, a former investment manager, has created Impactive, a software-as-a-service platform that enables institutional investors such as pension funds to share data and improve sustainability.
Break the Cycle of Greenwashing
There are investment platforms like The Big Exchange, CIRCA5000, and Triodos that are pushing against short-termism and focusing on sustainability. They make it easier for people to invest in green infrastructure by filtering out fossil fuel companies. They are transparent, and they avoid greenwashing. Tumelo is another fintech platform that allows the public to have a say in their investments through pass-through voting technology.
However, despite the efforts of these fintech platforms, many struggle with funding. In many cases, they are founded by women, and only 4% of UK VC-funded fintech startups are led by women. It is essential to support and fund green and sustainable fintechs that are working to make a difference.
Green and sustainable fintechs urgently need support and funding to help combat climate change. However, many are struggling with funding, particularly those founded by women. Banks must take action now to address the climate change crisis by investing in low-carbon infrastructure and breaking the cycle of greenwashing. Urgent intervention is needed to ensure that banks invest in low-carbon infrastructure and contribute to saving the planet. The world needs action.
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