Change Finance, Not the Climate
Oscar Reyes
Introduction:
In Europe, the United States, and around the world, climate campaigners have developed an ambitious set of “Green New Deal” proposals to reduce pollution, protect vulnerable communities, and create millions of jobs. These proposals are far-reaching and visionary, but they often overlook a critical player in our unsustainable global economy: the financial system.
The truth is, the financial system must be completely overhauled to stop climate chaos. Most especially, fossil fuel lending needs to be redirected towards green energy. Instead of funding dirty energy, publicly controlled finance could bankroll a Green New Deal, placing democratic control and equitable access to common goods and services at the heart of investment.
But challenging the role of “big finance” in our carbonized economy will require political intervention, not just technocratic fixes. Change Finance, Not the Climate, an e-book published by IPS and the Transnational Institute, presents progressive proposals to build a fairer financial system that can respond to the climate crisis, rather than accelerate it.
“If you want to know how we can democratically marshal the resources for a Global Green New Deal, this is the place to start,” writes Naomi Klein. Climate activist Bill McKibben credits it with starting “a conversation that’s long overdue,” while scholar and activist Walden Bello calls it “not only a think piece for analysts but an indispensable, very readable manual for activists.
We encourage you to read Change Finance, Not the Climate in full, but we’ve collected its biggest ideas here.
KEY FINDINGS
- Quantitative easing (QE) schemes to print more money have bankrolled the financial sector and big polluters. From the 2008 financial crash to the COVID-19 crisis, governments have pumped $6 trillion into QE globally, but this money has done little to encourage green investment.
- Private banks are the largest investors in fossil fuels. Since the 2015 Paris Climate Agreement, 33 “too big to fail” banks have poured $1.9 trillion into fossil fuels. Legally binding green banking regulations are needed, while public investment banks should be given a greater role.
- Renewables and clean energy stocks have consistently outperformed fossil fuels in recent years, and the collapse of oil prices during the COVID-19 pandemic could turn investors away from fossil fuels. New rules for financial markets could speed this transition.
- Governments can force fundamental changes to large corporations seeking billions in bailout funding, including reforms to company boards and an end to the “bonus” culture that encourages short-term profiteering over social and environmental goals.
- Public ownership and public investment are key to tackling the climate emergency. Sovereign Wealth Funds and public pension funds control over $18 trillion in assets and are major investors in fossil fuels. An expansion of public ownership is needed, with new models of democratically accountable public companies driving an energy transition.
The problem: Central banks and financial regulators rarely take into account the huge consequences of climate change when setting the rules that govern private banks. Their quantitative easing schemes to print more money have bankrolled the financial sector and big polluters.
Solutions:
- Give central banks a climate mandate, requiring them to set policies that identify and constrain the “climate-related financial risk” taken on by the banking sector.
- Replace existing quantitative easing with a broader program of public finance for a Green New Deal, issuing bonds to support public investment in renewable energy, energy efficiency, and public transport.
- The U.S. Federal Reserve should create money to buy up and “decommission” major fossil fuel companies, while providing economic security for workers.
The problem: Private banks are the biggest investors in fossil fuels.
Solutions:
- Develop green credit policies, establishing minimum requirements for the proportion of bank loans targeting “green” projects.
- Set mandatory upper limits on bank lending to carbon-intensive sectors, cutting off lending to the worst polluters.
- Break up the “too big to fail” banks, whose significant power limits the ability of governments to set environmental or social rules on who banks lend money to.
The problem: Public policy should encourage a financial system that affords more space to public banks, cooperatives, local savings banks, and ethical banks. Strong, democratic accountability mechanisms also need to be put in place.
Solutions:
- Establish green development or investment banks that offer concessional lending and grant support to renewable energy, energy efficiency, or low-carbon transport infrastructure. These should have a clear mandate to prioritize public and local initiatives.
- Encourage the spread of cooperatives and local savings banks that have a public interest mandate.
- Support ethical banks, for example by creating tax incentives for green bank accounts.
The problem: Financial markets are governed only by short-term profit motives and do not require firms to take responsibility for their climate impact.
Solutions:
- Focus divestment campaigning on getting insurance companies out of the flagging coal sector. Without insurance to underwrite new coal facilities, many would not be viable.
- Make it mandatory for investors and companies to make climate-related financial disclosures, so the scale of their investments in high-carbon industries is clear.
- Require investors to take climate concerns into account as a “fiduciary duty,” rather than simply taking a narrow, short-term view of profitability.
The problem: Transnational corporations undermine efforts to transition economies away from fossil fuels by avoiding tax obligations, which drains public bodies of the resources to act. The way transnational corporations are established and run prioritizes the relentless pursuit of short-term profits with little regard for the environment or the needs of the communities in which they operate.
Solutions:
- New corporate charters should be introduced that require large companies to act in the interests of workers, customers, and the communities in which they are based. Shareholders would have the right to sue companies that ignore their social and environmental obligations.
- A new “unitary” global tax system is needed to ensure that corporations are properly taxed on their global income, regardless of where it has been earned.
- Multinational corporations should be required to allow workers to elect up to half of their board members, helping to break up the informal networks that currently tie big financial corporations to fossil fuel interests.
The problem: We urgently need investment in clean infrastructure that removes our dependence on fossil fuels, but the private sector has proven unwilling and unable to provide it. The public sector should play a lead role, but it has been undermined by years of privatization and austerity.
Solutions:
- We need greater public ownership of the energy sector, such as through the “re-municipalization” of privatized utilities or the creation of new companies. All providers should be required to invest in renewable energy infrastructure and rapidly phase out fossil fuels.
- Public pension funds should be required to consider environmental and social factors in reaching their investment decisions. This process should start with divesting from fossil fuels and assessing the “climate-related financial risk” of their whole investment portfolio.
- Wealth taxes should be introduced to capture the riches of the billionaire class, as part of an overall strategy to increase the tax base.
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