By Bevis Watts, CEO, Triodos Bank UK
Banks must acknowledge the role they have to play in tackling the existential challenge of climate change
Little more than 10 years on from the financial crisis, there’s been a stark new warning on the impending volatility of the global economy. This time, the phrase economic meltdown seems particularly apt, as the governor of the Bank of England last week again highlighted that banks worldwide must face up to the challenge of global warming.
Mark Carney has warned that banks can no longer rely on fossil fuel investments as governments focus more on carbon emission reduction targets. Instead, the sector must collectively transition to a low-carbon economy, or companies will fail to exist.
It’s a welcome sign of change, but we must go one step further and better control how banks use money in the first place. We should make this change not solely to protect the financial sector, but because it is essential for our own future prosperity. We need to work together to take on the existential environmental and social challenges within the UN Sustainable Development Goals and Paris Climate targets.
What’s banking got to do with climate change?
Banking may not be the first industry you think of when considering action to tackle climate change, but it plays a key role in shaping how the economy and society operates – and therefore has a significant influence on the future of the environment.
Going back to basics, banks are essential intermediaries – and generate value from fulfilling that role. First and foremost, their responsibility is to keep people’s investment and money safe. As important, however, is for them to use that money in the long-term interest of their customers, not simply in the short-term interests of shareholders and senior management.
Every financial decision makes impact after all. It is up to banks to determine whether that impact is positive or negative. Some banks may, unbeknown to its customers, invest in or lend extensively to the fossil fuel sector. A report by Banktrack and other NGOs has shown that the world’s top banks have poured $1.9 trillion into fossil fuel financing since the Paris Agreement was adopted.
However, looking at this from the other side, money can also be used to do good things that help build the society we want to live in – banks can have a social purpose to address climate change and much more.
How can the financial sector change?
In part, the transition must come from the banks themselves as well as regulators applying pressure for change.
Earlier this year, the All-Party Parliamentary Group (APPG) on Fair Business Banking in the UK gave its backing to the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Responsible Banking. These ambitious new UN principles provide the banking industry with a framework to embed sustainability at the heart of its operations, helping to tackle climate change and promote the Sustainable Development Goals. There are currently 49 signatories, including Triodos Bank.
Given the magnitude of the environmental and social challenges we face, global initiatives such as this are very important to achieve systemic change. More banks must now commit to adopt the initiative and align around the much greater impact the banking industry could have in leading society to meet its goals for a sustainable, equitable and prosperous future.
How can the public encourage change?
To date, 2019 has been a momentous year for environmental activism – with Extinction Rebellion and Youth Strike 4 Climate making their voices heard and calling for real change. Money can also be used to demand action.
On an everyday level, we know that people in the UK are increasingly making sustainable choices when spending their money. Many consumers are following their values by eating less meat, choosing a green energy supplier or shopping for Fairtrade and organic products. Similarly, the ‘Blue Planet II effect’ has led many to boycott unnecessary plastic packaging.
The logical next step is that people look at where they save their money too – and demand transparency about where their bank is lending and investing. Excitingly, many are waking up to the understanding that they have the power to consciously choose where to put their money in savings, pensions and investments.
Switching a bank account sends a clear message to the banking industry, regulators and governments that society demands transparency and accountability. In that sense, money can be a hugely powerful form of democracy in placing action against climate change – or other big issues – at the top of the agenda. As we all learn about the potential of money to shape the future, many more of us will need to make real choices about how we use our money in ways that will make it better.