Earlier this week I was able to participate and ask a question at one of the many Paris COP21 side events: the launch of the ‘Five Voluntary Principles for Mainstreaming Climate Action within Financial Institutions’, convened by a group of public ‘development’ banks including the World Bank, the European Investment Bank and the European Bank for Reconstruction and Development. The new principles so far have 26 banks from the public and private sectors on board, and appear set to be touted for further signatories in the coming months.
These are the latest in a series of voluntary principles on climate by global banks which have gone nowhere over the past decade – see the Carbon Principles and Climate Principles, launched in 2008, which subsequently disappeared without a trace. My general impression is that these principles won’t go far either. They appear, though, to have served another purpose for the financial sector, providing PR greenwashing at the most important climate gathering of the decade.
Here are five reasons why these voluntary principles only mainstream climate inaction within financial institutions that may sign up to them:
1. They ignore fossil fuels, the elephant in the banks’ portfolios.
It took ten years for the very word ‘climate’ to appear in the Equator Principles, the so-called ‘gold standard’ of environmental and social risk assessment for global banks. Yet the words ‘fossil fuels’ – let alone the aim of ending bank finance for the – still fail to appear in these or any of the voluntary principles adopted in the past decade. Not even the word ‘coal’, the most polluting of the fossil fuels. And this is no small thing: recent figures have revealed 931 billion euros of fossil fuels financing in the period 2009-2014 from the top global banks.
Some of the signatory institutions have started to commit to cut coal financing in the past few months, but they have clearly neglected to acknowledge this collectively in these new principles, which should have been the main interest of such an initiative. As a group, the banks are still refusing to publicly recognise that they must cut fossil fuels financing in order to contribute to tackling climate change.
2. The principles are vague, way too vague.
One of the most revealing moments of the side event was when the moderator asked the CAF panelist how these general top down principles should be applied concretely. The answer, and a revealing one: “That’s a good question!”
The wording of the principles are just blurry enough to allow different interpretations and to not compel any real change in the signatory institutions. Two concrete examples of this: banks signing the new Principles commit to be transparent and report “wherever possible” and they commit to track and monitor indicators tied to “climate related asset allocations”, leaving plenty of room for interpretation.
3. They fail to consider the proper scope of banking activities.
The newly announced principles only mention lending and advisory activities, while our figures show that most coal financing comes from underwriting. Any meaningful climate principles should cover banks’ underwriting and asset management activities.
4. Even the reporting is not clear enough.
One very basic thing would be for the banks to at least report on their fossil fuels financing, but the wording of the principles are not clear there either: “climate related allocation”, “climate related activities”, etc. There is all the room needed for signatory banks to not even report on this, let alone to reduce this financing.
5. A feeling of déjà vu, plus obviously ‘voluntary’ – we’ve been here before.
The discussions at the event were very surprising, as if this was the very first time banks were coming together to adopt such voluntary principles on climate. However, BankTrack has been tracking these for the past decade and more, and those new principles feel no different from the Equator Principles, Carbon Principles and Climate Principles that were not and are still not relevant on climate issues.
The answer to my intervention denouncing the absence of any mention of fossil fuels financing in the principles only confirmed this impression. Individual banks can draw all the conclusions they want from these principles and on how to implement them. But as long as they fail to acknowledge the need to cut fossil fuel financing collectively (and deeply, and urgently), such principles can only be considered as greenwash.