Renewable Revolution Has Not Reached Financial Boardrooms
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Renewable Revolution Has Not Reached Financial Boardrooms

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Cas Biekmann By Cas Biekmann | Journalist and Industry Analyst - Wed, 06/10/2020 - 13:09

Sustainable business is in fashion. Major worldwide banks are lending billions of dollars to green up their financing, meaning that renewable energy companies and other sustainability-focused businesses are more likely to get funded. On the other side, polluting companies are being cut back in their funding. However, financial boardrooms are still tied to fossil fuel ventures, thus hindering the move toward a sustainable future, reports Bloomberg News

Fossil Fuels in Boardrooms: As Embedded as Actual Fossils

Bloomberg analyzed the 20 major US and European banks and links between their leadership and boardrooms with clean energy businesses are spread thin. Previous and current connections of 600 executives were examined and only a few turned out to have close relationships with the sustainable industry. Ties to polluting industries were much more common, as 73 were found to have ties there. Sixteen of them were directly connected to oil refineries, for instance. And these ties do have direct effects. The 20 banks examined played a key role in financing debt for fossil fuel producers. Since 2015, when the Paris Climate Agreement was signed, the total amounts to US$1.4 trillion.

The article suggests that this seemingly entrenched boardroom presence might not last forever, a suggestion that can be supported by recent trends, as well as the views of MBN interviewee Arturo Palacios, Acting Director of Carbon Trust Mexico. One example mentioned by Bloomberg is the case of Lee Raymond’s tenure at JPMorgan. The famous oilman and climate-change skeptic has had a strong presence in the boardroom for almost three decades, but his tenure is coming to an end. Part of the decision leading to this step was influenced by shareholders and climate activists who saw his presence as negative. JPMorgan has said it supports the 2015 Climate Agreement and has shifted more priorities toward Green Financing.

How Can Financing Become Greener?

The importance of having a cleaner, greener track record has already dawned on many companies. Jeff Bezos, to name one example, has created a US$10 billion ‘Earth Fund’ to fight global warming, reported The Guardian. Another famous billionaire, Bill Gates, was reported by the Financial Times to speak out against divestment, meaning the ditching of stocks and investments in fossil fuels. Instead, Gates argued, the world would be better off to encourage and invest in technology aimed to solve climate change. Green Finance is the right tool for this, but focuses on broader environmental protection as well.

Palacios explains how this tool came about. “Green bonds are relatively young – the first was issued in 2008 by the World Bank. This set the example for how bonds should be evaluated to be considered ’green’. The emergence of green bonds demonstrated the appetite for green financial instruments,” he said. But in the world of Green Finance, one needs to watch out for ‘greenwashing’. “This happens when organizations say a practice is environmentally friendly but in reality, this claim is not supported by evidence,” he said. By focusing on the greenness of bonds, developing countries such as Mexico also stand to benefit. “We are certain that green finance is necessary to de-carbonize the economy because it triggers and transforms many sectors through sustainable and climate-resilient infrastructure. This helps developing countries to grow in a more socially and environmentally friendly way,” Palacios said.

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