When it comes to the UK finance sector and the subject of carbon emissions, you would think that they would be some of the least offenders.
You would be right concerning their office-bound activities. However, when it comes to where they invest money, it’s a completely different story. They invest quite heavily in fossil fuel-related activities, so much so that the finance sector has been labelled as the 9th largest contributor to carbon emissions on the planet. Shocking, isn’t it?
The revelation follows the recent release of a report commissioned by the IEA (International Energy Agency). The report says changes must be made to achieve the target set down in the Paris Agreement on Climate Change, aiming to limit global warming to 1.5°C above that of the pre-industrial level.
The IEA hit out at the finance sector, which invests a considerable amount of money in fossil fuel activities. They said there is no need for further investment if we are to keep on the road to net-zero.
Chris Hohn, the founder of the London-based hedge fund, the Children’s Investment Fund, and the “Say on Climate” campaign, had no hesitation following the IEA report, saying that banks ought not to be providing finance for the expansion of fossil fuel enterprises.
He went on to say that shareholders should oppose plans for the continuance of fossil fuel production. If they do not, they cannot claim to say they care about the world’s climate. In an even stronger statement, he voiced his opinion that where boards do not sign on the dotted line, that shareholders should take the bull by the horns and sack the board. Strong stuff, indeed.
But the fact of the matter is that the amount of CO2 output that is financed by the UK’s banks and asset managers is almost twice that of the UK’s entire yearly carbon emissions.
According to a study undertaken by Greenpeace and the World Wildlife Fund, The City was responsible for providing finance for company projects emitting 805 million tonnes of carbon dioxide in 2019. That is the equivalent of 1.8 times that of the UK’s total net emissions during the same year
John Sauven, the executive director of Greenpeace UK, commented that the UK could no longer turn a blind eye to the City's complicit actions towards the climate crisis, especially with the Cop26 climate change conference scheduled for Glasgow later in the year in November.
Suaven labelled the finance sector as the UK’s “dirty little secret,” saying that banks and investment managers are responsible for more emissions than many countries. Yet, the UK government allows it.
He went on to ask the question of how we can claim to be leading the world on climate action when all the time, financial institutions are permitted to plough billions of pounds into fossil fuel production year after year. It was, he said, almost laughable.
However, we mustn’t tar all finance companies black with the same brush. Some “investment firms like Moneyfarm are taking time out to consider the environmental impacts in terms of risks and opportunities within their assessments. They are taking a stance against the “make money at any cost principle” that many other UK financial institutions have been following.
The fact of the matter is that if the UK is to achieve its aim of limiting greenhouse gas emissions to net-zero by 2050, it will mean all parts of the economy getting their act together.
In another development, Climate Change Committee published a report entitled “The Road to Net-Zero Finance.” The Chair of the Group was Professor Nick Robins of the Grantham Research Institute. He gave the viewpoint of the Institute of Chartered Accountants in England concerning the role of the finance sector in facilitating meaningful, long-lasting change.
From the investors’ point of view, people want their money to have a positive impact and to be used to build a better future.
Finance and wealth management companies must therefore step up to the mark and build investment portfolios, not around industries proliferating the ongoing depletion of fossil fuels and hindering the climate change initiative, but on greener industries. It’s about time the Finance sector wake up and smell the coffee and get in line with the rest of the UK’s actions towards achieving net-zero.