A wide range of academics, economists and civil society organisations are calling for regulators to introduce ‘one-for-one’ capital requirements for financial institutions funding new fossil-fuel projects.
The new campaign, spearheaded by research and advocacy group Finance Watch, is pressing for requirements that would increase the capital that banks and insurance companies must hold against such assets to 1250%, obliging them to finance new fossil fuel projects solely from their own funds. This would protect depositors, policyholders and tax payers from stranded assets and other climate-related risks.
As the costs associated with more frequent and extreme weather events grow and as decarbonisation efforts intensify, the potential for a ‘climate Lehman moment’ is increasing, campaigners warn. Financing and insuring fossil fuel projects remains artificially cheap, they argue, creating a carbon bubble that will inevitably burst as the world moves towards net-zero emissions.
Launched in association with the Sunrise Project, the ‘one-for-one’ campaign has attracted wide and growing support, including from 111 civil society organisations and a panel of 50 sustainable finance experts from across academia, civil society, commercial banks, central banks and the investor community.
Prominent academics including Adam Tooze, Ann Pettifor, and Stephany Griffith-Jones were among dozens of signatories on an open-letter calling on policy makers to push for financing of new fossil fuel projects to be given the highest possible risk-weighting for capital requirements.
Analysis by the International Energy Agency shows that investment in new fossil fuel projects must end this year if global temperature targets are to be met, making such projects extremely vulnerable to stranding. Yet despite this risk banks continue to fund fossil fuels, with over $3.8 trillion invested since the Paris Agreement was signed in 2015.
The Basel Committee on Banking Supervision recently proposed a ‘one-for-one’ capital requirement for bank holdings of cryptoassets due to the high risks associated with such investments. The vast and potentially catastrophic risks associated with new fossil fuel expansion and exploration demands similar treatment, say climate finance researchers and campaigners.
“The global financial crisis of 2008 – and its disastrous political aftermath – have shown what happens when systemic risks in the financial system go unaddressed,” said Finance Watch secretary general Benoît Lallemand in a statement launching the campaign. Without action to dramatically reduce emissions we face an even bigger economic crisis, he said.
“This will be a failure to regulate of historic proportions, with the burden falling on taxpayers around the world when banks and insurers come begging for government bailouts. Our message to banks and insurance firms is this: if you want to finance new fossil fuel projects, do it at your own risk.”
[Disclosure: Green Central Banking is funded and coordinated by the Sunrise Project]
This page was last updated November 25, 2021
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