Banks may be our best hope in fighting climate change

TEMPERATURES are rising and there’s lots of work to do to avert disastrous outcomes. Europe is looking at one quick and easy avenue to make change happen: Go through banks.

Industry executives may not like it but banks are both an efficient way to raise the cost of carbon and to make sure that all companies properly disclose their emissions. Governments can make banks do the oversight work for them.

If that sounds like an outrageous demand, look at it another way.

Banks are already used for political and social ends, most notably by the US Money laundering rules have been beefed up dramatically in the past 20 years specifically to combat terrorist financing and to thwart the activities of politically undesirable groups.

Ask BNP Paribas SA what happens if you help process money for America’s enemies. The French bank was fined US$9bil (RM37.8bil) in 2014 for running financial transactions for Sudan, Iran and Cuba.

The simple fact is finance underlies everything and banks can be relatively easily controlled. The system is a single, efficient window into the economy and it is already closely monitored and regulated.

On the climate front, the idea is to make banks think much harder about what kind of companies they lend to and at what cost.

Many banks have stopped funding coal-fired power plants, but stress tests that involve climate-related risks and will lead to higher capital requirements can help create a rising scale of financing costs that should help support cleaner business activity and discourage dirtier practices across industries.

It’s a hard and costly problem for the industry, but it’s inevitable. Why? Because governments have realised that acting through the financial system is both economically and politically expedient.

Voters don’t like extra direct taxes on their cars, energy suppliers or on companies that lead to increases in the prices of the things they like to buy. And yet pollution and high fossil-fuel use have to be made more expensive to incentivise people to find alternative ways of doing things. Increasing the cost of funding and capital for activities that are worse for the environment is a good answer.

Bankers may grumble, but using their industry to fight climate change makes a lot of sense. Financial incentives work and getting banks to impose the costs is more efficient than waiting for politicians to make direct taxes somehow palatable. — Bloomberg

Paul J. Davies writes for Bloomberg. The views expressed here are the writer’s own.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 46
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

Banks , governments , climate , change , emissions ,


Next In Business News

Myanmar, with US$6b in foreign reserves, is doing utmost to stabilise currency
Thailand approves US$1.64b more support measures
Edra wins bid to build 600MW power plant in Bangladesh
Malaysia's retirement scheme third in Asia
UK reveals US$13.3b of inward investment in green push
Bitcoin pushes toward record before debut of futures-based ETF
Hong Kong's new China futures create bourse history, but lag rival Singapore
Chinese property bonds firm after Kaisa and Sunac make coupon payments
CIDB hopes for funds to boost tech in construction
IOI Corp offers to buy debt notes

Others Also Read