Since the Paris Agreement was signed six years ago, the world’s 60 major banks have poured a staggering $2.75 trillion into the fossil fuel industry. The UK’s five largest commercial and investment banks have pumped more than $300 billion into the same carbon-polluting industry in less time.
Members of the global insurance market Lloyd’s of London alone collectively hold more than $30 trillion in capital. Together, these members represent one of the four largest oil and gas insurers in the world.
The cash and guarantees support projects such as Australia’s Adani Carmichael coal mine, Canada’s Trans Mountain tar sands pipeline, Bahamas Oil’s offshore oil drilling and coal mines in Poland.
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This ongoing pursuit of short-term profits in fossil fuel finance and insurance poses an existential threat to the stability of the life support systems and global climate upon which our civilization depends.
But it also represents a historically unprecedented financial risk for investors themselves and taxpayers like us around the world.
World leaders, from British Prime Minister Boris Johnson to G20 Chairman Mario Draghi, can do the right thing by starting to limit the extraction of natural gas, oil and coal reserves.
If these fossil-fuel assets subsequently go into trouble, billions of dollars worth of investments could be rendered worthless, or at least significantly devalued.
The government believes the world’s largest banks and their investors are too big to fail, a fact that we have come to accept in recent decades. So when their fossil fuel bets do take a turn for the worse, governments including the US and UK will bail out bankers again.
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This will involve taking on huge loans and printing more money, then paying off everything in the coming decades through higher taxes and service cuts.
But – unusually, when it comes to our complex environmental crisis and our global economy – there is a simple solution at hand. It will cost the government nothing. It can be implemented immediately.
Perhaps most importantly, it makes sense even for bankers. This is in the interest of the public and in the interest of the investors themselves.
Economists Ann Pettifor and Stephany Griffith-Jones and economic historian Adam Tooze have called on governments around the world to introduce stricter regulations so that banks must impose the highest possible risk weight on capital requirements when investing in fossil fuels.
In short, this means that when a bank wants to invest $1 in a coal mine, it needs to hold another $1 to absorb any future losses. When that coal mine closes, the banks won’t go bankrupt and they won’t go to the government for bailouts.
