Talking about banks can mean a lot of numbers and calculations and equations. Boring stuff, right? Perhaps we can think about banks in a different way, one that approaches our existence directly and that sets the trajectory for a safer and healthier tomorrow. You know, banks play a key role in the climate crisis. If we support institutional change that attracts private investment in clean energy, we can accelerate the transition to a zero-emissions future. And it starts right now! Long-term efforts to formalize green banks have paid off: a provision for a national climate bank is included in the Inflation Reduction Act.
Non-profit national climate bank
The Inflation Reduction Act (IRA) creates important incentives for capital-focused clean energy and environmental investments by authorizing $27 billion to establish a national climate bank. It will provide affordable financing for clean energy infrastructure projects. Of the $27 billion, states and tribes can apply for $7 billion in grants and loans “to enable low-income and disadvantaged communities to implement or use zero-emission technologies,” the legislation says.
The bottom line is that all 50 states will have much more money to cut emissions. The National Climate Bank will free up public and private dollars to invest in clean energy and climate-resilient infrastructure in underserved communities.
What is really important is that these finances will be delegated to non-profit banking. It is an independent, non-profit institution created by the federal government that uses public funds and market instruments to finance the clean energy transition.
As NRDC explains, the act authorizes EPA to fund non-profit organizations designed to finance the rapid deployment of low- and zero-emission product technologies and services, particularly in disadvantaged communities. The National Green Bank will enable bold climate action across the country that puts underserved communities first.
The Green Capital Coalition says a national climate bank has the potential to catalyze investment in clean energy solutions that lower energy costs for all people in the US as part of a comprehensive and socially just climate policy. It is empowered to prioritize investments that benefit underserved, low-income communities that bring jobs and clean energy savings. Using financial tools and expertise to attract private investment, the National Climate Bank will multiply the institution’s overall impact in reducing greenhouse gas emissions per public dollar invested.
According to the US Climate Alliance, a bipartisan coalition of governors committed to meeting the goals of the Paris Agreement, the bill represents a meaningful investment in state climate action, provides critical resources to accelerate state leadership in combating greenhouse gas (GHG) emissions, and protects Americans. from climate impacts.
California, Connecticut, Colorado, Florida, Maryland and New York have a head start: they already have green banks. They help finance parts of the clean energy transition: heat pumps, distributed solar systems, microgrids and electric cars. In addition to supporting economic development, these investments will reduce air pollution and improve overall health and safety.
Banks and the fight for zero emissions
Banks play a vital role in reducing carbon emissions.
Banks have made a vocal commitment to achieve net zero goals by 2050. However, trillions of dollars in bank finance still keep the coal, oil and gas industry viable – without these funds, the fossil fuel industry would transform much more rapidly. renewable energy sources and encouraging their clients to do the same. In the 5 years following the Paris Agreement, the world’s 60 largest banks alone provided $4.6 trillion to the fossil fuel sector.
As BankTrack revealed, banks also act as financiers of other high-emitting business sectors such as steel, cement, petrochemicals, manufacturing, transport and real estate. They continue to finance business sectors that impact natural forests and other ecosystems critical to climate change mitigation and adaptation, including agricultural commodities such as soy, sugar, rubber, beef and timber.
Fossil fuel financing from the world’s 60 largest commercial and investment banks totaled $4.6 trillion between 2016 and 2021 – with $742 billion in fossil fuel financing in 2021 alone. Which banks were the worst culprits?
- JPMorgan Chase
- Wells Fargo
- American bank
Barclays is the worst in Europe and Bank of China is the worst in China Banking on Climate Chaos message. There is a clear disconnect between net zero aspirations and current banking practices, with 27/44 banks in the report lacking a meaningful corporate level, no expansion policy for any part of the fossil fuel industry.
The global appeal asks all banks to recognize that their continued support of the fossil fuel industry is incompatible with saving the planet from climate collapse, and to take the following steps urgently to end this support.
ClearView Energy Partners, an independent research firm, as reported by The Washington Post, wrote to clients: “As renewables proliferate in GOP-represented networks, their economic and political importance to government officials is likely to grow.”
Wonder if the anti-ESG rhetoric that’s so prevalent now would fuel a movement for a national climate investment bank? The financial consequences for most asset managers and banks from all the anti-ESG rhetoric coming out of the mouths of US Republican politicians are almost certain to be minimal – at least for now, according to Bloomberg Green’s Tim Quinson, who says any trading losses would be insignificant relative to the firms’ overall bottom line.
What will change with the National Bank?
The National Green Bank Act of 2019 was referred to the Energy Subcommittee and stalled there. Members of Congress and advocacy groups continued to work to make a national green bank a reality, and the IRA introduced the establishment of a national green bank to provide low-cost financing for clean energy infrastructure projects.
Green banks work by using financial instruments that break down barriers to investment in climate action. They identify and break down barriers that prevent private equity providers from fully investing in target market opportunities, expanding markets and creating new opportunities for private investment.
Green banks can offer credit enhancements such as loan loss provisions or loan guarantees to help private investors divest.
Small and geographically dispersed projects such as residential or small business energy efficiency are often not cost-effective for private investors. Green banks can pool projects that are not cost-effective to underwrite themselves. Pooling these loans diversifies risk and achieves scale, making them much more attractive to lenders.
Transactions that have never been done before are more laborious than typical standardized transactions. Green banks can contribute technical data to develop frameworks for new types of transactions. As new types of transactions become more common, processes become standardized and friction is reduced.
The use of these financial instruments ultimately allows for much larger overall investments than would otherwise be made. The investment impact of a green bank can be many times higher than its initial capitalization funding.
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