The International Energy Agency estimates that over $20 trillion will need to be invested in new energy infrastructure by 2030. Whether this money is invested in greater dependence on fossil fuels or the infrastructure needed for a clean energy revolution spells the difference between life and death for planet Earth as we know it. The energy infrastructure financing decisions banks make today will lock us into impacts on the climate for decades to come.
The banking sector has three important categories of impacts on the climate:
1. Financed carbon emissions
The first and most significant impacts are the carbon emissions associated with a bank’s financing of greenhouse gas intensive activities for energy production. Particularly dirty energy financing includes coal fired power plants in the utilities sector and tar sands extraction in the oil and gas sector. Other sectors with significant greenhouse gas emissions, which are also dependent on bank financing, include commercial real estate, transportation, agriculture, forestry, metals and mining and chemicals. Banks must move quickly to phase out their financing support for greenhouse gas intensive activities and projects in these sectors.
2. Investing in clean renewable energy
The second major impact banks have is through financing of clean renewable energy like wind or solar power, and investments in energy efficiency that improve the productivity of the energy we use. Banks must do more to aggressively phase-in support for these technologies and for greater energy efficiency. A recent McKinsey Group study estimates that simply investing in existing energy efficiency technologies with internal rates of return greater than 10% could reduce growth in energy demand by 50% or more in the next 15 years. With sustained financing, solar and wind power are both poised to achieve explosive worldwide growth in clean energy production.
3. Operational Footprint
Third are the greenhouse gas emissions associated with a bank’s operations – the energy used for heating and lighting in its office buildings and branches, staff travel, conferences, consumption of paper and other materials. Although this is by far the smallest of a bank’s footprint on the climate, banks have been giving this the greatest attention. Unfortunately, given the far larger impact of bank financing on the climate, heavy bank promotion of efforts to reduce greenhouse gas emissions from operations often amount to little more than sophisticated new form of greenwashing.
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