We need to see much faster action by the financial sector, with disclosure of current emissions, targets and transition plans verified by the Science Based Targets Initiative and regulation mandating this.
Earth Overshoot Day was first conceived by Andrew Simms, a regular contributor to The Ecologist and head of the UK think tank New Economics Foundation, and marks the date when humanity’s demand for ecological resources exceeds what the Earth can regenerate in that year.
This means that we have already consumed as many raw materials as the earth yields in an entire year. To continue living like this, we would need three planets rather than one.
This is an untenable situation, and one that is exacerbated by the financial sector. The vast majority of financing decisions do not take planetary boundaries into account, and this has to change.
Kicking
Every financial transaction has an impact, negative or positive. In the same way that every project, initiative or company has a carbon footprint and contributes to a better world, or not.
The choice that a financial institution makes to provide a loan or to make an investment therefore by definition has consequences for people and the environment.
The reality is that the financial sector has a significant ecological footprint. Consider, for example, investments in fossil fuels: even now, in spite of everything we know about climate change, financial institutions continue to invest more money in oil and gas than they do in sustainable energy.
According to the latest BankTrack report, fossil fuel financing from the world’s 60 largest banks has reached USD $5.5 trillion in the seven years since the adoption of the Paris Agreement, with $669 billion in fossil fuel financing in 2022 alone. Meanwhile, just 7% of energy finance from global banks went to renewables between 2016 and 2022.
These statistics are shocking, and in stark contrast to the lofty commitments and green promises that we read in these institutions’ climate action plans. The fact is, we can’t keep kicking the can down the road.
Generation
We need to see much faster action by the financial sector, with disclosure of current emissions, targets and transition plans verified by the Science Based Targets Initiative and regulation mandating this.
In setting out our target to achieve net zero status by 2035, Triodos is challenging not only the broader financial sector, but ourselves. As a bank that has led the way on carbon disclosure and already has a low carbon emitting portfolio, we understand our starting point and we can see the realities of how difficult achieving net zero will be.
There are three key areas in which the financial sector can lead the economic transition to net zero, namely: 1) financing the energy transition; 2) stimulating the circular economy; and 3) making the agricultural sector more sustainable.
We need to see much faster action by the financial sector, with disclosure of current emissions, targets and transition plans verified by the Science Based Targets Initiative and regulation mandating this.
Firstly, financing the energy transition represents a huge opportunity. Economists have predicted that the global renewable energy market will be worth over USD $2 trillion by 2030. The financial sector must prioritise green energy infrastructure – generation, storage and transportation which, in turn, will create green jobs.
Investments
In addition, it is quite possible to reduce earth overshoot days by being more conscious of raw materials. More than 100 billion tonnes of raw materials are used annually, of which only seven percent is reused. The financial sector must focus more actively on companies that put circularity and natural materials at the heart of their business model.
And finally, the financing of the agricultural and food system must change. Currently, the way agriculture is conducted has a negative impact on the environment. The current agricultural system has reached its limits.
We need to balance the use of ecosystems, our eating habits and the increasingly globalising food markets. Producing healthy food for all, while respecting the boundaries of our planet and paying farmers fairly. This requires nature-inclusive agriculture and a facilitating financial sector.
We cannot achieve a greener future without coordinated action from the global financial system, and we need it to act now. Every bank must greatly reduce greenhouse gas emissions of loans and funds’ investments, using a science-based targets approach, to align their portfolios with the 1.5 degrees Celsius global warming scenario - before it is too late.
This Author
Bevis Watts is the CEO of Triodos Bank UK. Triodos Bank has provided some sponsorship towards the SMALL IS THE FUTURE event held by The Ecologist with the Schumacher Institute in Bristol on Saturnday, 17 June 2023. Tickets to the online event are still available.
