‘A long way to go’: G20 central banks still hampering clean energy transition, report reveals

The US's Federal Reserve (pictured) lags behind in the bottom five

The authors of the new analysis of the G20 nations’ central banks, Positive Money, are warning that longer-term price stability will be undermined in a warmer world, as physical climate risks crystallise. As such, they are urging central banks to ensure that efforts to curb inflation in the shorter-term accelerate the net-zero transition rather than undermining it.

The analysis rates each of the G20 central banks on a range of green economy metrics including research and advocacy, monetary policy and financial regulation. Banks are then given an overall score out of a potential 130 points, plus a grade from A+ to F.

At the bottom of the table, with zero points and an F grade, is Saudi Arabia. Argentina also takes an F grade, as it has no climate-related monetary policy or financial policy measures in place.

Barely faring better, with D- grades overall, are South Africa, Turkey, the US, Australia, Russia and South Korea.

The US’s Federal Reserve scores ten out of ten for its research and advocacy efforts but zero out of 50 for monetary policy interventions. It also scores low on financial policy interventions, but Positive Money notes that this score may increase next year if, as planned, climate risk scenario analyses are piloted. This activity would require the bank to assess risk in a range of warming scenarios. The US federal government is also eyeing mandatory climate risk disclosures for some businesses, following in the UK’s footsteps.

All in all, Positive Money believes that the US is “trailing behind” other economies with high levels of historic emissions and high annual emissions at present. The world’s biggest annual emitter at present, China, takes joint sixth place with Brazil and has been awarded a C grade overall.

The UK is sitting in fifth place. The Bank of England scores top marks for research and advocacy, but just ten out of 50 possible points for monetary policy. Most of the interventions it has made here so far are classed as ‘low-impact’, with the Bank undertaking no ‘high-impact’ actions.

27 out of 50 possible points are awarded for the BoE’s financial policy intervention despite, again, no ‘high-impact’ actions being taken. The report states: “Whilst the Bank of England has not gone so far as to align its asset purchase facilities with the Paris Agreement, it has created a framework for greening the Corporate Bond Purchase Scheme, which excludes issuers engaged in any coal mining activities (Bank of England, 2021), and has begun making sales from the Corporate Bond Purchase Scheme with climate change considerations as a secondary aim.”

Positive Money does note that the UK is leading the way on climate-related financial disclosures and in facilitating collaboration with other central banks, other finance sector players, policymakers and the general public on the low-carbon transition. However, the conclusion is that the ambition of the UK becoming the world’s first net-zero financial centre, stated by then-Chancellor Rishi Sunak at COP26 in November 2021, is not yet within reach.

Top of the table is France, the only nation to receive a B-. Rounding out the top five are Italy, Germany and the EU (with the European Investment Bank).

France’s central bank scores so highly as it has aligned all non-monetary portfolios with a 1.5C temperature pathway and implemented the strongest fossil fuel exclusions of any G20 central bank. This includes a complete exit from coal by 2024. It also oversees mandatory sustainability-related disclosures and climate and environmental risk disclosures across the financial sector.

Positive Money has emphasised that France is currently the exception, not the rule – and that even France could be going further and faster to finance the low-carbon transition and also redirect financial flows which harm nature.

Lead report author Nikki Eames said: “Volatile fossil fuel prices and extreme weather events this year should be enough to convince central banks and regulators that supporting the net zero transition is a central pillar of their core mandates for price and financial stability. We need policymakers to act decisively to help shift financial flows to a credible pathway to net zero, and stop allowing financial institutions to lock in long-term environmental risks which jeopardise economic stability.”

‘Don’t bank on it’

In related news, the Make My Money Matter campaign has launched a new workstream whereby banking customers at some of the UK’s biggest banks can call on these businesses to implement stronger fossil fuel exclusion and divestment policies.

The new ‘don’t bank on it’ campaign builds on work already underway to pressure pension schemes to improve the environmental impact of their financial activities.

Under the new campaign, HSBC, Barclays, Santander, NatWest Group and Lloyds Bank are being called upon to end the financing of any oil, gas and coal expansion, in line with the International Energy Agency’s (IEA) 2050 net-zero scenario. This scenario, published in 2021 in the lead-up to COP26, recommended an end to all additional fossil fuel expansion beyond what had already been confirmed by the end of 2021.

Make My Money Matter is citing previous research from ShareAction, which claims that the five banks targeted collectively funnelled $367.6bn into fossil fuel activities since the end of 2015, of which $141bn went to companies with significant oil and gas expansion plans. HSBC was the worst offender in both respects. A poll of 2,000 UK-based adults using these five banks found that 77% were not aware that their bank supported fossil fuel expansion.

ShareAction project manager Kelly Shields said: “ShareAction research found that UK banks are providing billions to fifty of the top oil and gas expanders in the world. Worryingly, half of new projects are unconventional, meaning companies are expanding into the riskiest types of fossil fuels to extract, such as those found in the Arctic. We urge banks in the UK to listen to the justified concerns of customers and publish plans by the end of 2023 to restrict financing for new oil and gas to prevent the worst impacts of the climate crisis.”

The news comes just weeks after the UK’s Advertising Standards Authority banned two adverts placed by HSBC on greenwashing grounds. The regulator ruled that the ads could mislead customers into thinking that its financing activities have a net-positive impact on the environment and that HSBC was knowingly concealing important details about its energy financing.