UN chief warns development banks to stop backing fossil fuels

Environmental group says the World Bank invested more than $12bn in fossil fuels since the 2015 Paris climate accord, but the lender says the group’s report is ‘distorted’.

Germany power station
The world is on track to produce more fossil fuels than recommended under the 2015 Paris climate agreement [File: Fabrizio Bensch/Reuters]

United Nations Secretary-General Antonio Guterres has urged development banks to stop backing fossil fuel projects after a report found the World Bank had invested $12bn in the sector since the 2015 Paris Agreement to combat climate change.

Environmental campaigners have for years tried to prevent the oil, coal and natural gas industries from producing dangerous levels of the greenhouse gases that cause climate change by persuading commercial banks to stop lending them money.

But the world’s state-backed development banks, whose support is often crucial in determining whether projects in developing countries go ahead, are also facing growing calls to starve the industry of finance.

Guterres urged a coalition of finance ministers and economic policymakers from dozens of countries to ensure development banks end fossil fuel investments and boost renewable energy.

“We need speed, scale, and decisive leadership,” Guterres said in a video message on Monday to a virtual meeting of the group.

Earlier on Monday, a report by Berlin-based environmental group Urgewald said that the World Bank had invested more than $12bn in fossil fuels since the Paris accord, $10.5bn of which was direct finance for new projects.

That put the World Bank far ahead of other development banks in supporting the fossil fuel sector, said Heike Mainhardt, a senior adviser to Urgewald, who wrote the report.

With the world already on track to produce far more fossil fuels than would be compatible with temperature goals agreed in Paris, the report questioned why the World Bank would back increased oil and natural gas production in countries such as Mexico, Brazil and Mozambique.

The World Bank said the report gave a “distorted and unsubstantiated view,” adding that it had committed nearly $9.4bn to finance renewable energy and energy efficiency in developing countries from 2015-19.

The bank also said the report ignored its mandate to help approximately 789 million people living without electricity, mostly in rural Africa and Asia.

Mainhardt said the bank’s support for fossil fuels was hindering a transition to cleaner energy needed to achieve the Paris accord’s goal of avoiding catastrophic climate change.

“It’s so misleading for them to act like they are a champion of the climate when they really are such a huge part of the problem,” Mainhardt told the Reuters news agency. “Because the World Bank keeps giving billions in public assistance, that distorts the market for fossil fuels, it slows down the energy transition.”

Investor pressure

Meanwhile, investors managing about $20 trillion in assets called on the heaviest corporate emitters of greenhouse gases to set science-based targets on the way to net-zero carbon emissions by mid-century.

AXA Group and Nikko Asset Management Co are among 137 investors urging 1,800 companies responsible for a quarter of global emissions to act, coordinated by non-profit group CDP.

US oil well
Nearly 2,000 companies are responsible for 13.5 gigatonnes of emissions, according to environmental pressure group CDP [File: Andrew Cullen/Reuters]

While more companies are pledging their support for the 2015 Paris agreement, aiming to be carbon neutral by 2050, not all have been clear about how they will get there.

To help limit global warming to no more than 1.5 degrees Celsius (2.7 Fahrenheit) above pre-industrial norms by 2050, companies need to set out their pathway to net-zero and ensure it is consistent with the science and independently verified, the investors said.

“Climate change presents material risks to investments, and companies that are failing to set targets grounded in science risk losing out – and causing greater damage to the world economy,” said Emily Kreps, global director of capital markets at CDP.

The companies affected together annually contribute 13.5 gigatonnes of emissions directly and indirectly tied to their operations, equivalent to 25 percent of the world’s total, CDP said.

Specifically, the investors said they wanted companies to set targets through the Science-Based Targets Initiative to help ensure the goals can be more easily compared and assessed.

More than 1,000 companies have already set science-based targets, of which approximately 300 have targets in line with the 1.5 degrees goal.

“Companies that do not set science-based targets risk being surprised by increased costs or lost business that could result from the increasing focus on climate change by society and regulators,” said Ted Maloney, Chief Investment Officer at MFS Investment Management.

Source: Reuters