Central banks around the world continue to support fossil fuels despite promises to align their operations with climate goals. A new report, “Unused Tools: How Central Banks Are Fueling the Climate Crisis,” published in Oil Change International exposed that 12 major central banks have yet to shift their financial flows away from oil, fossil gas, and coal.
An analysis of central banks from Canada, China, the European Union, France, Germany, India, Italy, Japan, Russia, Switzerland, the United Kingdom and the United States revealed not one of the 12 central banks have aligned with the Paris Agreement on any of the criteria. While some central bank executives claim that “tackling the climate crisis is beyond their mandates,” the report said that “they have the tools to catalyze and accelerate the end of financing for fossil fuels.”
“Central banks have access to powerful tools to confront the climate crisis, but they aren’t using them. Instead of using their power to cut off finance for fossil fuels, they are making themselves busy tinkering around the edges of the climate crisis,” David Tong, Global Industry Campaign manager at Oil Change International and an author of the report, said.
According to a press release, the report recommends a series of actions to better align central banks’ activities with climate goals such as:
- Governments should amend the mandates of central banks where necessary to give them the power to support the managed decline of fossil fuel production by facilitating an end to fossil fuel finance, in line with the Paris Agreement;
- Central banks should:
- adapt their asset management practices to exclude from their portfolios all fossil fuel production and fossil fuel intensive consumption sectors, further investment in which is found to be incompatible with the Paris Agreement;
- adapt their regulatory practices with a view to eliminating commercial banks’ exposures to all fossil fuel production and fossil fuel intensive consumption sectors, further investment in which is found to be incompatible with the Paris Agreement; and
- undertake research of climate-related risks, and require commercial banks to undertake research of climate-related risks and conduct the appropriate stress tests.
“Central banks’ roles have evolved over time,” Tong said. “They reinterpreted their roles to confront the 2008-2009 financial crisis, and again in response to the COVID-19 crisis. Now, they must do the same to confront the climate crisis—not just as a threat to financial stability, but as a threat to humanity.”
While the French and Swiss central banks “partially exclude coal from their asset portfolios,” the report found that as a whole “central banks have failed to prevent financial flows to fossil fuels on the order of USD 3.8 trillion from commercial banks” between 2016 and 2020.
“If these central banks won’t act, the governments they report to must step in,” Tong said. “They need to make it clear that central banks can be leaders in ending dangerous fossil fuel finance, rather than laggards propping up an industry driving our climate chaos.”
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