Our generation faces a climate emergency and the risk of an environmental breakdown. The current global financial system only exacerbates these crises due to the domination of very large financial institutions focused on short-term profit and the lack of ambitious regulations. Finance Watch provides a 9-step guide to reform finance for climate action:
On financial markets, so far there hasn’t been a single and simple way to tell ‘clean’ assets from ‘dirty’ ones. We need a unified, binding classification system that determines the environmental quality of every economic activity.
We cannot fix a problem that we do not see. First, private companies must be required to assess and disclose the impact of their activities in a harmonised and comparable way.
As clients, citizens have the right to know whether their investments contribute to harmful activities. They should be able to ask their banks, life insurance providers or pension funds to divest their own money from these sectors.
As long as polluting activities remain profitable, someone on the market will invest in them. We must implement standards, quotas and taxes (economic regulations) to make them more costly than sustainable activities.
Ironically, taxpayers’ money is still heavily invested in fossil activities. As citizens demand a fossil-free economy, our representatives must stop subsidising fossil activities and redirect public money to climate action.
The transition to a low-carbon economy is inevitable. The diminished value of fossil assets will likely trigger a financial crisis. Preparing for a fossil free future requires that our financial system reduces its exposure to these stranded assets.
Some of the most urgent climate actions are not profitable and thus will not attract investment from private sources. Our governments must open up public finance capacity to meet these demands.
The current ecological breakdown is driven by shareholder primacy and the short-term focus of the financial system. Regulations must guide the whole system to look beyond the profit calculations of the forthcoming months, to consider the long-term goals of society.
In addition to constantly posing tremendous systemic risks to our society, too-big-to-fail financial institutions too often refuse to align their business interests with the interests of society, including our mission to fight climate change.