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Climate change: NGOs back banks that support sustainable projects
By MAGGIE I. JARUZEL
After work by the U.N. Intergovernmental Panel on Climate Change and former U.S. Vice President Al Gore was honored with the 2007 Nobel Peace Prize, one chapter of the global climate change discussion appeared to end while another began.
“Previously, a lot of time had been spent battling global warming ‘deniers’ …,” said Steve Kretzmann, executive director of Oil Change International (OCI), a Washington, D.C.-based research and advocacy organization.
“While there’s huge room for disagreement about what the solutions are, there’s no longer any credible doubt -- in the U.S. or elsewhere -- that climate change is real.”
There’s now global consensus that climate change is caused by humans and that the change is happening at a faster pace than previously understood, Kretzmann said. Consequently, the world community faces the next chapter of challenges: changing the way energy is used, developing new energy choices and adapting to the changes that result from global warming.
A key element of these challenges is to alter the mix of global financial investments made in the energy and transportation infrastructure sectors, particularly in developing countries, because these long-term investments can lock countries and communities into extractive technologies and energy sources for decades.
For Kretzmann and his OCI colleagues, shifting public and private financing away from large international oil and gas projects and toward alternative energy technologies -- involving wind, solar and geothermal -- that are clean and renewable is one strategy to reduce carbon dioxide (CO2) emissions.
In 2006, the Mott Foundation provided a two-year, $150,000 grant to OCI to support its international work in the energy industry. This grant is one of several Mott has made under the International Finance for Sustainability program area to non-governmental organizations (NGOs) to explore cleaner and better energy solutions.
This support comes at a time when the world is confronted with dual challenges: rising oil and gas prices, and the impact of climate change.
In developing countries, energy and infrastructure investments are funded by a mix of sources. These include private banks and international financial institutions (IFIs), such as the World Bank, and export credit agencies (ECAs), which are public entities that provide government-backed loans, guarantees and insurance to corporations doing business in emerging economies.
However, NGOs working in the field say the World Bank and other IFIs have not met their goals to promote sustainable alternative energy and infrastructure development.
For example, when G8 government leaders met in Scotland in July 2005, they vowed to lead the fight against climate change and to increase the volume of investments in renewable energy by the World Bank and other IFIs.
To date, there has been more rhetoric than substance, Kretzmann says. Only 4 percent of the World Bank’s $4.4-billion energy sector portfolio funded renewable energy projects in 2006.
The World Bank’s own data show that in 2007 its financial support for fossil fuel projects increased, instead of decreasing, leading to an ever-widening gap in funding between non-renewable and renewable energy projects.
For Johan Frijns, it is important to shift the policies, procedures and practices of the world’s largest private banks that finance large infrastructure and energy projects. He is the coordinator of BankTrack, a network of 18 member and nine partner groups from both developed and developing countries. They work together to monitor and influence private international banks.
This network, coordinated from a secretariat based in Utrecht, the Netherlands, has received $300,000 in Mott support since 2005.
Many in the field of sustainable development applaud BankTrack for its role in working with international private banks in the development and acceptance of the Equator Principles -- a set of voluntary guidelines on how to integrate social and environmental issues into project financing decisions and project implementation.
Today, 50 of the leading international banks, as well as a few ECAs, have signed on to the Equator Principles.
But one major shortcoming of the Equator Principles is that they do not address climate change, Frijns says.
“The Equator Principles are the leading initiative of banks on sustainability,” he said, “but they are completely silent on climate change. The very word ‘climate’ does not even appear in them.”
Frijns says the guidelines address socioeconomic impact, land acquisition, involuntary resettlement of indigenous people and pollution prevention. When appropriate, they also require project sponsors to develop action plans to deal with environmental and social risks, but the guidelines overlook one major area.
Frijns finds it troubling that banks may finance oil and gas infrastructure -- oil wells, refineries, pipelines -- and maintain that such projects are “Equator-compliant,” even though the products themselves -- oil, gas and coal -- may contribute to massive greenhouse gas emissions.
Russia’s Sakhalin pipeline is a prime example of Frijns' concern. He says emerging economies, need access to public and private international finance that allows them to make sustainable energy choices for the future.
In addition to troubling energy decisions made by countries scrambling to keep pace with their economic growth, recent investment trends by Equator Banks are worrisome, Frijns says. They reflect a renewed interest on the part of public and private financiers to invest in lucrative extractive industries, large-scale dams, and oil and gas projects, with much less interest in investing in alternatives that do not contribute to greenhouse gas emissions.
As a result, BankTrack calls on “Equator banks” to develop collective policies in or outside the Equator Principles that address the pressing issue of climate change.
Elizabeth Bast, international policy analyst for Friends of the Earth-U.S. (FoE), agrees with Kretzmann and Frijns. She says many public and private banks have expressed interest in addressing climate change, but their actions as yet do not line up with their words.
Bast says there is pressure to find new sources of oil and gas to fuel growth. In response, roads, pipelines and processing infrastructure are constructed for oil and gas extraction, resulting in investment decisions that could have adverse, long-term social and environmental ramifications.
FoE-U.S. has received $4.7 million in Mott support since 1990.
Often, either the energy project itself, or the infrastructure built to support it, is located in or near vulnerable ecosystems, such as the Amazon rainforest. The Amazon and other intact rainforests in Africa and Asia play vital roles in maintaining the integrity of the Earth's climate. According to the U.N. Intergovernmental Panel on Climate Change, current deforestation and land-use practices contribute about 20 percent of the carbon emissions that cause climate change.
The world’s political leaders now realize that reducing the rate of deforestation is one sure way to slow climate change, Bast says.
"Financial support to developing countries will be an essential part of reducing deforestation, but we need to ensure that funding goes toward policies that respect human rights and promote community-based forest management."
How to avoid continuing deforestation in tropical forests will be center stage at the U.N. Framework Convention on Climate Change meeting in Bali, Indonesia, in December 2007.
Delegates from 180 countries, along with observers from the media and NGOs, will gather to define a new framework for a climate change agreement that will replace the Kyoto Protocol, which expires in 2012.
Now that the
global community has accepted the realities of climate change and acknowledged a need to reduce greenhouse gas emissions, Kretzmann says, there are two looming questions: how to finance the new technologies that are needed, and how to fund the necessary changes in production processes and lifestyles.
Frijns agrees. From his longtime perspective, the U.N. meeting needs to deliver a regulatory framework that allows for development of market-based mechanisms that are effective and ambitious enough to lead to dramatic levels of CO2 reductions.
He says leading private banks are not against ambitious reduction targets, because they clearly see the threat ahead. They also are keen on further developing market-based approaches, such as a global system of carbon trading. Companies that emit more carbon dioxide than the allowable limit set for them by an outside authority would be required to buy more carbon dioxide allowances/credits, while those that are more efficient could sell their unneeded carbon credits at a profit.
Such a system may help finance many of the new investments needed to address climate change but only after policymakers deliver a framework that provides a level and predictable playing field for financial institutions for the decades to come.
The new global financing systems will require rules and standards to help ensure that global investments actually will address climate change and that developing countries will benefit.
“There is a tremendous opportunity for achieving sustainability in the world by focusing on the financiers’ projects -- whether public or private,” he said.
“It’s very difficult to get a huge, internationally operating bank to change its course. But once it does, then the effect is felt all over the world. We can achieve systemic change doing it this way and that’s important.”