By Maria Alejandra Aguilar H.
Climate change is the biggest threat humanity has ever faced. An irrefutable fact is that 70 per cent of the emissions responsible of global warming come from fossil fuels. UNEP’s Emissions Gap Report 2019 pictures a scary reality: to maintain the increase in temperature below 1.5°C, the world needs to cut emissions by 7.6% every year from now until2030. Even with current commitments, temperatures will soar up to 3.2º above pre-industrial levels leading us to an uninhabitable planet.
Despite decades of warnings, the world´s energy dependency on fossil fuels remains largely the same. However, scientific evidence is clearer than ever: fossil fuels must go; countries need urgently to decarbonize their economies and for this task banks and financial institutions play a pivotal role by completely divesting from fossil fuels.
Although Multilateral Development Banks (MDBs) are moving forward to coherently align their investment portfolios to climate action by integrating climate change in their institutional strategies and defunding fossil fuels, the transition is not happening at the needed pace. For instance, since the adoption of the Paris Agreement the World Bank has invested $12 billion in projects related to fossil fuels, albeit committing to stop financing upstream oil and gas projects since 2019. Investment on such projects lingers on resource-dependent developing countries. According to the NGO Urgewald, the World Bank´s investment on fossil fuels includes oil and gas projects in Brazil for $38 million and in Guyana for $20.
A bit ahead, the Inter-American Development Bank (IADB) has been one of the leading MDBs in adopting better climate practices, with the adoption of the Group Climate Action Plan 2012 – 2015 and the NDC Invest platform, “a one-stop-shop to help countries access resources needed to translate national climate commitments into investment plans and bankable projects”.. On 16th of September 2020, the IADB reviewed and adopted a new Environmental and Social Framework, focused on putting human rights standards at the center of their environmental and social policies, including an independent standard on gender equality; specific provisions on African descendant communities; free, prior and informed consent; better practices for public participation and access to information; and even considerations on risks related to pandemics and epidemics. The document also includes a list of activities excluded from any kind of financial support, such as thermal coal mining, coal-fired power, and upstream oil and gas exploitation and development projects.
Despite the significance of these steps, which set a benchmark for other MDBs, there are still gaps and loopholes that give flexibility in their full commitment on divesting entirely from fossil fuels. Current actions focus on upstream exploration, leaving midstream and downstream projects largely unaddressed. For instance, midstream involves transportation, storage and marketing; while downstream entails refining and processing and possibly marketing and distribution. On the other hand, other types of investments can escape the MDBs climate standards, such as Development Policy Lending (DPL), financial intermediaries (FIs), Technical Assistance (TA) (Christian AID, 2019).
Furthermore, with the COVID-19 damaging effects on the world´s economies, the risk bends towards the intensification of fossil fuels and extractiveindustries, relegating countries to carbon dependent economies as a rapid lane for recovery. This will carry daring consequences that will exacerbate the climate crisis. This scenario is already portrayed by some G20+ economies, which despite of being accountable for 78 per cent of global emissions, are currently pledging large amounts of money to fossil fuels in their recovery plans. The Energy Policy Tracker platform shows that around $212 billion equivalent to 52 % of public funds for energy in recovery packages are directed to fossil fuels. USA is on top of the list with about USD 72.35 billion towards unconditional fossil fuel policies which do no considerate climate targets. Likewise, the 2019 Christian AID report “Small steps are not enough” denounce that MDBs resources directed to renewables declined from 2017 to 2018.
Maintaining, expanding and investing in fossil fuels are foreseeable violations of Human Rights of present and future generations, simple as that, because they directly contribute to the planet´s increasing temperatures above the inhabitable range. Every penny that goes to fossil fuels mines our mere existence. The UN Special Rapporteur on Human Rights and the Environment, in his “Safe climate” report, highlights obligation of all states suh as developing rights-based decarbonization plans; phasing out fossil fuels subsidies; rejecting the expansion of fossil fuels infrastructure; and banning further exploitation of fossil fuels, among others. He explicitly refers to the need of financial institutions and banks to cease financing for fossil fuels. Effectively combating climate change requires a global energy transition and net zero emissions by 2050. Governments, MDBs and other financial institutions must commit without delay to curve emissions by promoting just transitions and accelerating the decarbonization of economies.