Finance: at the heart of the climate emergency

June 18, 2019 0 By Michel Santi


The UK is hoping to achieve climate neutrality by 2050. However, one of the important drivers that will help overcome the greatest challenge of our time – climate change – is outside governmental control. A nation cannot claim to be substantially reducing its greenhouse emissions without first regulating the flow of liquidity channelled towards fossil fuels. In this respect, only a central bank, by reforming its macroprudential regulations and by increasing the cost of this type of financing, can stymie the flows that have traditionally made this sector prosper.

With the heir to the throne of Mario Draghi as head of the European Central Bank as yet undecided, the next President will have to be as sensitive as possible to this absolute priority, with our central bank equipped with a strike force able to tightly and judiciously regulate the liquidity that gets thrown into fossil fuels. These central banks that, from the 2007 crisis to now, have actively participated in the fight against the credit crunch, that have proved to be overzealous in their bailing out of banks, and that haven’t hesitated using unorthodox means of fighting against deflation, must now work in tandem with governments and clearly demonstrate their environmental concerns. While their policy of quantitative easing undeniably saved us from catastrophe, it is now time to improve on this because their liquidity injections did at the same time inadvertently enrich the fossil fuel industry.

Several studies have shown that companies like Shell and BP have greatly consolidated their financial holdings thanks to the central banks whose actions have turned out to be far from neutral for the climate.The monetary policy of the ECB, the US Federal Reserve, the Bank of England, the Swiss National Bank and the Bank of Japan (to name just the largest in the West) has therefore had an undesirable impact on the climate because it literally subsidises the whole chain of predators. What’s the point in taxing and thus penalising the middle and working classes, what’s the point in setting up in France an “Ecological Defense Council”, and how do we respond appropriately to the legitimate worries of our youth…when over the last 3 years Western banks have lent $1.9 trillion (1,900,000,000,000) to players active in the fossil fuel industry?

Our central bankers are not simple money-generating machines and they must accept the highly political and social aspect of their mandate. They therefore have an obligation to comply that is much more imperative than their powers are grandiose, and they are often more concrete and efficient than the political executives. They must be asking themselves about the very poor redistribution of their hyper loose monetary policy – admittedly vital and indispensable – but that also exacerbates inequalities. At the same time, their duty is to dry up the taps that have up to now generously benefited the whole fossil fuel industry. To do so, central banks must urgently understand that climate change is directly threatening financial stability.

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