The COVID-19 pandemic has made 2020 a truly singular year. With a deep global recession resulting from strict lockdown measures being implemented throughout much of the world, there has been little for investors to cheer. But with signs that the worst may be mostly behind us, an increasing number of opportunities will undoubtedly present themselves as we move into 2021.
Technology has responded to the call to produce innovations that will slow global warming, creating an arsenal of renewable-energy alternatives to fossil fuels. But distribution of these innovations to developing countries has not kept pace, and they are lagging behind in low-carbon adoption. What needs to be done to transfer and deploy existing low-carbon technologies throughout the globe as quickly as possible? The answer lies in solutions such as trade.
On December 15, US bank Goldman Sachs announced what many believe to be the strongest restrictions on fossil-fuel activity by any major bank in the United States. Most notably, the bank has become the first big American lender to restrict financing on any part of the oil-and-gas sector, with a particular focus on protecting the Arctic National Wildlife Refuge.
Few have not embraced the Green Agenda, as we all see the potential for renewable energy to transform the fabric of our lives and to hinder potentially devastating climate change. But wanting to do and doing can be two different things, with the availability of financing often being the deciding factor. The European Bank for Reconstruction and Development fills the financing gap, with a focus on worthy private-sector green projects.
The push to transition from fossil fuels to renewables for power generation has been motivated largely by environmental concerns. But today, dollars and cents are increasingly supporting the transformation drive, as renewable-energy sources become much more cost-effective, even outmatching fossil fuels in value per dollar. Forecasts predict that new power generation through renewables—especially solar, wind, hydroelectric—will soon outstrip fossil fuels, attracting growing interest from governments, banks and investors.
Climate change has already altered industries, and banks have not escaped its reach. Banks are finding that climate-related risks, both physical and transitional, are manifesting on their balance sheets. As with any risk, financial institutions that fail to effectively manage climate-change risks are more vulnerable to the rising tide of environmental hazards. What does recent research indicate about banks’ responses to the financial risks (and opportunities for investment) associated with our changing climate?
Central banks, guardians of financial systems, consider multiple factors when determining policy; today, as countries suffer the effects of severe weather, central banks feel impelled to include the risks associated with climate change. Groups such as the Network for Greening the Financial System, which unites central banks to address climate-change financial risks and aids the private sector toward achieving a more sustainable future, allow central banks to pool their resources to combat this threat.
The world’s neediest people are particularly vulnerable to unexpected crises, which come in many forms, from catastrophic conflicts to calamitous cyclones. They need all the help they can get to weather the storms of life. The financial-service provider can throw a lifeline in the form of financial products that make the difference between sinking or swimming. In what practical ways are banks helping vulnerable people living through the most challenging circumstances?
Since trade finance is lifeblood of global business, it has a positive role to play in driving sustainable practices. Here, banks can lead by example: through collaborative efforts, they can play a crucial role in encouraging a diverse network of counterparties to safeguard environmental, social and governance (ESG) principles, while also stimulating growth. So, how can “sustainable trade” be fully realized to meet these ends?
The Paris Agreement has been touted as the antidote to global warming; with countries agreeing to jointly reduce greenhouse-gas emissions, climate change will be dealt a severe blow. But the success of the treaty rests largely with individual nations and how successful they are in implementing policies for the short- and long-term.