Role of banking, fundamental in the energy transition: Climate Financing Group

The International Energy Agency has shown that, in order to maintain a 50% chance of limiting global temperature rise to 1.5 degrees Celsius, there can be no new fossil fuel extraction projects after 2021 and to that end, the Climate Finance Group for Latin America and the Caribbean (GFLAC), together with allied organizations, will launch a series of reports on the importance of banking in this transition.

“In order to stay within this limit of survival and have the opportunity of a habitable and equitable future, financing is a transcendental element”, they expressed in the first approach of the works called “Revealing the role of banking in the energy transition in America Latin”.

According to this report, there are more than 500 public development banks around the worldwhich operate at the subnational, national, regional, international and multilateral levels.

The volume of activity of these institutions amounts to about 2.2 billion dollars annually. This is equivalent to 10% of the total amount invested in the world each year, by all public and private sources together, as reported Finance Common in 2020.

The relevance of private banks, on the other hand, stems from their role in the monetary and financial system. Bank deposits constitute 97% of the money that circulates in the economy, and “these deposits are created mostly by the banks themselves when granting loans,” revealed the Bank of England in 2014.

“Therefore, the decisions of the banking system on what to finance and what not, translated into policies and concrete actions, are essential to move towards decarbonization and energy transition,” said the preliminary report to the analysis that will be presented on October 25.

The main findings of the first report of the series will be presented at the launch, which provides a regional overview and of selected countries on the financial flows of public and private banks destined for projects in the energy sector in the period between 2016 (post Agreement of Paris) and 2021.

Argentina, Brazil, Colombia and Mexico were selected as case studies because they were the largest greenhouse gas emitters (GHG) and energy consumers in the region.

And it is that the exploitation of fossil fuels must decrease radically to face the climate emergency and move towards a just energy transition.

GFLAC has been working on a series of reports to shed light on how public development banks and private banks have financed the energy sector in the region, aligning their policies and financial flows with climate objectives and the energy transition, or, on the contrary, , maintaining their support for fossil fuels, they finally asserted.

karol.garcia@eleconomista.mx