Welcome to zero. I am Akshatrati the summer of heat. That's what protesters outside City Group's headquarters are calling it. But some activists prefer to work from the inside, especially when it comes to changing the financial system. And what does that look like. Today's guest has the answer. Lucy Finson is the director of the Paris based climate nonprofit
Reclaim Finance. She doesn't march or picket corporate headquarters. Instead, Reclaim Finance gets to know the power centers inside big finance, from sustainability chiefs to investment officers. Lucy has been at it for a decade now, pushing big back to move away from financing fossil fuels, and her efforts have led to some of France's largest banks and insurance companies, including AXA, to stop funding co In May, thanks to pressure from Reclaim Finance, B and P, Pariba announced that it would
no longer underwrite bonds for oil and gas producers. Now, there is still a long way to go, but these are not small wins. So I caught up with Lucy when she visited London earlier this summer and we talked about how to break through on climate with finance.
Wonks.
We know we need to transition the global economy, including companies and financial institutions that back them, to clean energy. However, in the capitalist economy, short term profits outweigh long term risks. But now that many of these long term risks aren't really long term, climate impacts are happening now, many companies are having to pay huge sums out to deal with them. Insurance companies are sometimes going bankrupt not having enough money
to pay for these damages. Do you think it's finally forcing financial institutions to focus on climate risk rather than just short term profits.
Not really, because I believe what you say is true, but only to a specific extent. It's true that the insurance companies especially are already filling the heat and are paying a lot every year to pay for the damage cause by climate change. However, to another extent, there's still a lot of money to be made into fussy fuels
in the very short terms. Before the invasion of Ukraine, a positive fuelds company had been underperforming the market for many years, and there was relatively broad consensus that FOSSi fuels company future lies into a rapid transition away from
fossil fuels. But there has been a spike in oil gas prices after the invasion of Ukraine, and there is a general perception that geopolitical risk which are increasing, will maintain this price is high and has made a pump it fast strategy look attractive again in the very short term. And we can see it also is the profits made by the Olias majors. There's still a lot of money to be made by these companies and their shareholders into FOSSi fuels. So I don't think the broad situation changed
to a big extent. I also think, like a lot of investors and other financial institutions, they are aware that they are using models that under sti made the damage caused by climate change to the economy and undervalue the financial impacts that it will have on their books, and they're aware of it, but they are not adapting from models to make up with the inconsistencies and limitation.
Yeah.
So it's been a little bit of a messy picture. But one thing that perhaps has been going in one direction, especially since signing the Paris Agreement, is that the measurement of how financial institutions are responsible for funding activities that increase emissions has been improving. So when we think of companies that are responsible for emissions, you know, a fossil fuel company producing oil, that oil is burned, emissions are produced.
But the banks that fund these fossil fuel companies are also now starting to count those emissions in their books. More recently, there have been a few bodies that have come together and created a standard for how these emissions that banks have through their financing is counted. So could you just talk us through these terms that are being created to count these emissions, so called financed emissions and facilitated emissions. What do they measure and how has that changed your work?
Yeah, it's true like more and more information is available to track specifical financing. However, having this information does not necessarily mean that there will be action on it. These being said, a lot of banks after the launch of the Glasgow Financial Alliance for net zero during the Cup at Glasgow, they communicate to publish decabonization targets for specific sectors.
Many of them do publish targets for the awning gas industry, which means that they published finance emissions, and some of them have commedy to publish facilitated emissions. So let's have a look at the two of that. Finance mission is really the missions that are related to the loans that a bank provides to the olingas industry. So if you finance total energies or any or shale as a bank, you will have to report a certain amount of the missions attributed to this loan to an orang gas company.
Finance emissions are so about the exposure of a bank to the olingas industry, meaning that the finance emissions will also got down or disappear from the portfolio as soon as the loan is being paid back. Facilitated missions is about another very important type of financial services provided by banks to the energy sector and to the oling gas industry,
which is the issuance the structurations of bonds. It's when a company get access to capital not from a bank directly, but from investors thanks to the intermediation of a bank. That's why we call it if facilitated emissions. Here's a lot of issues attributing these emissions. As for the finance emissions, it's these emissions will disappear from the portfolio of a bank as soon as the loan is being paid back.
For facilitated emissions, the bank needs to report on these emissions the year it helps a company to issue this
specific bond. So there is an issue of responsibility here because it means that the banks will report maybe four years for a loan, maybe one year for a bond, while actually the financing that has been raised by the company thanks to the support of the bank, might actually contribute to the development of a new fosssual project in the real world that will emit greenhouse gas emissions for decades.
So there is a lock in effex supported by the bank which is not fully taken into account by the metrics Awaver these metrics remain important for banks to manage climate related financial risk, it does not necessarily help them stop contributing to climate change, especially in the short term when we can see that facilitated emissions targets or finance emission targets leave room for banks to provide new support to companies despite the fact that these companies might be
at the forefront of the forcifual expansion, so in the short term they are not effective enough to make sure that a bank is not contributing to the warthening of climate change a waver it's one way for banks to manage climate related finance risk. The show that for banks that really wants to play an active role fighting climate change and managing the risk related to climate change, they will have to adopt targets, but it won't be enough. They will also need to adopt others as our measures.
And so let's come to your work with Reclaim Finance, because your goal is to try and get banks to stop financing fossil fuels. If just having new ways to measure their financing or their facilitation of these emissions is not enough, then are there other things that have come to your toolbox that are helping you hold these banks accountable for their emissions.
Sure, At Reclaim Finance, we love data. We focus more on financial flows and less on the exposure of financial institutions to fossil fuels because what they have in the book is really the result of past financial services and what is done is done. It cannot be changed. So we are more interested in what we can do to prevent banks from worsening the climate situation in the future. And for that we have access to a lot of
financial data to track on a daily basis. What type of financial services do the big banks provide to the energy industry, and these provide, in our view, a very fair image of the responsibility of banks in supporting climate change, but also it allows us to identify new trend changes in a way a bank is supportive of a specific sector. For example, BNP Pariba publicly said that the bank abstained from supporting conventional bonds in the lingas industry. We actually
identify this a year ago in their portfolio. It started with a transaction for PP, a bond being issued by BP in last twenty twenty three. BNP has been one of the main banker of BP, so we were expecting the bank to support this company. The banks didn't. Then there was bond by or loan by ANY and banks didn't
support it neither. So we were wondering despite the five being also one of the main bankers of ANY, so we're wondering, that's interesting, something may be happening here, and so we keep tracking the financial flows from BNP to the awning as industry to figure out that really that is something happening, and we add the conclusion recently with the banks saying that it does abstain from this type
of transaction. So that's our way of working. We are tracking on a daily basis what all financial transitions are doing.
And when we see such deals, it allows us to go public about a specific bank having pledged to net zero, having pledged to contribute to keep global warming at one point five, yet keeping some financial services to direct for the fuel projects or to companies that are still building these projects, in contradiction with every IPCC report but also with the projections of the International Energy Agency.
Right.
So the data is giving you a chance to be able to hold these banks accountable and then sometimes you do see banks change their behavior as a result. Can you talk us through a few other success stories from the work that you've done, where because of this push to try and tell the world you know, here is a promise that's made, but here's the reality, the bank has then changed its behavior.
Yeah. I have a lot of examples. I started working on banks ten years ago, so, and ten years ago
it was like really new as a topic. Like my first campaign was against Society General, which was advising a company for the development of a coal mine, a massive coal wine in Australia, so Alpha Coal Projects, which was not only a bad project for climate, but it was also a bad project for biodiversity, considering the coal was planned to be exported through the Great Berry Reef and at that time climate was not on the agenda of
financial institutions. Coup twenty one had not happened yet, and in France people didn't even know that coal was still presented still a big share of the energy mix globally because for French people, call was like the nineteenth century, like Zola, So we had a lot of educations to make and communication to make to teach people about the reality that their money maybe was financing the development of climate change, and it took us more than a year
to push Society General to withdrew from his mandate. Consequently, the mind has never been developed, and we have a couple of stories like that about how the public mobilization had an impact and convinced some banks not to finance specific projects because of their impact on climate.
After the break you see pushes beyond the limits of corporate social responsibility. Like you, there are a number of organizations around the world trying to do similar things. One place where there has been perhaps the most success, is to get these big financial institutions international ones to stop
financing coal. Now, the theory goes that As more and more banks exit the financing of coal, the pool of capital available for developing coal projects goes down, which means the cost of capital, which is either interest rate or some other form of payment that a company has to make to build a coal project, goes up, and that means it becomes less profitable versus already cheaper green technologies.
But if that's the case, and that is a success story, then how come we hit a record level of coal consumption in twenty twenty three and will likely hit another record in twenty twenty four.
That's a very good question. It is true that the adoption of coal policies or banks did have an impact. It did have an impact on the companies that testified that they have trouble accessing capital. And also there is like a fantastic research by our Vard Business School which demonstrated that companies that are exposed to banks exclusion policy change of business faster than others, and that banks policy can be associated with greenhouse gas emissions reductions because of
the closure of coal assets. So CaAl policies are effective, but they need to be well made. And what we know at Reclaim Finance and we are tracking hundreds of policies adopted by financial institutions and fossil fuels. Is that for coal we have hundreds and hundreds of policies, but they are not all as good as the others. We got a lot of policies that are really weak, that are more like window dracing, and we got around less than one hundred policies. It's more round fifty policy that
stop the expansion of new coal. So the policies are not all good enough. They deal have an impact, but they are not good enough. Secondly, and we will have the same issue with the awning as industry in general, that private financial institutions are not the only maker in
this story. We also need to think about public subsidies and all the regulations that keep the fossil fuel industry afloat, especially if you go to Indonesia, for example, where the average year for a coal plant might be thirteen years. So these coal plants on a macroeconomic stand they are
more expensive to operate than developing new renewable capacity. But if you take only one of these plants, it's very valuable for the company operating it that sign a purchase power agreement with a power purchase agreement with the government. So it's profitable for the OPEOO, it doesn't mean it doesn't cost more for society. So if we really want to transition out of fossil fuels we need to tackle not only private financial institutions flows, we also need to
tackle public support. We need to stop to tackle the world regulation. And this is why at Reclaim Finance we pay particular attention to some regulation. For example, what's the role of central banks. Central banks could help redirecting money to the right place. For example, we believe that indiscriminately raising interirace rates does harm investment into like capex and low opex renewer and clean energies.
Right because the upfront cost of building a solar plant and one farm is high at the start, but over its lifetime of operations it's lower than for a fossil fuel power plant exactly.
So it should be very important if central banks keep increasing the interest rate that they differentiate between green investment and pouring investment. They should keep them low for green investment to incentive banks to drive more capital to this sector, and on the other rays, they would need to make them high to these incentive banks from supporting polling sectors, including fossil fuels.
Yeah, so if I'm hearing you right, you're saying that coal policies, they are varied and they can mean different things. But if those policies hadn't existed, then the peak of coal could have been even higher. So there has been some reduction because of the work that you've done, but obviously it's not enough. What I do find interesting, though, is that there are many actors now trying to get financial institutions to back off from financing. There are activists
who will go and glue themselves to banks. There are people who will make a noise outside the bank, not do any disruptive activity. Then there are people who will go and talk to regulators about pressuring banks to do the right thing. You are at Reclaim Finance sort of inside the system. You are tracking them, but you're also talking to the people inside the bank and explaining to them why what you're doing matters and how it might be something that they have to think about in the future.
You join shareholder conferences, you ask questions of banks when they come up with a policy and it's not clear enough. You're also getting to know the bank employees. And you told me when we met last time in Paris, that sometimes you find these bank employees aren't able to make the change from the inside, so they come and join Reclaim Finance or they go and join the regulator. You talked me through some of these stories and how this is over the past ten years of your work had an impact.
So there's several things in your question. So we need people who talk to us who understand the specificities of who are the companies that needs to go, which are the companies that can be supported in that transition, what type of financial services needs to be adapted in this context, and this change depending whether you are a bank on intro and an investors. So our job as Reclaim Finances to talk to these people to make sure that they
are fully equipped to adopt good policies. What we need to understand is that the people we try to identify with whom we can work with internality, they're not necessarily convinced about the importance of fighting climate change.
We need to.
Understand that before the CSR department was really the last office at the bottom of the corridor, with no importance and no weight in a bank. Today's not the case, and people are being hired to make change happen internally, so they are in a complicated situation where they are asked to make this change happen, and they are asked also to manage reputational risk and protect the brand of the banks the walkway, So they need to make sure that people like me don't make too much damage publicly.
But at the same time they also have to listen to me to also feed the discussion about sustainability inside the financial institutions. It doesn't necessarily mean that people are going to listen to them. It is part of their job now if they decide to take on board one of the issues represent to them, it's not necessarily because they think it's important to act against climate change. They might do it only because it's what they are paid for.
They might do it because they are ambitious. They might do it because they want to say, this is a policy. I made it up, I made it happen. So my job is also to identified what are the different motivations of the people I took to to play with this motivation to push them to act, and I prefer them to be convinced that it's important. But I can also work without that.
Right and the CSR Department, the Corporate Social Responsibility Department, was really a branding exercise to ensure just that the reputation of the company is protected. But you're right, this is not just true in financial institutions. It's also true in major corporations that now because of pressure is coming from many different directions, from investors, from governments, from people,
if they have customers. There is now a push not just to have a reputational push to try and be green, but a real push to try and be green because there are other pressure points acting on the system.
Definitely, and this is why you're sorry. Also, try to mobilize as many stakeholders as possible, cities, companies, employees that can also collectively take a stent to change not only likes a few thousands of a few hundred books that a on on the own bank account, but to change really like big digits.
But despite all this progress, you know, you talked about Cop twenty six in Glasgow and how banks committed to try and get to net zero. Then we've seen the invasion from Ukraine as you mentioned, and how that's been used by fossil fuel companies but also the banks that finance them. As a way to slow down this transition. Then there's been political attack on ESG environmental social governance in the US which has forced other financial institutions to
reverse their stunts. So, if you were to look at the endgame, which is to start banks from financing fossil fuels, do you think that's feasible and if so, how does that play out?
I do think it's feasible if we do a knowledge that there is no transition to be expected from the oling gas industry. When I say oling gas industry, are really mean the upstream industry industries are the corduct extracting
fox sale fuels. And I think we got that very clear is on the letters changes even coming from the oling gas major in Europe that were display These companies were displayed as the best in class company, the companies that were building the transition investing in local on activities. But in the past months, Shell, BP and Total Energy all backtracked on the climate commitments, the increase the forsificial production projections, and they still invest like a tiny share
of their capex into local activities. So, and I think the financial industry is realizing that we see a lot and lot many more investors, starting with pension funds divesting fully from the industry. We see the banks like BNP saying, like undedicated bonds, I'm not gonna do that anymore because i know it's only worsening the situation. However, what is problematic is that on THG trend has been slowing down action,
which actually increase the need for regulation. But what worries me that we are not in the situation Like after Trump's election in twenty seventeen, the industry took a stand to say it's non negotiable. The Paris Agreement is going
to be kept. We are mobilized collectively behind it. Today we see a lot of financial institutions and others that are saying that their concerned and worried about this on TG trend, but none of them is taking a star and to say I remain commedity to one point five and it's non negotiable.
And there is a chance that Trump does get elected and then comes to power next.
Year exactly, so that's really worried. We hope that it might be actually a wake up call for some financial institutions that really realize, like we need to do it. If not, nobody will do it. But here we see a clear divisions between what's happening in the EU and in the US. Like in the EU, financial transtitions know that change isn't available. Inavailable, they will need to change. The question is how the question is when in the US they still think it might be okay, that it's
something optional, which is obviously scientifically not optional. But that's rories me like that. The financial sector in North America is really really far behind, not on in terms of actions, but also in terms of understanding of what we are facing.
So you've got a big job on your hand.
Good luck, thank you, thank you for listening to Zero. And now for the sound of the week.
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