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Banks and the Green Leap Forward

By imposing stricter capital requirements on fossil-fuel lending, governments and banking regulators can help to redirect a huge flow of funds to necessary climate-friendly projects. To those who claim that such a step would be too costly, the appropriate response is: “Compared to what?”

WASHINGTON, DC – Many of us had hoped, perhaps naively, that global leaders gathering at the United Nations Climate Change Conference (COP26) in Glasgow last fall would significantly accelerate international and national efforts to slash greenhouse-gas emissions. It was not to be. Governments made some progress on methane emissions, deforestation, and the transition to electric vehicles. But other necessary action – above all, much more ambitious national pledges and plans – was postponed for another year.

The world cannot afford to waste any more time. On current trends, we have ten years before we exhaust our global carbon budget, reach interlinked points of no return, and crash through the 1.5º Celsius limit on global warming that governments and scientists warn is essential if our children and grandchildren are to have a livable future.

So, what is to be done? As a top priority, regulators and central banks should charge banks the real price for their polluting fossil-fuel portfolios, thereby permanently shifting incentives in favor of financing the green transition.

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