European public banks drive climate change instead of reversing it

’Assessing the amount of ‘unburnable carbon’ embedded in international financial institution portfolios’, a study prepared by the Bretton Woods Project found that:

• Multilateral Development Banks (MDBs) [1] have $20 billion of active investments in fossil fuel projects with a carbon potential of the equivalent of 29.3GtCO2 (gigatons of carbon dioxide).
• The carbon potential of the European Bank for Reconstruction and Development (EBRD) investment alone amounts to 18GtCO2 equivalent or more than 3% of all burnable carbon if global warming is to stay below the internationally agreed limit of 2°C.
• The European Investment Bank (EIB) has standing investments in carbon project amounting to $11 billion or more than half the investments of all MDBs in the study combined.

All Multilateral Development Banks have labelled climate change a major threat and have made serious commitments to fight global warming. Despite the rhetoric and increased investments in renewable energy, a new study by Bretton Woods Project shows that MDBs still massively invest in fossil fuel projects which will speed up climate change. European public banks are the biggest polluters among the five institutions analysed in this study.

As of December 2013, MDBs had active investments in 179 fossil fuel projects. 47 of them were studies [2], while infrastructure and extractive investments accounted for 66 projects each. The projects which are purely extractive in nature have a combined carbon potential of 29.3GtCO2 equivalent [3]. This is 5% of all carbon that can be burned [4] if global warming is to stay below the internationally agreed limit of 2°C.

The EBRD has by far the worst portfolio. Its investments in extractive projects have a carbon potential of 18GtCO2 equivalent or 3% of all burnable carbon worldwide.

Together, all MDBs investigated have active investments amounting to around $20 billion. The EIB stood out with more than $11 billion of investments in fossil fuel projects, mostly infrastructure projects.

The study also looked at which kind of companies received those favourable and publicly backed investments. $12.8 billion went to companies listed on international stock exchanges who already have access to financial markets.

In recent years we have noticed some positive trends. In 2013 the EIB effectively excluded investments in coal related projects by adopting an Emission Performance Standard and the EBRD halted financing for new coal power plants except under ‘rare and exceptional circumstances’.

Additionally, both banks increased investments of renewable energy sources both in relative and in absolute volumes. Last year 19% of EIB energy sector investments went to fossil fuels, while in 2007 fossil fuels still accounted for 40%. A similar trend is noticeable at the EBRD whose fossil fuel investments in 2013 made up 29% of its energy-related investments compared to 42% just one year previously in 2012. However in real terms the decrease is less noticeable.

In 2013 the banks jointly invested EUR 2.61 billion in fossil fuel projects especially related to gas (EIB 2 billion, EBRD 611 million), a considerable amount which further jeopardizes EU climate targets.

Xavier Sol, Counter Balance director said:

“By excluding coal and stepping up its investments in renewables, the EIB has taken some positive steps forward in recent years. However, these efforts are being reversed by massive fossil fuel investments. If the bank wants to be a climate champion as it claims to be, it should mainstream climate objectives throughout its entire portfolio and not only under its climate action programme, which represents just 25% of its investments.”

Fidanka Bacheva-McGrath, Bankwatch EBRD coordinator:

“In the EBRD regions of operation we face the risk not only of stranding of high-carbon assets, but also the risk of stranded countries. The EBRD has a role to play in diversification of the economies of several hydrocarbon-rich countries, but instead it continues investing heavily in oil and gas projects, like a newly-proposed half a billion investment in Lukoil’s operations in Azerbaijan.”

Dario Kenner, Bretton Woods Project researcher said:

“Instead of investing in fossil fuel companies that already have access to capital markets the EBRD and EIB should use their privileged position as publicly-backed lenders to invest in clean renewable energy sources that increase energy access for the poorest.”

Notes for editors:

[1] The study looks at the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC), the Asian Development Bank (ADB) and the Inter-American Development Bank (IDB).
[2] These fund the analysis of prospective expansion and the future capacity of extractive and infrastructure projects. They cannot be traced to a specific carbon reserve. Keywords: ‘exploration’, ‘feasibility studies’, ‘technical assistance’, ‘debt refinancing’, ‘capital expenditures’, etc.
[3] Due to the lack of information provided by the MDBs it was not possible to accurately determine the exact amount of unburnable carbon on MDB balance sheets. The formula for calculating the carbon emissions from the reserves was taken from the methodology used by the Potsdam Climate Institute (2009) and the Unburnable Carbon report (Carbon Tracker, 2011). It only takes into account the 66 extractive projects, the total carbon potential is likely to be higher.
[4] ‘Unburnable carbon’: In a speech in 2013 Fatih Birol, Chief Economist at the International Energy Agency (IEA), said that around two-thirds of the world’s proven fossil fuel reserves cannot be developed if we are to keep below 2°C of global warming. Carbon Tracker’s research focuses on how much ‘unburnable carbon’ there is on the world’s capital markets. In 2011 Carbon Tracker, a non-profit financial think-tank, showed that the world had already used over a third of its 50-year carbon budget of 886 GtCO2, leaving 565 GtCO2 that can’t be burnt if we are to meet the 2°C target.