The End is Near for Dirty Energy: Fossil Fuels are Being Abandoned by Investors, Insurers and Banks

“I’m done with fossil fuels. They’re done. They’re just done. We’re starting to see divestment all over the world.” - CNBC’s Jim Cramer

The fact that investors, insurance companies and banks are abandoning the fossil fuel industry is a clear sign that coal, oil and gas are in the final stage of their energy dominance. Those who refuse to come to terms with this fundamental reality will by punished financially and in the court of public opinion.

European Commissioner for Climate Action Urges Development Banks to Divest from Fossil Fuels

The European Union (EU) Commissioner for Climate Action has urged development banks to cease supporting fossil fuels and divest from related projects, plants and infrastructure.

Connie Hedegaard is the first ever EU Commissioner for Climate Action. Prior to 2010, She was an accomplished journalist and a distinguished politician. When she was elected to the Danish Parliament in 1984 she was the youngest person ever to be a Danish MP. In 2007 she was appointed the Danish Minister for the Environment where she set up the 2009 UN Climate Conference in Copenhagen. In 2008 she published Da klimaet blev hot, [When the climate got hot]. In addition to her work as a politician, journalist and author she is also a lecturer who has sat on a number of committees and boards.

Event - Renewable Energy Finance and Infrastructure Summit

The fourth annual Renewable Energy Finance and Infrastructure Summit will take place on February 27th – 28th, 2013 in Vienna Austria. Concrete efforts in the energy sector are moving Renewable Energy towards a truly sustainable role within the global energy market. Despite this, both European and other countries are continuing to face difficulties related to National budget cuts, changes to financial markets, and instability in both the regulatory and policy environments.

These issues continue to prevent smooth progress with Renewable Energy projects. In the face of these obstacles, finance and investment professionals in the renewables sector have continued to find innovative approaches to increase the contribution that their projects can make to both energy markets and sustainable approaches to energy production.

Islamic Banks and Renewable Energy in MENA

Islamic banking involves activity that is consistent with the principles of sharia law. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees for loans of money. It is also prohibited to invest in businesses that provide goods or services considered contrary to Islamic principles. Many Islamic banks were formed in the late 20th century. Now Islamic banks are are increasingly looking to support renewable energy including hydropower, solar and wind energy. Finance is a crucially important component of building a green infrastructure and this is especially true in the context of economic difficulty and political volatility we are seeing in the Middle East and North Africa (MENA).

Rio+20 Sustainable Transport Agreement

One of the many announcements related to stimulating green development at Rio+20 involves a sustainable transport scheme. The Rio+20 meeting saw well over one hundred points of agreement from financial institutions and business groups. The sustainable transport agreement that occurred on the fringes of the conference involves $175bn fund. The group of international finance institutions involves eight international development banks led by the Asian Development Bank. The fund will go towards boosting sustainable transportation over the next decade.

Curbing Banker's Bonuses and Climate Change

Heads of state are responding to the widespread public outcry over the perception of excessive compensation in the banking industry. The French president Nicolas Sarkozy is leading the way with strict new bonus rules.

In Australia bank executives stand to lose more than $50 million in annual bonuses if the current government bans short-term incentive payments in the financial services sector. This is a reiteration of the G20 meeting in April, where leaders called for curbs on bonuses.

However, if restrictions on bonuses in the financial services sector are to mean anything they will have to be agreed upon internationally and this is very unlikely.

Politicians are trying to win political favor by taking advantage of prevailing anti-banking sentiments. They know full well that their feigned indignation will not forge an international agreement to curb bankers pay. To illustrate the point, Sarkozy's promise of tough regulations comes with the all important caveat that they not be enforced without global agreement.

Dutch banks have also introduced a new code of conduct that includes capping executive bonuses. However, this new Dutch approach does not force banks to curb bonuses nor does it come with legal sanctions as banks need only explain why they have chosen not to comply.

As British finance minister Alstair Darling said last Thursday, "Banks need to be responsible about pay and bonuses and one of the things that is concerning me is that when you tackle banks about this they say that if you do something here, the Americans, the Swiss, or the French ... will poach our people."

Even in the unlikely event that legislation is passed in both the EU, and the US, there will always be nations without such stringent sanctions and these countries will claim the most talented people.

"Government has got a legitimate interest in making sure that you don't encourage behaviour that is damaging, but I think that is just one part of what we need to do to get the banking system going again," Darling said. "There is a generalised concern. What we need to do is make sure that we introduce legislation that actually works, that actually helps and strengthen our banking system," he concluded.

Regulation is required to limit excessively risky lending, and many see merit in employing other regulatory channels beyond legislation. Last week in Britain the financial regulator known as the Financial Services Authority (FSA) published a bankers' pay code and according to the British finance minister, the FSA is "the obvious vehicle to use."

These kinds of capital rules will hurt banks' profits and restrict their lending ability. Efforts to curb banker bonuses are a ruse. As Lord Turner pointed out, “insisting that someone ‘does something’ about bonuses is a populist diversion.”

COP 15 is now only 3 months away, and while political rhetoric scores points with a disgruntled public, it siphons energy away from the tremendous efforts required to find consensus on climate change. Instead of pandering to voters by pretending to curb bankers pay, world leaders should be working towards real consensus on climate change.
_________________________________

Related Articles:
G20 and Developing World Disagree on Climate Change
G20 Lays the Foundation for a Better World
G20 Protestors Dilute Green Message
G8's More Aggressive GHG Targets
COP 15 Implications for Business
COP 15 Timetable
IMF Reforms
United Nations Climate Change Conference
US Green Legislation
Market Based Social Change
Green Capitalism