Ddespite stern warnings from the IPCC and the UN, it’s business as usual for fossil fuel capitalism. An astonishing 56% of Covid-19 recovery funds from G20 countries for energy have gone to fossil fuel companies.
In April, the Glasgow Financial Alliance for Net Zero (GFANZ) chaired by Mark Carney was launched to bring together major financial firms to redirect funding towards achieving net zero by 2050. Yet many of its signatories remain among the world’s largest fossil fuel funders. Some have even granted new funding to companies developing fossil fuel infrastructure. since register with GFANZ.
Oil extraction in the Amazon is funded by members of GFANZ, HSBC and Citi, for example, while Deutsche Bank, MUFG, and Crédit Agricole issue bonds for a company that builds pipelines in indigenous territories. These are just some of the most important players in a financial system that remains too closely tied to fossil capitalism through complex and irresponsible global flows between fossil fuel companies and private equity firms, managers. assets, pension funds and other financial institutions.
At Cop26, Rishi Sunak announced that the UK would become the world’s first “net zero aligned financial center” – apparently a response to accusations that banks are not doing enough. His move was immediately criticized by climate activists as little more than a “marketing slogan”. If the Glasgow summit is to live up to its status as the ‘COP of finance’, we must radically transform the global financial system to serve the public interest rather than private profit. GFANZ is a start, but it does not go far enough.
International agencies and national governments must impose strict conditions on the functioning of financial companies, replacing fossil fuel investments with zero carbon activities. Through carbon tariffs, renewable energy subsidies and public investments, fossil capitalism can – and should – be made unprofitable.
A massive expansion of state-owned green investment banks will be key to transforming finance. These provide loans and grants to patients, used to fund research and development and startups in zero carbon technologies. A promising example is the Scottish National Investment Bank, which is investing millions across Scotland to meet climate goals. All over the world, public banks are already the pioneers of green lending: they invest almost as much as all private banks combined in the green economy, while they represent only 20% of total global banking assets.
It is important to note that public banks and public wealth management funds retain a substantial stake in the capital created by the green transition – through, for example, equity stakes and income sharing agreements. If we are to ensure a socially just – and therefore effective – transition, green investment banks must be democratically governed and their financial assets must be shared collectively between workers and citizens. This could take the form of a citizens’ dividend which would provide everyone with a guaranteed minimum income, for example. Such institutions can transform shareholder capitalism, which feeds the profits back to the shareholders of the company., in stakeholder capitalism, in which citizens and workers share democratic ownership.
“Business as usual” only leads us down a path of no return. We urgently need to change course towards a radical industrial strategy that puts climate action at the forefront of financial investments. It will be about restructuring capitalism around a renewed sense of public utility, channeled through ambitious missions to renew the capacities of the State and meet the challenges of the climate crisis. In practice, this means setting measurable goals such as creating good green jobs for unemployed coal workers as exemplified by Spain’s National Just Transition Strategy, bringing stakeholders together to achieve them and reorienting them. the resources.
New institutions will be needed to advance this economic transformation. Europe already has its Organization for Nuclear Research, known as Cern, which pools technology and resources for particle physics. We need an equivalent body for climate technology that would pool climate action investments across countries and sectors (the G7 Expert Group on Economic Resilience, of which I was a part, already recommended this precisely).
We also need a new social contract between state, capital and labor. This will mean transforming the government’s reliance on parasitic public-private partnerships that socialize the risks and privatize the rewards of important public projects (such as the UK test and traceability program). To prevent this from hampering climate action, governments should impose new conditions to ensure that private entrepreneurs promote decarbonization. They could follow the example of Sweden, which recently insisted that contractors only use green steel, made without coal.
Governments could also take inspiration from the German public development bank, KfW, which offers loans to the steel industry that include conditions to reduce carbon and emissions. Or the French and Dutch Covid bailouts for national airlines Air France and KLM, which have imposed conditions such as reducing domestic flights that compete with rail transport and reducing absolute carbon emissions. Such conditions must be extended to all levels to prevent carbon emitting companies from operating.
At Cop26, it should be clear to delegates what is causing the climate catastrophe. The type of capitalism we have created is causing environmental degradation and needs to be fundamentally rethought. There is no time for tinkering; we need a radical transformation now.
Mariana Mazzucato is Professor of Innovation and Public Value Economics at University College London and Founding Director of the UCL Institute for Innovation and Public Purpose (IIPP). His latest book is Mission Economy: A Moonshot Guide to Changing Capitalism; Matthew Thompson is a Rethinking Public Value Researcher at IIPP.