Is crypto really riskier than climate change?

Greetings from Park City, Utah, where I have just had the privilege of participating in the Sundance Film Festival. This is a place that has launched numerous documentaries that have focused on environmental and social issues, be that Al Gore’s An Inconvenient Truth (2006), The Cove (2009) or Sea of Shadows (2019). And this year’s roster contains more gems: check out To the End and Knock Down The House (which explores activism); the Hindi-language All That Breathes (about the horrors of pollution) and The Territory (about deforestation in Brazil).

But amid all this focus on ESG, a lively debate has been bubbling among some of the activists attending the festival around two questions: is the volume of environmentally focused documentaries being made today quietly declining because directors are focusing more on social issues? (It seems the answer is yes.) And are long documentaries, like An Inconvenient Truth, really effective in galvanising the public around green issues today? Are short films on YouTube and TikTok a better way to tell the story?

Let us know what you think. And in the meantime, read below for a proposed update to EU climate banking rules — and a striking new move to introduce standards for green batteries, as these become an increasingly important focus for investors. (Gillian Tett)

Debate heats up over EU’s bank climate rules

Crypto poses more risk to the financial system than climate change does — at least that’s the position European lawmakers took earlier this week in a long-awaited draft law on banking reform.

The text, which was approved by the parliament’s economics committee, and which Moral Money has seen extracts of, suggests that banks should hold one euro in reserves for every euro in crypto holdings.

But the committee threw out a proposal from leftwing lawmakers that loans for new oil, gas and coal projects should be subject to the same prohibitively high “one-to-one” capital reserves ratio.

If the most polluting energy sources become stranded assets due to climate regulation or risk, banks with the highest exposure will have to be bailed out by governments, Thierry Philipponnat, chief economist at the non-profit group Finance Watch, told Moral Money. 

Regulators should act now to counter this risk, he argued. “Banks who choose to take this risk [of financing new oil and gas] should finance loans from their own funds,” Philipponnat said. “We feel profoundly that prudential regulation should be used as a risk management tool, and that the risks of fossil fuels to financial stability are evident.”

The “one-to-one” proposal is part of a wider debate about the redrawing of the global prudential rulebook by regulators including the US Federal Reserve, which is considering the extent to which climate breakdown could cause serious liquidity and credit risk. 

In Europe, “higher capital reserves for fossil fuels are still seen as an ecological question, a soulful hippy add-on”, said European lawmaker Aurore Lalucq, a socialist politician and member of the EU parliament’s economic and monetary affairs committee. “It is not yet mainstream.”

In a sign that climate warnings have nonetheless been taken on board, the text called on the European Banking Authority to assess by the end of next year whether and how capital reserve requirements should be adjusted to take climate risk into account.

Tuesday’s compromise text also proposed that banks should include climate risk in stress tests, disclose their exposure to fossil fuels, and publish transition plans — including absolute reduction targets for their financed emissions — along with their resulting progress.

And it called on the European Securities and Markets Authority to report on whether credit ratings properly reflect ESG risk. 

If given the green light by member states and the EU Commission, these measures could eventually alter the way European banks such as Deutsche Bank or Credit Suisse make lending decisions, and could incentivise institutions to trim back lending to fossil fuel producers.

France’s BNP took one such step this week, announcing it will aim for a maximum €1bn of outstanding lending to oil companies by 2030, compared with €5bn at the moment. However, it faces an ongoing legal challenge by activists for allegedly breaching its “duty of vigilance” under French law, because of its high exposure to fossil fuels. (Kenza Bryan)

We need follow-through on ESG claims for battery metals, investors say

An investor-led commission on the social and environmental risks posed by mining launched at the London Stock Exchange this week, with the bold ambition of setting global standards for the industry on everything from child labour to biodiversity loss and corruption.

Though this may sound like a tall order, the project is modelled on an existing investor collaboration on managing dams to store mining byproducts, set up in the wake of Brazil’s deadly 2019 Brumadinho disaster, which weakened the industry’s already shaky reputation. 

As we highlighted in our special edition on investing in battery metals, investors want reassurance that bets on highly prized elements that are set to fuel the transition won’t tarnish their reputation by creating undue water stress, community harm and increased carbon emissions.

The global mining initiative is led by investors including three UK pension funds, the Brunel Pension Partnership, USS and the Church of England Pensions Board, alongside the Principles for Responsible Investment and the UN Environment Programme. 

The commission’s chair Adam Matthews, chief responsible investment officer at the Church of England Pensions Board, told Moral Money that the scheme would seek to point out where existing voluntary and regulatory standards were not being sufficiently applied. “We need to see that consistency and follow-through at every mine site in the world,” he said. (Kenza Bryan)

Smart Read

Don’t miss this op-ed by European Commission vice-presidents Valdis Dombrovskis, Frans Timmermans and Margrethe Vestager responding to calls for a strong EU response to the significant green spending in the US Inflation Reduction Act. “A tit-for-tat reaction risks significant economic self-harm,” they warn.