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This is an audio transcript of the FT News Briefing podcast episode: Financing the fight against climate change

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, November 3rd, and this is your FT News Briefing.

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Marc Filippino
The Glasgow Climate Conference today is all about financing the transition to a net zero carbon emissions world. Meanwhile, an FT investigation finds that some banks have backtracked on their climate pledges. Plus, we’ll hear from our Gulf correspondent on how the UAE and Saudi Arabia plan to transition away from oil. I’m Marc Filippino and here’s the news you need to start your day.

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Marc Filippino
An FT investigation has found that banks, including BNY Mellon, Barclays and Deutsche Bank have all watered down their pledges to combat climate change, and they’re continuing to finance the fossil fuel industry. The FT’s Camilla Hodgson was on the investigation.

Camilla Hodgson
So what we did was we looked across several different policies from different banks, which talk about what they’re prepared to do in relation to financing the fossil fuel industry or carbon-intensive industries in general. And we were interested in looking at whether wording of pledges had changed over time. And we found that it had. This really came from one initial example, which was about Deutsche Bank, and we thought if one bank has done something like this, it’s likely that there are others. And it’s a combination of things. Some banks have just changed the wording. Others have made commitments a couple of years ago to disclose things that are now not still fully disclosed. So it’s a kind of shifting of the goalposts, or maybe a kind of reluctance to fully do what they said that they would do.

Marc Filippino
So has this come up in Glasgow, criticism that banks aren’t fulfilling their pledges?

Camilla Hodgson
It’s a good question. There is a lot of talk today, in particular because it’s Finance Day. There has been quite a lot of criticism recently from campaigners who say banks have committed left, right and centre to net zero, but they still continue to fund fossil fuel companies and in particular, that they continue to fund the expansion of fossil fuel plants. And that’s important because earlier this year, the International Energy Agency said that in order to be in line with reaching net zero and limiting global warming to 1.5 degrees, we really need to make sure there is no new fossil fuel capacity added to the system. Like, we can’t be funding new coal mines, new gas pipelines, that kind of thing.

Marc Filippino
Now, Camilla, is it actually surprising that banks are still funding fossil fuel projects? I mean, after all, banks’ goal is to make money, so, you know, they make their decisions based on that.

Camilla Hodgson
Yes, I think on the one hand, you could say in the short-term it makes sense for them to keep doing this. There is money to be mad, certainly. In the longer term it seems a little confusing for some analysts who say, “Look surely down the line and not much time, these things are gonna be stranded assets. They’re gonna lose their value, it’s gonna become a problem.” And so I don’t know. I think perhaps some banks think they can make a quick buck of something. We have seen other banks and financial institutions in general say, “No, we’re not doing this any more. We’re really working to wind down our fossil fuel exposure”. But it’s definitely not across the board and it’s really variable what banks are prepared to do at this point.

Marc Filippino
Camilla Hodgson is the FT’s climate reporter. She spoke to us from the COP26 climate conference in Glasgow.

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Marc Filippino
The FT’s Gillian Tett is also in Glasgow. She’s watching today’s discussions about financing the fight against climate change. Gillian’s also the co-founder of our Moral Money newsletter. She joins me now. Hey, Gillian.

Gillian Tett
Hey, good to talk to you.

Marc Filippino
So, Gillian, I wanna ask you a question that might seem ridiculously obvious to a lot of people, but I, you know, still want to ask it: how important is finance in the effort to tackle climate change?

Gillian Tett
Well, it’s important, both in a practical sense, because unless you can get money to fund the transition, then you’re not gonna actually have a transition. And the big question right now is, is that money gonna come from government sources or from the private sector sources? But I should say it’s also pretty important in a political sense because the reality is, although the COP26 talks are supposed to be about intergovernmental discussions, the government piece of the equation has been pretty disappointing so far. So a lot of people are looking to the private sector to come up with better news. And what Rishi Sunak and Alok Sharma are gonna be doing is really trumpeting any good news they can find from the private sector. And Mark Carney, the former governor of the Bank of England, has managed to deliver some pretty impressive news.

Marc Filippino
Yeah, would you mind talking a little bit about that, Gillian?

Gillian Tett
Well, the big news of the day on Wednesday is that a group called the Glasgow Financial Alliance for Net Zero has come out under Mark Carney’s leadership and decided that it’s got 130 trillion of private capital, which it says is committed to transforming the economy towards net zero. There’s two really important points to notice about that number. One is that it’s bigger than 100 trillion that the GFANZ estimates will be needed to finance the transition to net zero in coming years. The second thing to stress is that if this money is deployed, what they’re also saying is they reckon that about 70 per cent of the cost of moving to net zero globally will end up being funded by the private sector, not the public sector. And the reason that’s important to stress is because until now, the discussion has been totally dominated by this $100bn goal that was set for the rich countries to provide financing to the poor countries to help them with that transition. But what Mark Carney is stressing is that actually it’s $130tn that really matters. Some people say, “Well, you know what? That sounds like greenwashing”. People like Mark will say, “Actually, no, this is real money that could be unlocked if and only if we get the right regulatory audit and financial structuring platforms in place in the next year or so.” 

Marc Filippino
Yeah. So it’s actually interesting you bring that up because earlier in the show, the FT’s Camilla Hodgson told us about banks who’ve gone back on their climate promises and are still funding fossil fuel projects. You know, what does that say about the challenges of getting private financial institutions on board?

Gillian Tett
What’s clear is that all of the private sector financial institutions want to be seen to be doing something right now. And the fact that reports coming out claiming that banks are going backwards is actually a very good thing because it shows that scrutiny and transparency is rising. But the other thing that’s also very clear is that governments are stepping up to make more of this mandatory. And the other thing that’s very, very striking is that auditors are now under pressure to be much more aggressive in how they audit companies and their pledges on the climate side. And that’s very important because if the auditors really start clamping down on companies with government pressure as well, you could actually start to see a lot more teeth in these new pledges and these new green accounting standards.

Marc Filippino
That’s the FT’s Gillian Tett. She’s our US editor-at-large and also a co-founder of the FT’s Moral Money newsletter. And you can sign up for a free 30-day trial of Moral Money. All you have to do is go to FT.com/cop26podcast and click on “Get the newsletter”. We’ll also have a link in the show notes.

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Marc Filippino
And finally, let’s go to the heart of the fossil fuel industry. Saudi Arabia and also the United Arab Emirates both have pledged to get their carbon dioxide emissions to net zero by 2060 and 2050, respectively. To talk about how realistic this is, I’m joined by our Gulf correspondent Simeon Kerr. Thanks for joining me, Simeon.

Simeon Kerr
Hi there.

Marc Filippino
So, Simeon, how motivated are Gulf countries to move away from fossil fuels? Are their pledges just, you know, greenwashing?

Simeon Kerr
You know, I think in the past there would have been, that accusation would have been levelled at them quite a lot. But I think there seems to have been some kind of tipping point globally, and that has huge implications for the region given its dependence on fossil fuels. And around the Gulf governments, there really is an acknowledgment that we are heading towards a post-oil future and therefore there’s a limited timeframe, a few decades, in order to completely transform economies. And so I think the genie is out of the bottle now and it is hard to see how we can go back.

Marc Filippino
Yeah, let’s talk specifics, Simeon. What have they done so far to make progress towards net zero?

Simeon Kerr
Basically, they’re shifting away from using oil and gas to power their electricity grids, and there’s a lot of power that needs to be used in this region. Air conditioning is a huge factor, obviously, given the heat. And so they’re definitely focusing on renewables as boosting that within the mix. UAE started 15 years ago on this and has made very good progress. Saudi Arabia’s started later. But when you look at the geography of the Arabian Peninsula, a lot of land and obviously a lot of sun is very advantageous for solar energy. So they’re really pushing on that. At the same time, they’ll be looking at carbon capture. Crown Prince Mohammed bin Salman has talked about planting millions of trees. And then also, when you think about all these oilfields as they’re depleted, they’re the ideal storage solutions for the excess carbon, which is gonna be needed to be sequestered, while at the same time emissions are reduced.

Marc Filippino
So what are the biggest obstacles they face? Is public opinion in the Gulf backing the climate agenda?

Simeon Kerr
You know, surveys are showing that there is a majority backing this, especially amongst the youth, given the nature of these economies and how much they do depend on hydrocarbons. But there are some real hard realities underneath this. I mean, as well as being big producers and consumers of hydrocarbons, petrol, electricity have traditionally been hugely subsidised by the governments here. So part of the social contract, you know, “We’re an authoritarian government, we’re making a lot of money from the production of hydrocarbons.” And it’s passed down to the people through very cheap petrol and electricity. Now, to be fair to the Gulf states and particularly UAE, Saudi, there have been a lot of progress in terms of reducing subsidies. But this is a highly sensitive topic for the region because once these subsidies are eroded, popular sentiment starts to get very uppity. So really, it’s a big challenge for them.

Marc Filippino
That’s the FT’s Gulf correspondent, Simeon Kerr.

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Marc Filippino
You can read more on all of these stories at FT.com, which is free today. We’ve taken down the paywall so anyone, anywhere can access all of the great journalism the FT has to offer. And don’t forget, you can sign up for a 30 day free trial of our Moral Money newsletter. It’s at FT.com/cop26podcast. The link is in the show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

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