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Climate Change Is About To Bite The 1%
The hypocritical European Central Bank sounds the alarm.
How dependent on our ecology is our economy? This is a question the European Central Bank (ECB) set out to answer in a recent report. Why? Well, This is key to understanding how the looming climate catastrophe will impact billions of dollars worth of investments, lucrative businesses and the entire financial system. Central banks want to keep the status quo going strong through our self-made apocalypse, and they need to start preparing for it now. So, they were shocked when they found that nearly 75% of European bank loans depend on a healthy ecosystem. So, to protect their assets and the Eurozone (countries that use the Euro as currency), they have hypocritically joined the chorus of voices calling for the protection of nature from the ravages of humanity. But why is this hypocritical? Who does this really affect? And will it help us save the planet?
Let’s start off with whom the ECB is and what they do. The ECB is a central bank, much like the Bank of England or the Federal Reserve, but for the entire Eurozone. This means they set the monetary policy of the 20 countries that use the Euro and are charged with safeguarding the financial stability of this system.
Now, banks are famously short-sighted, even though their decisions today have consequences that can be felt decades down the line. So for the past 40 years or so, banks have had little motivation to do anything to prepare for or mitigate climate change. But this is starting to change as the catastrophic impact of a warming world is starting to settle in. It is only now that they are even looking into how this might affect them, the economy, businesses and the entire financial system. So while this report from the ECB is a massive leap forward in banking responsibility, it is several decades too late.
Why is it too late? Well, thanks to years of climate inaction and the financial system’s continual support of the fossil fuel industry, we are now most likely going to see 3 degrees Celsius of climate change, which is significantly over the 2 degree target of the Paris Agreement. That might not sound like a lot, but it is! Hundreds of millions of people will be displaced due to rising sea levels. Around 30 times more marine heatwaves will happen yearly, decimating marine ecosystems and fish stocks. Extensive deadly heatwaves lasting over a month will happen year after year, along with devastating droughts that can wipe out entire harvests. Unprecedented snow storms will grip much of the Northern Hemisphere, rendering some areas uninhabitable during winter and, again, killing vast swathes of crops and livestock. This could be enough to topple governments, drive millions to become climate refugees (including people from developed nations), threaten to make over a million species go extinct, and leave global ecosystems in tatters.
This is why this report and the calls to protect nature from the ECB are so hypocritical, as they are incredibly guilty of climate inaction and fuelling the destruction of our planet. As recently as last year, the ECB failed to support a reduction in the use of fossil fuels within the EU. Moreover, in 2019 alone, the ECB invested over €7 billion into fossil fuels. Thanks to the ECB and the banking world’s short-sighted, profit-over-longevity ways, they have helped create the climate apocalypse we face.
So, what did this report say? Well, the ECB trawled through 4.2 million individual European companies and the $4.58 trillion worth of corporate loans they have. They found that nearly 75% of these loans depend on a thriving European ecosystem. This is either direct, for example, farms rely on pollinating insects, or indirect, such as a company that distributes food that relies on pollinating insects to grow. But it isn’t just farming; these “ecosystem service” companies, as the ECB calls them, range across many industries, from fishing to lumber to beverages and even carbon storage via plant growth. You might think these ecosystem dependant businesses constitute a small fraction of the economy, but according to a New Nature Economy report, they are worth $44 trillion globally, making up over half the world’s GDP!
So, what does all of this mean? Well, as climate change erodes the European and global ecosystems over the next few decades, these businesses will struggle to stay afloat and service their loans. As such, they will default en masse, go bankrupt and leave the bank high and dry. This will dramatically impact the bank’s credit portfolio, meaning that they themselves can’t raise finance, and this, in turn, will threaten the overall financial system (which in this case is the Eurozone) and kick-start a potentially monstrous recession. Think 2008, except a whole lot worse.
But it isn’t just Europe that has to worry about this. According to a study by the Bennett Institute for Public Policy at the University of Cambridge, many developed nations could face bankruptcy in a worst-case scenario! The team behind this report created the world’s first biodiversity-adjusted sovereign credit ratings for 26 nations; in other words, they looked at how the disintegrating global ecosystem would affect a country’s ability to raise finance through debt, which is crucial to propping up modern economies. They concluded that almost all developed nations are at risk of having their credit score downgraded, which, considering the current financial instability, is terrifying. Worryingly, they found that both China and India are already on course to have their sovereign debt downgraded by one and two notches by 2030, which would be catastrophic for both their economies.
All of this seems very doom and gloom, doesn’t it? Well, it might not be.
This is one of the first significant reports that quantifies just how badly climate change will impact the financial system and major investments. Yes, the resultant recession will affect us all, but it will massively affect the 1% and government institutions as well. For the first time, climate change is no longer being seen as a problem for developing countries or those working primary jobs (farming etc.).
So, why is this good news? Well, corporations and banks are the ones responsible for climate change. Just 100 companies account for 71% of the world’s carbon emissions. What’s more, banks’ investment in these companies, along with decades of lobbying, has kept companies offering alternative climate-friendly products out of the market. Furthermore, these large companies have taken zero responsibility for the extensive damages they have caused and will cause.
But now, reports like the one from the ECB are bringing this self-harming climate damage to light. They are demonstrating to banks, corporations and the top 1% that if they want to be thriving and wealthy in the near future, they have to be more climate responsible. Otherwise, everything they have and hold dear will slip away.
So let’s hope that in response to these reports, central banks and regular banks change their investment strategy to mitigate the risk of a failing ecosystem and shun fossil fuel investments. Maybe these 100 top polluting corporations will see that unless they change their ways, in a few years, there will be no banks buoyant enough to fund their business and that they need to change and become more responsible if they want to continue to grow. The top 1% might finally realise that investing in fossil fuels is a no-win game, and instead, if they fund renewables now, they can ride that wave up to yet more wealth that this time is sustainable for decades to come. If these things happen, then humanity might finally start making the progress it needs to avert a climate apocalypse. So, here is hoping the right people are listening to the ECB’s hypocritical warning.
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