COP 28: The mobilization of the Paris financial center demonstrates a strong commitment to achieving the objectives of the Paris Agreement
On the occasion of COP 28, the Institut de la finance durable (IFD) reiterates the Paris financial center’s commitment to decarbonization trajectories in line with the objectives of the Paris Climate Agreement. At the origin of a marketplace dynamic that is unique in the world, every player in the marketplace has made ambitious commitments and initiated tangible actions to contribute to the goal of carbon neutrality by 2050. But the urgency of climate change demands that we move faster and harder. The current trajectory of global warming is well above the target set out in the Paris Agreement.
The fight against climate change requires global action. Financial players play an essential role in financing the energy sector, accelerating the transition from fossil fuels to low-carbon energy sources. The Paris financial center is working to accelerate these efforts, notably through the work of the Institut de la Finance Durable. We support all international initiatives in this direction,’ commented Yves Perrier, Chairman of the Institut de la Finance Durable.
In this respect, the Place de Paris welcomes the launch of the ‘Coal Transition Accelerator’ initiative presented by the French President, Emmanuel Macron, on Saturday December 2.
In France, ambitious commitments from 2019
The Place de Paris has been a pioneer in defining decarbonization trajectories and their individual implementation, among the most ambitious in the world for the fossil fuel sector, starting with coal.
On the occasion of COP 21 in 2015, Paris was the first financial center to declare its adherence to the scientific consensus on the impact of greenhouse gas emissions, and as early as 2019, the Paris marketplace published a declaration in which it made strong commitments to combat climate change and contribute to the goal of carbon neutrality by 2050.
In particular, the professional federations representing financial players have worked to encourage their members to divest from thermal coal. In this respect, in 2019 the Paris financial center also became the first to make an effort in terms of transparency, assessment and monitoring of commitments, by creating the Sustainable Finance Observatory.
An initial assessment of the Paris financial center’s commitments
While progress is still essential, the mobilization of Paris financial center players over the past few years has led to tangible results. Against the backdrop of the COP28 global review, this reminder will help mobilize financial players at international level:
- Regarding coal: As of 2019, French banks have individually committed to a total phase-out of thermal coal by 2030 at the latest (for activities in OECD countries) and 2040 (for the rest of the world). Since 2020, none of them has financed any new coal-fired power plant or thermal coal mine projects. Also, all French insurers have each put in place policies to phase out thermal coal, as have 85% of responding management companies (representing 70% of assets under management). Since 2017, French insurers have individually committed to halting investments in new coal-related projects.
- Concerning oil and gas: the main French banks have sector-specific policies on oil and gas. As of 2021, they will no longer individually finance any project dedicated to non-conventional hydrocarbons, or any company whose share of non-conventional hydrocarbons in exploration and production exceeds 30% of its activity. As for insurers, by 2021 they have each undertaken to define policies for dialogue with oil and gas companies, and to stop financing companies that do not abandon their new unconventional fossil fuel production projects. By the end of 2022, insurers with fossil fuel policies in place accounted for 71% of assets under management, and even 99% of assets under management for unconventional fossil fuels(France Assureurs data, November 2023). As for asset management companies, 60% of them declare that they have an unconventional fossil fuel strategy, compared with 41% in 2021(AFG survey).
- The weight of fossil fuels in the balance sheets of market players is now residual: banks are exposed to 0.02% for thermal coal and less than 1% for hydrocarbons(FBF data from November 2023). 0.2% of insurers’ outstandings are exposed to coal, and 1.1% to oil and gas, down by almost a third year-on-year (1.8% at the end of 2021, France Assureurs data, November 2023). As far as asset management companies are concerned, only 0.53% of assets under management are exposed to coal and 2% to oil and gas.
- In addition, local financing for the transition is growing. In just one year, banks have more than doubled their outstanding green and sustainable loans to all sectors of the economy, from €100 billion to €216 billion by 2022(FBF data, November 2023). As for insurers, by the end of 2022, €152 billion in assets under management (or 7.8% of total assets) were invested in green investments (a 17% increase since the end of 2021, despite an unfavorable economic context with a 13% drop in assets under management, France Assureurs data, November 2023). Assets under management by asset management companies in responsible investments (as defined by SFDR regulations) continue to grow.
French financial institutions are also key members of the Glasgow Net Zero Financial Alliances, notably the Net-Zero Banking Alliance (NZBA), the Net Zero Asset Owners Alliance (NZAOA) and the Net Zero Asset Managers Initiative (NZAMI), and are helping to define relevant and comparable methodologies for communicating their approach.
To accelerate efforts and support the Paris financial center’s proactive approach, the Institut de la Finance Durable is leading several working groups, notably to identify financing solutions for the ecological transition and to develop an analytical framework for fossil fuel trajectories.
Everywhere in the world, let’s continue our acceleration
In a scenario where the actions undertaken by governments and private players make no progress, the spontaneous trajectory of global warming would take us well beyond the targets set under the Paris Agreement, and would have dramatic consequences for the stability of our societies. As an illustration of the delay in taking action, thermal coal still accounts for 27% of the world’s energy consumption and 36% of global electricity production.
Against this backdrop, the Institut de la Finance Durable will support all international initiatives that will enable us to move away from dependence on fossil fuels and finance the transition.
In this respect, the Institut de la Finance Durable welcomes the ‘Coal Transition Accelerator’ launched by the President of the French Republic at COP 28, which aims to provide concrete solutions and the necessary tools for financial players to support this transition and accelerate the exit from coal in investment strategies. As a leader in this field, the Paris financial center is ready to share its experience and contribute to the success of this international initiative.