$44 trillion. That’s how much the world’s leading climate scientists estimate our fight against climate change will cost.
Between 2020 and 2050, the Earth’s global average temperature is expected to rise by 0.2° Celsius. It may seem like an insignificant increase, but it’s enough to melt most of the ice in the Arctic and Antarctic. Sea levels will rise dramatically, and flooded cities will become the norm.
Preventing this scenario requires an enormous amount of money. $44 trillion is just the start – it’s what we need to switch all of our energy consumption from fossil fuels to low-carbon sources of energy such as solar or wind power.
A further $300 billion is required to lock millions of tons of carbon dioxide back into the soil and convert it into biomass, such as trees and pastures.
It’s a huge commitment, so who’s going to help pay for all of it? Thankfully, large multilateral banks such as the World Bank are already leading this financing effort. Since 2016, the World Bank and its partners have invested billions of dollars in climate-resilient infrastructure.
It’s truly inspiring to see this kind of leadership for us at Aspiration. Our climate-friendly neobank has been financing carbon offset projects around the planet for nearly a decade now. As we move into the second decade of the 21st century, we can no longer overlook the role banking must play in the fight against climate change.
In this article, we explore how the World Bank, Aspiration, and other climate change-friendly banks can prevent the rise of catastrophic climate disasters.
What does banking have to do with climate change?
Banking provides the financial systems we need to invest in climate-positive technologies and infrastructure.
Low carbon projects such as solar farms, conservation agriculture, and electric vehicles all require funding to implement and sustain. But, because these projects have high startup costs and low public buy-in, they’re usually unpopular with private investors.
Banks have the resources to reverse this trend. According to a report from the United Nations Environment Program and the World Bank Group, they have access to a ‘large pool of capital’ that should be used to finance low carbon, climate-resilient technologies.
This recommendation is not just for banks to do good for the planet. Analysts have discovered that banks are highly vulnerable to climate change.
They face above-average loan risks from wildfires, hurricanes, and droughts that threaten to destroy critical infrastructure and key industries such as agriculture, manufacturing, and transportation.
The problem is, though, most banks aren’t so worried about these problems yet. Many of them at this very moment are contributing directly to climate change by financing oil companies and large soya plantations. It’s estimated that at least $2.7 trillion of private bank money was funneled into oil companies between 2016 and 2020.
The only way we can win the fight against climate change is by making money work for the planet. The transition to clean energy will require trillions of dollars and decades of hard work. Small banks like Aspiration and Amalgamated Bank have already started investing in clean energy businesses, but it’s high time that the whole of the banking industry gets involved.
How is the World Bank leading the fight against climate change?
The World Bank is the world’s foremost financial institution whose mission is to promote sustainable development.
Since 2016, the World Bank and its partners have invested $83 billion to help communities across the planet become more climate-resilient. They focus on helping developing countries build disaster-proof infrastructure and gain access to clean energy sources.
Over the next decade, the World Bank plans to use 35% of its financing to support countries’ climate initiatives. They will lead the fight against climate change by:
Financing innovative climate-friendly technologies
Many climate-friendly technologies are still new and expensive. Climate solutions, such as solar farms and water-efficient irrigation systems, have high installation and maintenance costs that scare away potential investors.
The World Bank has stepped in to finance these innovative technologies to prove its effectiveness and potential profitability. In Morocco, for example, the World Bank and its partners supported the construction of the world’s largest concentrated solar power complex, which now generates 580 megawatts (MW) of clean energy for 1.1 million Moroccans.
Creating green financial systems for countries
The World Bank also provides climate policy expertise to governments. It deploys teams of experts who help countries develop carbon-neutral policies so that they can meet their Nationally Determined Contributions (NDC) to the Paris Agreement.
For instance, the World Bank has helped the governments of Mexico and Columbia develop carbon taxes on fossil fuel use. The taxes have helped both countries reduce their greenhouse gas emissions and build nearly $1 billion in revenue annually.
Protecting vulnerable populations from climate disasters
True to its mission, the World Bank works to protect vulnerable populations from the disastrous shocks of climate change.
Droughts, floods, and hurricanes are becoming increasingly common as global temperatures rise. Research has found that these disasters disproportionately affect communities who rely on land and water for their livelihoods.
The World Bank manages programs that build climate-resilient infrastructure for these communities. In Vietnam, they installed water infrastructure for 215,000 farmers which protects them from flooding and gives them water resources for agriculture.
By demonstrating how banking can usher in climate-friendly technologies and policies, the World Bank inspires other financial institutions to enact their own climate positive initiatives in their communities.
Why are banks crucial to the fight against climate change?
Banks have the money to finance game-changing climate initiatives. They are the lifeline of the private sector, which means that any climate-friendly policies they adopt will reverberate through the entire global economy.
Here are three reasons why we need banks to join the fight against climate change.
They can disrupt the flow of money to fossil fuels
Banks are notorious for funding fossil fuel companies. Despite the threat of rising greenhouse gases in the atmosphere, many large banks have invested billions of dollars into the expansion of the oil industry.
But just as banks have the money to finance the fossil fuel industry, they have the money to disrupt it. If banks divest from oil companies, they can put an end to our reliance on fossil fuels. They can use this money to finance clean energy initiatives instead, like how we at Aspiration have done since our foundation.
They can introduce carbon pricing
Banks can also help put a price on carbon pollution.
They can work with governments and communities to calculate the damage caused by carbon emitted by fossil fuel companies and power plants. These costs may reflect damages such as the healthcare costs of heat waves and crop failures caused by rising temperatures.
With this information, they can put the costs of climate change on the polluters, so that they, and not the victims of climate change, pay for the damages. Well-designed carbon prices can protect the environment. They can also help polluters meet the climate goals set out in the Paris Agreement.
They can help businesses adopt low carbon technologies
With so much money in their accounts, banks can give out clean energy loans to businesses.
They can help small and medium enterprises invest in clean energy electric systems for their facilities. They can also help business owners switch their vehicles to electric models with low carbon emissions.
Agriculture, manufacturing, and heavy-duty transport are some of the large industries that have yet to receive widespread low-carbon investments. Banks can help enable this change, and scale it up to a global level.
5 climate change friendly banks like the World Bank
While the World Bank might be the world’s most famous climate change-friendly bank, it’s definitely not the only one. Other banks also offer high-quality credit for climate-friendly initiatives at affordable rates. Here are 5 other green banks like the World Bank.
Climate Investment Funds
The $8 billion Climate Investment Funds (CIF) is a multilateral fund that works to lower the cost and risk of climate financing. Its unique financing model enables transformations in clean energy, energy access, climate resilience, and sustainable forestry in over 70 countries.
The CIF focuses mainly on accelerating climate action in low and middle-income countries. It does so by offering large-scale, low-cost, and long-term financing to large infrastructure projects aimed at improving private investor confidence in climate technologies.
Asian Development Bank
With 68 member nations, the Asian Development Bank (ADB) is one of the world’s largest regional multilateral development banks. It promotes social and economic development in Asia and the Pacific through loans, technical assistance, and grants.
Since 2009, the ADB has managed the Future Carbon Fund, which helps member nations set greenhouse gas reduction targets and gain access to clean energy infrastructure. Furthermore, the ADB drafts climate mitigation strategies for the Asia and Pacific region, which is highly vulnerable to the effects of climate change.
Green Climate Fund
The Green Climate Fund (GCF) provides investments in low-emission and climate-resilient projects around the world. It was established by 194 member governments to help developing countries limit or reduce their greenhouse gas emissions.
The GCF plays a crucial role in making sure that the goals of the Paris Agreement are met by 2030. To keep the average global temperature rise below 2 degrees Celsius, the GCF mobilizes both the private and public sectors in member nations to increase their investment in green technologies such as solar farms and clean energy transportation.
Inter-American Development Bank
The Inter-American Development Bank (IADB) is Latin America’s leading development finance institution. It provides loans, grants, technical assistance, and equity investments to Latin American countries to enable them with the means to build resilience against climate change.
The IADB primarily focuses on helping member nations restore forests, build clean energy infrastructure, and adopt climate-smart agriculture practices. They work with public and private financial institutions to develop climate governance systems.
Aspiration is a private neobank that was founded to help customers fight climate change with their money. Their financial products and services allow individuals and businesses to offset the carbon emissions from their vehicles through reforestation and nature conservation program.
Its Redwood Fund invests only in sustainable, non-fossil fuel businesses that have a proven record of climate-positive action. Everyone is welcome to invest in the fund, starting with a minimum investment of just $10.