“Until now, little was known about banks’ role and responsibility for global warming. While most large commercial banks provide figures on their annual investments into renewable energy, they neither track nor publish their annual investments into fossil fuel projects. Many banks have made far-reaching statements on climate, but are they putting their money where their mouth is?” This is the research question on which a German non-profit group built a study that analyzes direct relations between finance and coal fired carbon intensive power plants. The research conclusions were released at the COP17 in Durban, South Africa.

The study presents new research on the portfolios of 93 of the world’s leading banks. It examines their lending for the coal industry, the prime source of global CO2 emissions. It provides the first comprehensive climate ranking for financial institutions and identifies the top “climate killers” in the banking world.

“By naming and shaming these banks, we hope to set the stage for a race to the top, where banks compete with each other to clean up their portfolios and stop financing investments which are pushing our climate over the brink. We want banks to act and we want them to act now,” authors say.

This study was produced by the environment organization Urgewald from Germany, the social and environmental justice organizations groundWork and Earthlife Africa from South Africa, and the international NGO network BankTrack.

Role and Power of the Finance Sector

Coal-fired power plants are not cheap to build. Typically, a 600 Megawatt plant will cost around US$ 2 billion.4 Power producers therefore rely heavily on banks to provide and mobilize the necessary capital for such ventures. As  much of this financing is indirect – delivered through corporate loans and bonds – banks have for the most part been successful in keeping these investments hidden from public scrutiny.

In order to lift this veil of secrecy and to be able to rank banks according to their negative climate impacts, we commissioned the research institute Profundo to investigate the contributions of 93 large international banks towards financing the coal industry since 2005.

Methodology

For a “climate killer ranking” of the banks, we did not differentiate between banks’ financing of coal mining and coal-fired electricity production, but instead computed a total based on their financial engagement in both areas. As banks often also hold assets of these companies, the study also included the most recent data (2011) on banks’ asset holdings in these companies.

Profundo reviewed the annual reports of coal mining companies and coal-based energy generation companies, their stock exchange filings and other publications, such as archives of trade magazines and the financial press as well as specialized financial databases such as Thomson ONE and Bloomberg to trace financial transactions between these  companies and commercial banks.

For each financing relationship, an assessment was made which portion of the finance was used for the coal activities of a company (the coal percentage).

In total, the research identified 1405 transactions involving 93 different banks. The total value of coal financing provided by these banks since 2005 (the year the Kyoto Protocol came into force) amounts to 232 billion Euro!

Smokey Findings

How financing for the coal industry has evolved since the Kyoto Protocol came into force? The following graph shows the development of coal finance provided by commercial banks between 2005 and 2010.

Although financing goes up and down from one year to the next, the overall trend shown by the graph is that bank’s investments into the coal sector are on the rise. Even during the financial crisis in 2008, the annual total is still higher than the baseline in 2005. In 2010, financing for the coal industry was almost twice as high as in 2005.

Top Twenty Climate Killer Banks

Together, the top twenty banks in the study’s ranking provided over 171 billion Euros to the coal industry since 2005.

This is 74 percent of the total financing the authors identified. For a full list of finance provided to the coal industry by all 93 banks included in the research, see the online annex at the end of the briefing. The top twenty climate killers include banks from the United States, the United Kingdom, Germany, France, Switzerland, China, Italy and Japan.

Top 20 of Climate Killer Banks

This ranking is in sharp contrast to the everyday rhetoric of these banks. Almost all of the top twenty banks have made far-reaching statements regarding their commitment to combating climate change. Here are short excerpts compiled from the banks’ individual websites, their environment statements and their Corporate Social Responsibility Reports. They show the complete “disconnect” between banks’ portfolios and their words when it comes to financing coal, the major contributor to climate change.

Cash for Greenwash. Banks’ Climate Commitments

JPMorgan Chase: “Helping the world transition to a low-carbon economy”
Citi: “Most innovative bank in climate change”
Bank of America: “The most formidable challenge we face is global climate change”
Morgan Stanley: “(…)make your life greener and help tackle climate change.”
Barclays: “Managing the climate change risks of our operations and those of our clients”
Deutsche Bank: “Climate change is the dominant environmental issue of our time and one where we can make a significant contribution.”
Royal Bank of Scotland: “As a financial services group our direct impact on the environment in terms of climate change (…) is limited”
BNP Paribas: “A strong commitment to combating climate change”
Credit Suisse: “Credit Suisse cares for climate”
UBS: “Addressing climate change on a global scale will require an unprecedented mobilization of private sector investments”
Goldman Sachs: “Goldman Sachs is very concerned by the threat to our natural environment, to humans and to the economy presented by climate change”
Bank of China: “As a responsible corporate citizen with a global presence, we are committed to responding to the challenge of climate change”
Industrial and Commercial Bank of China: “As an advocate and executor of “green banking”, the Bank is actively advocating a low-carbon way of living”
Credit Agricole: “Combating climate change is central to our strategy”
UniCredit: “The group reiterates its commitment to the achievement of the goals of the Kyoto Protocol in all countries where it has a presence”
Mitsubishi Financial Group: “We will channel our full capabilities into working toward the benefit of the environment and future generations”
Societe Generale: “As a community of 135,000 employees, we are aiming to control and reduce our own carbon footprint”
HSBC: “HSBC adopts a cautious approach to activities which contribute significantly to climate change”

The entire process from mining through combustion to waste disposal has a dire impact on the environment, human health and the social fabric of communities living near mines, power plants and waste areas. It severely disrupts ecosystems and contaminates water supplies. It emits other greenhouse gases like nitrogen oxide and methane as well as toxic chemicals such as mercury and arsenic. It displaces communities and destroys livelihoods. Of course, none of these costs are reflected in the price of coal. All these costs are paid by society – and the heaviest price is often paid by the poor.

Christiana Figueres, Executive Secretary of the UNFCCC. Photo: The Lisbon Council

Only weeks before the Conference of the Parties 17 in Durban, South Africa is set to begin, Christiana Figueres, Executive Secretary of the UNFCCC, was in Brussels for the Robert Schuman lecture, organized by the Lisbon Council. Ms. Figueres outlined the priorities for the CoP 17 and urged civil society, business, and nations to do their part in fighting climate change.

To believers that climate change policy can be made in a day, Ms. Figueres pointed out that Robert Schuman himself took a step-by-step approach to realize his dream of a lasting peace in Europe. This policy-grafting approach may be slow, too slow in fact, to address the urgent need to transform our economy to a low-carbon one. All the same, the approach is viewed as successful. However, building peace from the rubble of World War II is where the parallel ends. Preventive action is required in the case of the environment, and not resuscitation after the damage has been done.

One of the major set-backs in at the CoP 16 in Cancun was the effort to agree on a continuation of the Kyoto Protocol, which expires in 2012. Without such an agreement, the efforts to continue with a broad mitigation framework are severely hampered and the ongoing negotiations do not show a light at the end of the tunnel. In addition to this, the European Union has been attempting to ‘blackmail’ the other Parties to agree on the issue by stating that if they accept a new commitment period (provisionally named “Kyoto II”), the EU will raise its greenhouse-gas emissions target to 30% (from the current 20%). In Ms. Figueres’ viewpoint, this is a lackluster attitude which has received a similarly lackluster response from the Convention. In similar fashion, if industrialized countries take a serious, ambitious, and vigorous approach to an agreement on mitigation and the Kyoto Protocol, they will receive a similar answer from the rest of the Parties.

Furthermore, after the fiasco at CoP 15 in Copenhagen, business leaders had become pessimistic at best about the Cancun negotiations. The fact that an agreement was produced shocked the business world into believing in the process once more. “The Cancun agreements comprised the most comprehensive package to help developing nations”, Ms. Figueres stated. There is little need to point out that infrastructure building and technology transfer, as agreed by the Parties, opens up enormous markets for business in developing countries.

“The business success of tomorrow is born on the low-carbon opportunities of today.”

Even so, it is a widespread belief that business needs a strong signal from policy-makers in order to act on environmental issues. Adoption of the step-by-step approach means that this ingredient is weak and slow. At the same time, businesses are instrumental in the interpretation of the supply and demand structures of the modern market, and can therefore potentially send strong signals to governments. Ms. Figueres labeled this the “vicious circle” of climate change mentality. However, this can be reversed into a virtuous circle if businesses manage to introduce a change in consumer and supplier behavior and send a strong message to governments that the people are not satisfied with business as usual. More specifically, when it comes to changes in industry and energy, national leaders require input from the market.

Entrepreneurship, as a strong component of capitalism, is the key to the puzzle. Ms. Figueres received input from Harry Verhaar, senior director for energy and climate change at Philips, and Harry van Dorenmalen, chairman of IBM Europe. Both emphasized that there is no “quick-fix” for climate change, but that technology is the most important component. They stressed the position that people are not fully aware of the role technology can already play in contributing to a low-carbon economy.

“If you want to go fast, go alone. If you want to go far, go together.”

Mr. Verhaar pointed out that, in addition to technology, we need a policy framework, financing, and communication to tackle climate change. Due to the step-by-step approach at the UNFCCC, the first aspect is slow in its development. In the context of the economic and debt crises, financing has become a taboo subject. However, for businesses, financial systems also mean discovering a new way of budget-building and implementation – one that focuses on an optimization of cost-benefit ratios and emphasizes efficiency. As for communication, he stressed that there are many eco-innovators and they need to disseminate their ideas, improve interaction with citizens, and work together.

In agreement, Mr. van Dorenmalen introduced the need for another component – leadership. So far, policy-makers have not provided the required level of strong leadership to drive the policy process forward. If business was to step in, it would also be observed that a company requires strong leadership to implement the changes paramount to the transfer to a low-carbon economy. Tapping into talent internationally means the use of modern social media and the grouping of ideas. To set the wheels in motion, CEOs and business leaders have to assume a strong leadership position.

In answer to these views, Ms. Figueres presented an open question to all eco-innovators: “Are you collectively being vocal enough to at least balance, if not drown out, the corporate voices of those who see no benefit in action?” This also applies to consumers and civil society organizations – there has to be an informed balance between climate change skeptics and extreme environmentalists.

As individuals, it may be hard to change the world by replacing a single light-bulb, but even a journey of a thousand miles begins with a single step. Global climate negotiations are a step-by-step journey, and we can only hope they are heading in the right direction.

The United States Republican party has repeatedly stated its disbelief in climate change. Only three days since Congress went into session for the first time in 2011, the majority-holding party has introduced a bill that will reduce the powers of the US Environmental Protection Agency (EPA). The Republicans seem committed to fighting clean air.

US Envornmental Protection Agency

In the first full day of session, the new Congress introduced three bills, which outline three different strategies, with the purpose of limiting the EPA’s powers. In addition, the House committee on energy and climate issues was shut down, effective immediately.The US has had existing legislation on reducing air pollution since 1963, when the Clean Air Act was put into force. The EPA is the main enforcement body, with the aim of regulating and reducing air pollutants, for example by setting limits to harmful emissions. Now, the text introduced by Rep. Marsha Blackburn (Tennessee), would declare that greenhouse gasses are not subject to the US Clean Air Act. This is in direct contradiction to the US Supreme Court’s decision of 2007.

Another text, put forward by Rep. Ted Poe (Texas), would result in the blocking of funds to government agencies attempting to use a cap-and-trade system. This attempt to erect a barrier to emissions trading can be categorized as anti-capitalist, since the system (e.g. in Europe) is a market-based mechanism used to control pollution by providing economic incentives for achieving reduction of emissions. The negative character of the proposed measure shows that Republicans are against this approach, and yet have not made any suggestions for alternatives.

The third, and most modest, idea was introduced by Rep. Shelley Moore Capito (W. Virginia) and seeks to delay the EPA’s regulation of CO2 and methane emissions. In a sense, this would mean no change in the status-quo, a stereotypical feature of conservatism. In fact, this makes it most-likely to succeed. The Democrats strongly opposed the previous two measures, while some more moderate members of the minority party, like Dem. Joy Rockefeller (W. Virginia, a coal-rich state), have stated their support for such a bill.

Congresswoman Capito’s bill would impose a two-year delay on the EPA’s regulation over large industrial sites, but would leave its authority over fuel-economy of cars and trucks. The reason for this can be found in the large opposition in the industry sector to the EPA’s regulations, while auto-makers support the measures.

US Congress - fighting climate change for the people?

So far, Rep. Fred Upton (Michigan) and political strategist Tim Phillips have teamed up in an opinion piece in the Wall Street Journal, to state that the EPA’s moves towards greater regulation “represents an unconstitutional power grab the will kill millions of jobs – unless Congress steps in”. They identify the Supreme Court as a main culprit by giving the green light for the EPA to declare greenhouse gasses as dangerous to human environment and health, effectively allowing it to impose rules.

It is doubtful whether these bills will pass through Congress. All except Congresswoman Capito’s bill are seen as imposing unrealistically tough measures. If they do make it through, it will be up to Pres. Obama to make the final decision. Even though he has been a firm supporter of action against climate change, he might be forced to sacrifice the environment in order to pass other legislation through Congress in the next two years.

The questions which arise out of this situation are rather mind-boggling. In the most democratic country in the world, is it politically correct for Congress to challenge decisions by the Supreme Court? In the separation of powers, the legislature or executive cannot meddle in the judicial system. Yet, it seems that this is now being attempted.

Also, an argument raised by many Democrats has been that Republicans are putting business interests in front of human lives. After all, the Clean Air Act was created because of accidents, such as one that occurred in 1948 in the industrial town of Donora, Pennsylvania, where a smog-cloud lingered over a populated area for five days, killing 20 people and causing another 6,000 to become ill. By imposing restrictions on the EPA, are the Republicans denying that this took place? Or are they stating that the deaths of 20 people are less important than the business interests of industry?

"Take me to your climate leaders" and not your business partners!

In the context of the UN Framework Convention on Climate Change (UNFCCC), the European Union and others have been putting pressure on each other to tackle climate change to improve the human environment. In the EU, this has become a major priority and market-based mechanisms have been put into place to improve efficiency, create jobs, and contribute to economic growth. US Republicans seem not to believe in the same ideas as their European friends.

Also, Pres. Obama’s health-care reform was aimed at increasing Americans’s access to treatment. Reducing air pollution would effectively tackle the problem at the root rather than at the stem, by reducing the number of people who require health-care. Republicans in Congress seem to be ignoring this.

In the face of removing regulation, one can only hope that local governments and authorities will not stop acting to tackle the problem. Communities, cities, and municipalities can all play a major role in fighting climate change, even with lack of legislation. Yet, without the guidance of a national authority, a break in communication might lead to inaction.

Driving, taking the bus, or riding on the train – all forms of transportation have an impact on the environment and are directly related to greenhouse gas emissions. Aviation is no exception to the rule – the industry is responsible for 2% of global CO2 emissions. In the face of growing demand and increase in traffic, everyone from airports and airlines, to manufacturers and air-traffic controllers, are working to limit emissions and increase efficiency.

98 years ago, the Wright brothers successfully made the first controlled, powered and sustained human flight. This innovative step has continued to stimulate changes in the aviation industry in the face of many challenges, with the main contemporary problem being climate change. An investigation into what is being done to limit CO2 emissions, while keeping flights safe, comfortable and accessible, reveals that technology, operations, and infrastructure may all hold the key to reducing mankind’s carbon footprint.

Technology

Although most passengers are not aware of this, aircraft are constantly changing. Technological innovation in the aviation industry is comparable to that in personal computers, even though the latter have a much shorter history. It should come to a surprise that since the 1970′s, airplanes have become over 70% more efficient in their fuel-use. All components of aircraft design – from the engines to the tips of the wings – are testimony to increasing innovation in the industry.

The most important role in an airplane’s fuel efficiency is the engines. Jet fuel is one of the highest cost items for an airline, and with the increasingly volatile price of oil, it has become a necessity for the industry to make fuel-efficient engines. The two most-widely used aircraft today – the Boeing 737 and the Airbus A320 – have shown that newer models of the same aircraft can not only carry more passengers and payload, but do so while burning 23% less fuel. Airbus continues to invest $265 million annually for research and development for fuel-efficiency.

Another important aspect which has been continuously innovated is the structural design of airplanes. Airfoils – the cross-sectional shape of wings – which have a great impact at the high-speed phase of a flight, have made balancing weight, wingspan and area more favorable. The Air Transport Action Group’s research shows that something as simple as adding winglets tilted upwards at the tips on old aircraft can reduce fuel burn by 3-5%.

Operations

An aircraft has a general life-time of at least 25 years. This means that it has to be maintained and modified as new technologies become available. Correcting defects during general maintenance, such as removing scratches or chipped paint, can ensure that the plane retains its aerodynamic integrity and can reduce fuel consumption by 0.5%. Innovation in lighter paint has also proven to reduce the weight of the airplane by 10-20%. KLM has already introduced such a modification to its fleet and has reported a reduction in CO2 emissions as a result.

Furthermore, there is a direct relationship between the weight of the aircraft and the amount of fuel required to keep it in the air. An experimental flight conducted by AeroMexico showed that by reducing the weight of the beverage cart by 9kg, separating organic from inorganic waste, and reducing the amount of in-flight printed materials saved 555 kg of CO2. On average, there are 50,000 flight every day, meaning that if every one of them introduced these ideas, the total savings would amount to around 28,000 tonnes of CO2 per day. At the same time, Air France has installed lighter seats on its aircraft, which allows them to burn less fuel.

Flight-planning and flight-management have also aided improvements in fuel-efficiency. Exploiting prevailing winds, precise calculations of fuel loads and adjusting aircraft speed has allowed pilots to become environmentally friendly. Even simple planning like placing more weight at the rear-end of the plane and determining the exact center of gravity of the craft can contribute to reductions in fuel consumption.

Infrastructure

Air corridors – the highways of the sky. These are narrow and predetermined routes that airplanes fly in from their point of departure to their destination. Yet, recent research conducted by the Air Transport Action Group shows that 8% of all aviation fuel is wasted as a result of route inefficiency. Now, a new form of Air Traffic Management (ATM) is being introduced, with the aim of redesigning routes around the performance of the flight, managing the optimized use of airspace, and allowing computers to plot their own, most efficient, route. Research and experiments conducted by Iberia Spanish Airlines has shown that a reduction of 6-12% of fuel use can be achieved through this system.

CDO vs Conventional Approach

Airports have also joined the effort to reduce their environmental impact. By developing ‘green departures’ which allow pilots to take-off and climb to their desired altitude in one, smooth ascent, Copenhagen airport has reported a reduction of 32,000 tonnes of CO2 in one year. Another project, focusing on approach and landing operations through a new method called ‘continuous descent operations (CDO), where an airplane descends from its optimal altitude in a continuous motion, can lead to fuel savings of up to 40% during the approach phase. If Europe introduces CDO more widely, 500,000 tonnes of CO2 could possible be saved (Birmingham’s airport has proven that 13,000 tonnes of CO2 were saved in a year using CDO).

Furthermore, several airports have introduced fixed electrical power units which allow an aircraft to plug in while waiting at the gate instead of burning its engine fuel for power. Zurich Airport has reportedly saved 30,000 tonnes of CO2 per year through installing such units at its 50 gates. London Heathrow, the world’s busiest airport, has also introduced a similar system, which includes pre-conditioned air being being delivered to aircraft while at the gate, and has estimated a 100,000 tonnes of CO2 reduction per year.

Electric Efficiency

Through plugging in airplanes, there is a greater electricity usage at airports by airplanes, and through an increase in passengers, more electricity is used for lights and air-conditioning. Yet, an initiative by Paris Orly Airport has recently saved 9,000 tonnes of CO2 per year by drilling a bore hole to gather naturally heated water to warm its terminal. Also, Vancouver Airport’s installation of solar panels has reduced the use of natural gas by 30% since 2001. In the meanwhile, Stockholm’s Arlanda Airport has been proclaimed the first carbon neutral airport in the world through a combination of biofuel-based heating and renewable energy sources for electricity.

Through these technological, operational and infrastructure innovations, the aviation industry has acted to reduce mankind’s environmental footprint. With the necessary commitment and the already-existent willpower, it sets an example for other, more polluting industries. The next time you fly with the companies or to the airports mentioned above, be sure that you are flying greener than others.

Prof. Gwyn Prins, London School of Economics

The failure of the CoP 15 in Copenhagen to produce a comprehensive and legally binding agreement with commitment targets like those in the Kyoto Protocol has been labelled a “necessary evil for a new beginning”. Professor Prins of the London School of Economics presented this theory at the CoP 16 in Cancun on Dec. 8th.

“We need to change the terms of the conversation,” stated Prof. Prins. Since the beginning of the negotiations in Cancun, Japan and Russia have provided strong opposition to the negotiations of a new emissions reduction commitment period. Instead, they have been pushing for a new and better mechanism: one based on human dignity, and not on human sinfulness.

This new mechanism includes three objectives, as described in the Hartwell Paper: a new direction for climate policy, co-authored by  Prof. Prins:

1. Access: allowing people access to energy
2. Sustainability: eradicating emissions of black carbon, reducing tropospheric ozone, protecting tropical forests, and accelerating energy efficiency.
3. Resilience: making poor nations able to combat climate change.

This road-map for a new, post-Kyoto mechanism is strongly supported by the Japanese negotiators at CoP 16. Yet, in the negotiations with the global leader in the fight against climate change, the European Union, Japan has had to face the option of compromising.

Joke Schauvliege, the Belgian Minister for Environment, Nature and Culture and representative of the current Presidency of the Council of the EU stated on Dec 10th that “We had a lot of contact with the Japanese and the Russians, and we tried to find solutions”. She elaborated that “Kyoto as such is not enough” and that “it is possible to find something in between”.

This was supplemented by EU Commissioner Hedegaard’s concerns that a comprehensive legally-binding agreement rests on a new Kyoto Protocol or similar mechanism. She stated clearly that it is “not likely to get a second commitment period”. Yet, as the final day of negotiations began, all parties were “excited” to find out what is in the agreement to come out of Cancun.

“Climate change financing is one of the most important aspects of the world’s efforts to address the climate change challenge”. With this statement, United Nations Secretary General, Ban Ki-Moon, presented the high-level advisory group on climate change financing at the CoP 16 in Cancun. In addition, “it is crucial to have adequate financial support to build trust”. With the aim of building a “safer, cleaner, healthier future for us all”, the report of the group presented a comprehensive report on how to obtain the $100 billion for climate change financing, as engraved in the Copenhagen accord.

In a sense, global climate change financing is a panacea – it can cure most diseases linked to the climate change problem: building trust between developing and developed nations; generating actions on the ground; improving sustainable development. In the words of Ernesto Cordero Arroyo, Minister of Finance of Mexico: “we have the opportunity to approach climate change from a different perspective,” namely poverty, development, and economic growth.

Yet, the co-chairman of the high-level advisory group, Mr. Meles Zenawi, Prime Minister of Ethiopia, expressed the concern that in the current difficult environment, it is a challenge to raise $100 billion annually for climate financing. And, although this report provides a set of options, the details are left to the parties: it is they who have to decide what the share between public and private financing will be, and they have to decide on the implementation mechanisms. This shortfall is directly linked to the mandate given to the advisory group by the Copenhagen Accord.

One tool in the toolbox is carbon pricing. This is not an innovative idea, neither is it a theoretical one. The Emissions Trading Scheme (ETS) active in the EU is an example of what is expected to happen on the global level. Jens Stoltenberg, Prime Minister of Norway and co-chair of the advisory group, stated that there are three key actions to be taken for raising funds:

1. Auctioning emissions allowances: this can raise an estimated $30 billion annually.
2. Carbon taxation of transport and aviation industries: can raise a further $10 billion.
3. An innovative idea of re-allocating fossil-fuel subsidies in developing countries for ‘green’ development.

These three major instruments have one thing in common: they put a price on carbon. This can produce a double effect on the fight against climate change – they are all large sources of revenue, and they can give the right incentives for developed world to reduce emissions.

Whether this list of potential sources will be endorsed by the parties and any of them will be implemented has not become clear. The UNSG’s high-level advisory group has provided national governments with the tool-box, and it is up to the political leaders to use those tools.

Yet, Prime Minister Stoltenberg expressed a note of optimism based on two insights. Firstly, the report presents an exhaustive list of options for all actors to use, which could result in mobilizing revenue and providing the right incentives for battling climate change. Secondly, and more importantly, the representatives of the advisory group managed to agree. It shows that political representatives from both developed and developing countries, multinational companies, and experts can agree on a compromise on the issue of finance. This is important because “without an agreement on finance, we will not have a comprehensive agreement on other issues”.

The report’s conclusion paints a mixed picture: “The Advisory Group found that raising $100 billion per year is challenging but feasible. Now is the time to take decisions”. The toolbox is now in the hands of political leaders.

Would You?

On December 5^th 2010, at the UNFCCC CoP 16 in Cancun, Mexico, Oxfam made a passionate statement for the establishment of a fair global climate action fund. Tim Gore, the organization’s international climate policy officer re-affirmed the opinion that the essential legally binding agreement on climate change will not be negotiated in Cancun, but in order to call the conference a success, an agreement to re-build trust between rich an poor countries could be arranged. He was referring to the establishment of a fair global climate action fund.

Oxfam presented a statement by civil society, signed by more than 200 organizations, calling for a fair fund which can deliver tangible outcomes for poor people all over the world. The urgent need for such a fund is highlighted by the current, “broken arrangements” which do not deliver money to people who need them most and make poor countries jump through bureaucratic hoops to get financing.

Mr. Gore outlined the three guiding principles of the fund as such:

1. The fund should be established under the United Nations. It is the only forum where all countries are equally represented and the poorest states can have their voices heard.
2. It should be based on the principle of equitable representation. The current fund is strongly dominated by donor countries, and not the recipient states who know how to spend the money best.
3. Simplification – the need for a one-stop-shop. Financing should not be diluted through other institutions and red-tape for access to the fund should be reduced to a minimum. For the least-developed countries in the world, it has proven nearly impossible to jump through the bureaucratic hoops associated with obtaining funds.
4. Concentrating on adaptation – the current financing mechanisms allocate around 10% of funds to adaptation, and the other 90% for mitigation. For Oxfam, “this has to change in Cancun”!

At the CoP 15 in Copenhagen in 2009, an agreement was made that funding should be balanced between mitigation and adaptation. Yet, reports show that this has not been implemented into practice. In order for this to happen, a concrete percentage should be agreed upon, and it should be 50%. If this happens, then “Cancun will be a success,” stated Mr. Gore.

Panel Discussing the Fair Climate Action Fund, Organized by Oxfam

In support of Oxfam’s idea, Mrs. Judith McGregor, the British Ambassador to Mexico, also expressed her sincere hope that this new climate action fund will be agreed upon in Cancun. In her words, three main objectives have to be included into the fund’s structure. First, a formal connection to the UNFCCC has to be present to ensure that the CoP can guide the fund, while functioning independently. Second, the voice of developing countries is crucial to the process, and this should be evident in the fund’s structure through the inclusion of both donor and recipient countries. Third, the simplification of the procedure for access to the fund should be based on country-owned plans.

In Mrs. McGregor’s words, the scale of the climate change problem means “making hard choices and bringing in new concepts unfamiliar to the UNFCCC”. For example, the World Bank should be asked to be the fund’s treasurer. This idea rose protests from some participants in the debate, yet Oxfam also supports the idea that the global financial institution should play a role in the new fund.

The key concept guiding the fund is that it should be ‘fair’. Mr. Evans Njewa, the chief finance negotiator for the least-developed counties at the CoP 16 stated his firm support of the idea. He reaffirmed that the 48 poorest nations in the world have conceived their national adaptation plans mainly concentrating on agriculture, and it is these projects which are in dire need of financing. Mr. Njewa proposed that if 50% of funds were allocated for adaptation, the LDC’s would receive around 60% of the total financing, which would allow concrete action to take place.

The source of the financing was not clear from the presentations or the debate which took place. The representatives of Oxfam and the UK government supported the idea that both public and private entities should contribute, while Mr. Njewa proposed that the fund should be mostly public. This issue is nevertheless left up to the donor countries, who have to provide the finance.

Whether negotiations will lead to the signing of an agreement on a fair climate action fund remains to be seen before the end of the CoP 16. The position of the LDC’s is clear: this fund is essential to the adaptation of their economies to combat climate change. Whether the donor countries share the same view is unclear, although Mrs. McGregor’s enthusiasm for the fund provides a note of optimism to the negotiations. Yet, whether the negotiation of an agreement on this issue can make the overall CoP 16 a success remains doubtful.

The total anual economic cost of biodiversity loss and ecosystem degradation is estimated to be between US$2 and US$4.5 trillion, or 3.3 – 7.5% of global GDP, reads a PricewaterhouseCoopers analysis.

No sector or business in the economy will escape unaffected by changes to the availability of environmental resources for business and consumers, according to analysis by PricewaterhouseCoopers as part of a landmark study by the UN Environment Programme (UNEP) examining the economics of biodiversity and ecosystem loss for business.

Alexandru Lupea

The UN study The Economics of Ecosystems and Biodiversity (TEEB) indicates that scrutiny of big business and its impacts on the world’s natural capital is likely to intensify as better evaluations and assessments come to the fore.  Already, TEEB estimates the global economic impact annually of biodiversity loss at between $2-4.5 trillion, and is to be felt in product pricing, availability of products and financing, impact on climate and supply chain disruptions for consumers, business and government.

Despite this, research by PricewaterhouseCoopers completed as part of the study, found that less than one in five companies see biodiversity as an important business issue. Only two out of the world’s largest 100 companies manage it as a strategic risk.

“Biodiversity should not been seen as a liability and a cost, but also as a huge still untapped potential for businesses worldwide. The PwC analysis has found out that there is an enormous potential in the emerging markets for biodiversity and ecosystem services. For example, the current market for certified agricultural products (organic food) is estimated at 40 billion $ worldwide, amounting to 2.5% of the global food and beverage market. The PwC study projects that the organic food market will increase five times by 2020, reaching a total value of $ 210 billion and by 2050 could amount to $ 900 billion. Also, the certified forest products are expected to grow from the current market level of $ 5 billion to $ 15 billion in 2020 and to $ 50 billion by 2050”, states Alexandru Lupea, Partner, Alexandru Lupea, Partner, Assurance Services, Leader of the Energy, Utilities and Mining Group with PricewaterhouseCoopers Romania.

“In this context, Romania could benefit from this organic food trend and could develop a strong bio-agricultural sector, making use of its large agricultural and forest area, and capitalize on the current low use of fertilizers and pesticides in the Romanian agriculture, which can thus be turned from a competitive disadvantage to an advantage”, added Lupea.

The TEEB report has found out that the perception of the decline in biodiversity is greatest on the continents most affected by climate change and large scale deforestation. Over 50 per cent of CEOs in Latin America and 45 per cent in Africa see declines in biodiversity as a challenge to business growth. In contrast, less than 20 per cent of their counterparts in Western Europe share such concerns. The findings indicate that corporate chiefs who fail to make sustainable management of biodiversity part of their business plans may find themselves increasingly out of step with the market place.

Water used in food and drink production, timber for packaging, furniture and paper, productive land for fruit and vegetables, and fibres for clothes, are amongst just some of the biodiversity and ecosystem ‘services’ whose economic value and protection is examined in the study.

Unpriced, and largely unaccounted for in business life, the flow and use of natural resources is embedded in the global economy every day.

Despite this, research by PricewaterhouseCoopers completed as part of the study, found that of the world’s largest 100 companies, only 18 companies made any mention of biodiversity or ecosystems in their annual report, with only two seeing biodiversity loss as a strategic business risk. In high – dependency or impact sectors including food producers and primary industrial sectors, nine identified it as a sustainability issue.

“Current business strategies are biting the hand that feeds stable consumer prices, business prospects and long term investor security and returns. When estimates in the study put economic impact of biodiversity loss at between $2-4.5 trillion annually, you realise that this is not just about environmentalists and scientists, but economically rational conservation that protects the long term prospects for business. That means putting more value on the resources that supply and sustain businesses worldwide, including companies and projects the financial services sector is investing in”, stated Alexandru Lupea.

“We’re effectively in an environmental recession for which few businesses appear to have a real accounts or a recovery plan for. Identifying and managing the risks that arise from our impact on biodiversity is not about greenwash, or CSR, it’s about the economics of supply and demand, and in a shorter time frame than climate change”, added Lupea.

The “TEEB for Business” report, which will form part of a final TEEB synthesis report to be launched at a meeting of the Convention on Biological Diversity in Nagoya, Japan in October 2010, calls on professional associations to develop new accounting and reporting tools for business that take into account the biodiversity and environmental aspects as well.

A new report funded by the European Commission makes a strong case for integrating biodiversity into private sector business plans and core activities around the globe. The report reveals considerable recent growth in eco-certified products and services, growing consumer concerns for sustainable production, and shows how biodiversity can provide a substantial business opportunity in a market that could be worth US$ 2-6 trillion by 2050. It makes seven key recommendations for businesses, and calls on accounting professions and financial reporting bodies to develop common standards to assess biodiversity impacts, and develop new tools for this purpose. “TEEB for Business” will form part of the TEEB synthesis report to be launched at a meeting of the Convention on Biological Diversity in Nagoya, Japan in October 2010.

European Commissioner for the Environment Janez Potočnik said: “Despite some local successes, and in spite of a growing awareness of the problem, the global rate of biodiversity loss does not appear to be slowing. But this report shows that businesses can help, and I am heartened to see these tangible examples of companies that are flourishing without damaging the only planet we have.”

TEEB Study Leader Pavan Sukhdev said: “Through the work of TEEB and others, the economic importance of biodiversity and ecosystems is emerging from the invisible into the visible spectrum. It is clear that some companies in some sectors and on some continents are hearing and acting on that message in order to build more sustainable, 21st century businesses.”

Key proposals for businesses

TEEB for business recommends a series of actions to help companies minimise their biodiversity risks and seize the business opportunities ecosystems services create:

• Identify the impacts and dependencies of your business on biodiversity and ecosystem services (BES)
• Assess the business risks and opportunities associated with these impacts and dependencies
• Develop BES information systems, set SMART targets, measure and value performance, and report your results
• Take action to avoid, minimize and mitigate BES risks, including in-kind compensation (‘offsets’) where appropriate
• Grasp emerging BES business opportunities, such as cost-efficiencies, new products and new markets
• Integrate business strategy and actions on BES with wider corporate social responsibility initiatives
• Engage with business peers and stakeholders in government, NGOs and civil society to improve BES guidance and policy.

Biodiversity is good for business

The report finds that while a majority of companies still treat biodiversity superficially in their reports, growing numbers are aware of the potential benefits. Biodiversity and ecosystem services offer opportunities for all business sectors, and their integration can bring significant added value by ensuring the sustainability of supply chains, generating new products, creating and penetrating new markets and attracting new customers.

Policies to manage biodiversity and ecosystem risks can also help to identify new business opportunities, such as reducing input costs through improved resource efficiency, developing and marketing low impact technologies, managing and designing projects to reduce ecological footprints, and providing professional services in risk assessment and management/adaptation.

Estimates developed by PricewaterhouseCoopers for “sustainability-related global business opportunities in natural resources (including energy, forestry, food and agriculture, water and metals)” suggest a potential market in the range of US$ 2-6 trillion by 2050 (at constant 2008 prices). About half of this is “additional investments in the energy sector related to reducing carbon emissions”. Markets for biodiversity and ecosystem services are growing, as shown by data compiled by Forest Trends and the Ecosystem Marketplace:

• The certified agricultural products market was valued at over US$ 40 billion in 2008 and is expected to reach up to US$ 210 billion by 2020, and may reach US$ 900 billion by 2050.
• Payments for Ecosystem Services for water-related ecosystem services and watershed management account for only US$5 billion in 2008, but are expected to total more than 30 billion by 2050.

Background

The planet’s natural and nature-based assets – from individual species to ecosystems such as forests, coral reefs, freshwaters and soils – are declining at an alarming rate. Biodiversity loss costs billions to the global economy every year, undermining economies; business prospects and opportunities to combat poverty.

TEEB – The Economics of Ecosystems and Biodiversity – is a project funded by the European Commission and governments including Germany, Norway and the UK, dedicated to building the economic case to assist economies make transformational policy choices and changes in order to address this crisis and bring greater intelligence to the way nature-based assets are managed. TEEB will publish a final synthesis report in advance of the Convention on Biological Diversity’s meeting in Nagoya, Japan later in the year.

Further information:

The TEEB for Business report is available at

http://www.teebweb.org/

The EU Business and Biodiversity Platform:

http://ec.europa.eu/environment/biodiversity/business/index_en.html