Fossil fuels are the new subprime? That is the provocative question that gives its title to a report probing the assets held by eleven major European banks. It finds that, despite their pledges to contribute to a green and sustainable future, these institutions remain deeply tied to coal, oil and natural gas — so much so that they risk collapse when, in a not-too-distant future, our energy system finally breaks free from these polluting sources. Much as happened in 2008, when the subprime mortgage bubble burst — those high-risk loans that had been granted, in a drive to inflate sales volumes, even to borrowers who could never have afforded to repay them. At the time, however, the mechanism broke down, plunging the entire American financial system (and beyond) into a crisis of historic proportions.

Fossil fuels: a 530-billion-euro millstone

Three organisations — Reclaim Finance, Friends of the Earth France and Rousseau Institute — decided to get to the bottom of it. They combed through the financial data of the eleven largest banks in the euro area in 2019. Adding up all fossil assets (that is, those financing the production of coal, gas and oil and of energy generated from such sources), they arrived at a staggering total: 530 billion euros. That is equivalent to 95 per cent of their equity — the capital they also hold to absorb potential losses. To put it another way, it is the equivalent of Sweden's GDP. Were this sum invested in renewable sources, it could double their capacity compared to 2020.

Reclaim Finance @ReclaimFinance

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While the transition requires a drastic reduction of fossil fuel use, the assets linked to them represent 95% of the capital of the 🇪🇺’s major banks

🚨The danger is doubled: greater climate crisis, greater financial instability.

Full report ⤵️
reclaimfinance.org/site/en/2021/0…

♥ 10 10 giu 2021 · Apri su X →

Investing in coal and oil is counterproductive for the planet and for banks

Much has already been written about the fact that a situation of this kind is incompatible with the goals of the Paris Agreement. Less frequently, however, is it pointed out just how counterproductive it is for the stability of the banks themselves. To keep the rise in average global temperature within 1.5 degrees Celsius above pre-industrial levels, 84 per cent of fossil fuel reserves will have to be left where they are: underground. All these assets will therefore be worth little or nothing.

This risks becoming a serious problem for Crédit Agricole, for which these assets represent 131 per cent of equity: were they to lose 80 per cent of their value, the bank would find itself unable to absorb the losses. Société Générale could face the same fate. Despite being generally praised for their bold policies to halt financing of coal and oil, French banks appear particularly exposed. BNP Paribas, Société Générale, Crédit Agricole and Bpce collectively hold 260 billion euros in fossil assets.