Lützerath to Davos

    As the world leaders gather in Davos this week, I wish they would offer some real solutions to the climate crisis threatening the very ski slopes they are standing on. Yet it all sounds rather unimaginative, I am afraid. It seems that the US climate envoy John Kerry is not alone in channelling ABBA, chiming “money, money, money” as the ultimate answer to all our problems.

    I hate to spoil your after-ski party mood, guys, but it is hardly for lack of money that we are in the current mess. More likely, it is how we choose to put that money to work. Just look at the numbers in a report by Reclaim Finance, fresh out of the press. Billions are still flowing effortlessly into lucrative fossil fuel exploration, not least courtesy of the very same leaders who pledge their allegiance to the latest climate initiative, preferably one adorned with a cool net-zero acronym.

    In case the NGO’s rather dry report fails to grab your imagination, let us look at a specific and highly topical example. Have you been following the drama unfolding in the (former) German village of Lützerath over the past few days? The images of police officers dragging climate activists away through the mud are highly disturbing indeed. Not half as disturbing as the reason for the protests, though. I find the idea of destroying another village to expand a coal mine, in 2023, in the middle of good old Europe, simply heart-breaking!

    Apparently, there was no lack of money to finance that project, though. The further expansion of the giant Garzweiler mine, the burial ground of a dozen villages already, attracted quite a healthy interest. According to data from Refinitiv, the coal-mine developer in question, RWE, borrowed a total of USD 5.4 billion in loans arranged by a group of 25 banks. And, for anyone who did read Reclaim Finance’s informative report, it would come as no surprise that the names of several GFANZ signatories were high up on the list of lenders.

    In an excellent piece of investigative journalism, Josephine Moulds guides us pedagogically through the mechanism of financing RWE’s coal mine expansion, including the veil of secrecy surrounding the deal. She even gets an anonymous HSBC[1] banker on record: “We’re saying, ‘We don’t want our name to be associated with it, but here are the funds, and please don’t tell anyone that we gave you the funds.’ I acknowledge that this approach is questionable.” ‘Questionable’ sounds like an understatement.

    Adding to the absurdity of the whole affair, I read that the multimillion-dollar RWE deal was initially structured as a sustainability-linked loan. Brilliant! A simple commitment that RWE will hit certain climate targets by 2025, and voila, the coal is all emerald green. Never mind that the penalty the company would face for failing to reach said targets is a tiny increase in the interest it pays on the loan. Eventually, HSBC decided that the loan should not be classified as sustainability-linked, at least not internally, even though environmental targets remained part of the agreement. A striking display of common sense, I guess.

    A spokesperson for HSBC explains that the revolving credit facility extended to RWE was not directly aimed at financing the energy giant’s coal mine expansion but for general corporate purposes. “We have been clear we will finance energy companies who are taking an active role in transitioning to a net zero energy future, and we remain committed to this goal amid the double challenge of tackling climate change and an acute energy crisis in Europe.”

    Exactly how breaking ground for yet another dirty lignite mine rhymes with transitioning to a net zero energy future is a mystery to me. But I suspect it is just a matter of prioritizing between those double challenges. It is evident that energy security, and the profits associated with ensuring it, trump climate concerns for the time being.

    And so it goes… Money continues to flow into fossil fuel projects, abundant amounts of it. The young ones aren’t buying it, though. Heading from Lützerath straight to Davos this week, they issued a Cease and Desist Notice to the fossil fuel CEOs attending the gathering. Check it out, and maybe sign it, too.

    [1] HSBC, by the way, was one of the banks that happily approved a USD 340 million deal with RWE, despite its public promise to “phase down” fossil fuel financing.

    Image courtesy of NordSIP©
    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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