121
3. To Financial Institutions and Investors
Financial institutions531 are progressively taking part in various climate initiatives and
publicizing their commitments toward climate action. The financial sector is regarded
as “the vital link in enabling the kind of system-wide change”532 in achieving a net-zero
carbon economy. The sector can steer companies and industries towards a sustainable
path by aligning lending and investment portfolios with targets set by science. Although
their direct emissions are negligible, their role as financiers of the sectors and projects
that generate GHG emissions, including and most significantly, the fossil fuel industry,
make them similarly accountable for global warming and climate change. To meet
the targets of the Paris Agreement, the global carbon budget demands the cessation
of new fossil fuel extraction, and the creation of more infrastructure in support of
renewable energy. This would be possible if financiers break away from lending and
investing in carbon-related industries.
i. Financial Institutions Must Refrain from Financing Fossil
Fuel-Related Projects and Instead Direct Capital Towards
‘Green’ Projects
The Commission fully supports the latest version of the Equator Principles
(EP4),533 and recommends its adoption by all financial institutions. The
Equator Principles serve as a framework for financial institutions to identify,
assess and manage environmental and social risks when financing projects.
Those who subscribe to them, called the Equator Principles Financial Institutions
(EPFIs), commit not to provide Project Finance, Project-Related Corporate
Loans to Projects or Project-Related Refinance and Project-Related Acquisition
Finance to projects that are not compliant with Equator Principles requirements.
Principle 2 of the EP4 requires clients to conduct an environmental and social
assessment of their proposed projects. Such assessment specifically includes
531
532
533
“The core participants in the finance sector include banks, insurance companies, pension funds,
fund managers, mutual funds, sovereign wealth funds, charities and endowment funds.” See United
Nations Environment Programme Finance Initiative, Financial Institutions Taking Action on Climate
Change (2014).
Science Based Targets, Financial Institutions, available at https://sciencebasedtargets.org/sectors/
financial-institutions.
The Equator Principles, supra note 419.
Select target paragraph3
Connect to a paragraph
Connect to an entity
Disable highlights
Add to table of contents