How to kick our fossil fuel addiction

Last year marked an important turning point - governments, corporations, and consumers stopped pay lip service to climate change and united firmly in agreement that immediate action is needed to put the planet back on track. There is finally widespread consensus that to keep temperature rises below the critical 1.5 degrees and prevent devastating biodiversity losses, weather events, and shortages of natural resources, we must reach net zero by 2050.

There is now powerful momentum behind the transition, and we must capitalise on this collective desire to create change by turning the words of 2022 into action. The challenges ahead of us cannot be underestimated. Last year, fossil fuels accounted for 82% of global energy consumption, underpinning the majority of our corporate and consumer activity. Our dependency on fossil fuel infiltrates every aspect of our lives, and like any habit, it’s not going to be easy to kick.

The financial sector has a critical role to play in overcoming this global addiction, not just through climate finance that will mitigate the impact of our changing environment, but through investments that redirect finance into a carbon neutral economy. This is a responsibility that cannot be taken lightly.

Important progress was made last year to eradicate the corporate practice of greenwashing in Europe, with new regulations in place that compel organisations to accurately report on their environmental impact, and by implication, demonstrate how they are contributing to a positive, sustainable, and just future. These laws and others introduced with the European Parliament, implements a strict regulatory framework to navigate the transition.

No company should overstate its claims to being environmentally responsible, its misleading, dangerous, and now illegal. But the need to be cautious and accurate with our language and our actions goes both ways. As we fly the flag for climate change and hold ourselves, our peers, partners, and customers to account, we must also be cautious of simplifying our demands and underestimating the complex process of global decarbonisation.

There has been criticism of the European banking sector’s continued support for financing high carbon investments. Some of it is justified - more can and should be done to finance a carbon neutral economy by 2050. But it won’t be achieved by cutting all ties to fossil fuel investments overnight.

Despite the undeniable urgency of the climate crisis and the loud calls for change, financial institutions must carefully balance the progress of the sustainable transition with the stability of the global economy. Both impact us all acutely from big business down to family finances. With such high levels of fossil fuel dependency in the global energy market, switching off finance for carbon intensive investments without a planned and staged exit would have a devastating effect on the economy and our way of life. Fast, demonstrable progress is needed, but it must be achieved through a more measured, nuanced, and responsible approach.

Banks with carbon intensive loan books have a great opportunity and responsibility to wield their influence with clients in sectors that are currently slow to make the transition, by requiring customers to clearly demonstrate that the transition is underway and meet KPIs that are contingent on continued investment.

As lessors, we must of course align our portfolios with our net zero commitments, but this is also the time to deepen our client relationships and support them to make the transition. Our industry has an active role to play across the entire value chain. We can work in close partnership with manufacturers and suppliers of new, green technologies and ensure that clean energy and low carbon assets are easily accessible to businesses through affordable, flexible finance solutions. We can also support our customers to adopt the principles of the circular economy, by making asset sharing, repair, refurbishment and reuse a commonplace part of our leasing offer.

This is a a new frontier for asset financiers, requiring fresh thinking, education, new systems, and ways of working. It’s not without its challenges, but the opportunity ahead of us is huge. The International Energy Agency predicts that the 2050 transition will create a US$27 trillion market for wind turbines, solar panels, lithium-ion batteries, electrolysers, and fuel cells, larger than today’s oil industry and its associated revenues. These are high worth assets that clients will need access to quickly and at scale, and that will require sustainable management and end-of-life handling – all business challenges that lessors can help to solve.

We have an economic, environmental, and social responsibility to balance the reduction in brown finance and the growth in green finance in a way that achieves outcomes that are sustainable in the true sense of the word. Funding clean energy equipment is a critical piece of the puzzle and a once in a lifetime opportunity for our industry. Leasing is no longer simply about cash flow and access to finance. In the middle of a global energy crisis, our financial solutions are a key part of the systemic change that is required to make the transition. The economy of tomorrow will be unrecognisable from how we operate today and as we uncouple growth from emissions, we must see ourselves as lessors and climate negotiators, holding the hands of our clients as together we create solutions that are fit for the future.

If 2022 was the year that we reached consensus on the scale and immediacy of the challenge and our collective desire to act, 2023 must be the year that we all take tangible steps toward deepening our commitments and the sincerity of our actions. If we can harness the power of the global intentions to stop climate change and build on this incredible momentum, then we have reason to believe that our fossil fuel dependency will soon be a thing of the past.