A global financial meltdown could be triggered if banks fail to prepare for government-led transitions away from fossil fuels, a new report suggests, with Britain likely to be among the worst affected.
Banks could even be hit harder than in the 2008 financial crisis if they do not divest from fossil fuel investments in line with net-zero policies, the report by campaign group coalition One for One found
This would put 18.7mln jobs at risk globally and require a US$6.8 trillion bailout by the world’s governments.
UK, Canadian and American taxpayers would suffer in this scenario, with the bailout bill coming to around US$9,000 per head, the report suggested.
“If governments do decide to begin adhering to a net zero pathway […] the price of fossil fuel assets could plummet,” it said, causing a financial crash, “unless the financial system is geared up to absorb this shock”.
“The later governments leave it to roll out a net zero transition, the faster they will have to act and the more abrupt and disruptive that economic shock will be,” the report added.
Chinese, European, Japanese and American banks account for 85% of the entire world’s exposure to fossil fuel assets, dubbed “high-risk” in the report.
Global exposure to the fossil fuel industry could be higher than US$2.2 trillion by 2030 if banking sectors do not transition away from such investments and would sit at around US$1.6 trillion if this move happens too slowly, the report found.
The One for One campaign calls for financial institutions to invest a dollar of their own funds for every dollar they invest in fossil fuels, “to cover any future losses themselves, rather than rely on government bailouts".
According to an October report by Finance Watch, the world’s 60 largest banks, including the likes of JP Morgan Chase, Bank of America Corp (NYSE:BAC), Morgan Stanley (NYSE:MS) and HSBC Holdings PLC (LSE:HSBA) in the top ten, currently hold fossil fuel assets worth US$1.35 trillion.
The group behind the report, One for One, called for banks and insurers to keep “buffers” to ensure they face less risk from sudden changes to the fossil fuel industry.