Analysis: EU Parliament and Council offer different visions of climate finance ahead of COP23

There’s a curious split between the top institutions of the European Union about how to mobilize climate finance ahead of the next United Nations climate talks in Bonn later this month.

The European Parliament has established what will seem to many to be an almost unbelievable line: calling for pension funds to divest fossil fuels, as RI has reported.

This is the position adopted at the plenary last week and which it will take to Germany, almost as if it were a campaign group. It is the most extreme position on this issue adopted by any parliament in the world that we know of. We at Responsible Investor did a double take when we first saw it.

It positions the Parliament and its Environment, Public Health and Food Safety (ENVI) committee at the vanguard of climate politics. ENVI’s chair, Romania’s Adina-Ioana Vălean, is, interestingly, aligned with the centre-right European People’s Party group at the parliament.

The European Council, which released its conclusions on climate finance yesterday, has made a more measured statement.

Indeed, for the Council, it is as if the ‘buyside’ comprising asset managers, pension funds and insurers and the like does not exist. This entire ecosystem is not mentioned in the official communiqué.

It highlights “the important role of the private sector as a key source of climate finance and the need to mobilise better its potential to finance mitigation and adaptation action”. It notes “the central and necessary role of a robust enabling policy environment for the mobilisation of private sector finance”. But beyond this there is a lack of definition or seeming understanding of “private finance”, a catch-all term that means everything and nothing.

Contrast this with the robust position taken by the Parliament, the Council’s nominal equal in the European hierarchy.

Since the Lisbon Treaty, the European Parliament has, officially, been on a near equal footing with the other EU branches, the Commission and Council. So it is interesting that it is the elected part of the EU system has gone the furthest in calling for climate investment.The Council does reference the European Commission’s work on the High Level Expert Group. It also mentions the G20 Green Finance Study Group and the FSB Task Force on Climate-related Financial Disclosures, but only in passing.

The context for COP23 is the ‘shift the trillions’ vibe that has been coming out of the United Nations. COP23 (the 23rd Conference of the Parties to the UN Framework Convention on Climate Change) is after all a UN event that just happens to be hosted by Germany, even though Fiji is president.

The UN push was demonstrated dramatically by former UNFCCC chief Christiana Figueres at PRI in Person last month, where she laid down a $700bn low-carbon investment challenge to signatories of the Principles for Responsible Investment.

Both the Council and the Parliament both express support for the UN’s Green Climate Fund and the phasing out of fossil fuel subsidies. The Council also emphasizes the role of multilateral development banks in catalyzing climate finance.

But where the Parliament calls for “specific public guarantees to promote green investment and labels and offer fiscal advantages for green investment funds and the issuing of green bonds”, the word “bond” does not appear in the Council text. Nor does the word renewable, for that matter.

But an even wider, and scarier, context for COP23 is what is happening in the US under the Trump regime. The latest development, the EPA’s decision to repeal the Clean Power Plan, was described as “reckless” by the US SIF yesterday.

It’s also in the context of the likes of BNP Paribas saying today that it would no longer do business with shale and tar sands companies and shun the Arctic. And just this week, Canada’s Caisse de dépôt et placement du Québec was part of a consortium with Mexican pension fund managers that bought into a major wind and solar portfolio.

While investors and banks seem to ‘get it’, the European Parliament seems to be the only major European political institution that recognises the gravity of the situation.