June 13, 2021

European banks ill-prepared for the loss of value of their fossil assets

« Fossil assets, the new subprimes? The comparison is frightening. In a report published Thursday, January 10, the Rousseau Institute and the NGOs Reclaim Finance and Friends of the Earth risk it, however, drawing a parallel between the so-called “rotten” credits amassed by the banks in 2008 and their current related assets. financing of fossil fuels. Their value is indeed set to drop “Because compliance with the Paris climate agreement will lead to a significant and continuous decline in the use of fossil fuels”, indicate the authors. This devaluation “Could produce significant turbulence, even generate a new financial crisis”, they predict.

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This fear is not new. In a speech that has become famous, delivered in 2015 to the top British finance, Mark Carney, then governor of the Bank of England, had prophesied that climate change was “The tragedy of the horizon”. And he warned the financial world about “Transition risks” generated by a shift towards a low-carbon economy, which could transform financial assets “Carbon intensive” on “Stranded assets”.

“The banks are not prepared”

It is these “fossil assets” that the report sought to quantify, that is to say financial products contributing to the financing of exploration, exploitation, distribution activities (including transport, refining, etc.) of oil, gas and coal, and the production of electricity from these resources. The study of the eleven main banks in the euro zone “Reveals that they accumulate a stock of more than 530 billion euros of assets linked to fossil fuels”, or the equivalent of “95% of their total equity” (the volume of capital held by banks, providing them with a cushion in the event of a hard blow).

These assets represent for all the banks studied a very large part of their own funds, ranging from 68% for the Spanish establishment Santander, to 131% for Crédit Agricole. “This is all the more serious as these fossil assets only represent the tip of the gigantic iceberg formed by all the sectors which will necessarily require a transition – aeronautics, automotive, petrochemicals”, says the document.

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