Economic growth vs climate change

FMO shares our stakeholders’ concern for the state of the world and we believe that doing makes a difference. That is why our investments are designed to create decent work and economic growth, reduce inequality and fight climate change. We acknowledge, however, that in pursuit of these goals the need for economic growth and action on climate change can conflict with one another.

The most recent report from the Intergovernmental Panel on Climate Change (IPCC) emphasises it is crucial to prevent temperatures from increasing by more than 1.5°C. Considering current emission levels, investments that only reduce emissions may not be enough. And investments in low emitting sectors won't ensure any aggregate advance unless everyone follows. This means there is a need for more ambitious projects and for governments, the private sector and the financial sector to step up their efforts.

If, for example, investments were to be directed at unsustainable sectors where large improvements are possible, conflicting results may occur. Such investments would allow countries to achieve growth and reduce inequality, but at the cost of prolonging the existence of unsustainable industries. 

FMO constantly weighs up climate impact against supporting decent work and economic growth, and reducing inequalities. Sometimes we do invest in high-emission sectors, like the dairy industry where we support the livelihood of smallholder farmers. We subsequently advise and guide those clients on how to minimise their CO2 footprint. On the other hand, in 2016 FMO published its position statement not to finance coal-based power and coal mining projects. Increasingly, we do see capital and jobs shifting to greener industries. 

Now, we are not trying to solve the conflict between growth and climate change, but we do try to make the best possible investment decision. That is why we support efforts in the financial sector to develop broadly-shared measurement standards, such as the Platform Carbon Accounting Financials (PCAF) and globally accepted reporting rules and definitions. These will make it easier to make better informed investment decisions. 

What we also did in 2018 was to publish for consultation our work on a methodology to establish a 1.5°C emissions reduction pathway for our portfolio, as well as develop a greenhouse gas (GHG) accounting approach for absolute emissions. In 2019 and beyond we will use this methodology as a guide which will measure our progress towards a portfolio which is in line with the 1.5°C pathway.