New report reveals European banks provided US$327 billion of financing to fossil fuel and agribusiness activities in the Global South in the 7 years since the Paris Agreement

December 4, 2023

As EU calls on COP28 climate negotiations to make progress on stopping climate-harming finance flows, its own financial industry continues to fund fossil fuels and other carbon-intensive sectors, ActionAid’s report shows.

Additional ActionAid Ireland research shows investments worth €5.7 billion in agribusiness and fossil fuels firms in the Global South are funnelled through Ireland

European banks have provided a staggering US$327 billion (€281 billion) of financing to fossil fuel and industrial agriculture activities in the Global South in the 7 years since the Paris Agreement was signed, a new report from ActionAid published at the COP28 climate summit reveals.

The new research also shows that the fossil and industrial agriculture industries in the Global South are receiving 4 times more financing from European banks than governments are receiving as climate finance from the EU.

European banks fuelling the climate crisis

The report, “European Finance Flows fuelling the climate crisis: The role of Article 2.1c under the UNFCCC” finds that annual financing provided by European banks to fossil fuel and industrial agriculture activities in the Global South comes to an average of US$46.7 billion (€40.2 billion) per year. This is 4 times the US$11.26 billion (€9.7 billion) annual average that the EU and its member countries have provided as the real value (grant-equivalent) of climate finance to countries in the Global South.

Article 2.1c of the Paris Agreement aims to make financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

ActionAid said today that the EU’s efforts to move the Article 2.1c agenda forward are both helpful and problematic. While it welcomes efforts to shift the world’s harmful financial flows, the report finds that the EU is also attempting to use the Article 2.1c agenda to try to reduce its own obligations to provide its fair share of grant-based public finance.

The world’s money is flowing in the wrong direction

Teresa Anderson, Global Lead on Climate Justice at ActionAid International and one of the report’s authors said: “The world’s money is flowing in the wrong direction. Banks often claim that they are addressing climate change, but their continued financing of fossil fuels and industrial agriculture is condemning communities in Africa, Asia and Latin America to the cruel combination of landlessness, deforestation, water pollution and climate change.

“European finance flows are a big part of the planet’s problem, channelling far more funds to the cause of climate change in the Global South than to the solutions. The EU is preaching water while still drinking wine.

Under parallel negotiations to develop a new post-2025 climate finance goal, developed and developing countries disagree on the extent to which private finance, including loans provided by banks, should count towards climate finance targets. For countries already being pushed into debt by the impacts of climate change, finance in the form of grants is the most useful type of support. Developing countries are understandably concerned that the EU’s efforts to green private finance.

ActionAid Ireland research, published in September this year, revealed Ireland is a significant channel for global institutional investment in fossils fuels and industrial agriculture, with funds registered here holding a staggering €5.7 billion (US$6.2 billion) in bonds and shares in climate harming activities in the Global South.

Ireland plays a somewhat unique and problematic role

ActionAid Ireland CEO, Karol Balfe, said: “Ireland plays a somewhat unique and problematic role within this European context of unsustainable funding by European banks. More than 1,200 multinational companies have established themselves in Ireland, drawn by its access to the European single market, an English-speaking workforce, and a very attractive corporation tax regime. It is completely by design that Ireland acts as a channel for international financial investment institutions. The figures flowing to climate harmful activities, via Ireland, to the Global South are also staggering.”

Ms Balfe added: “Ireland’s tax regime is problematic for efforts to tackle global poverty and the climate crisis. Most recently the UN Committee on the Rights of the Child called on Ireland to ensure that Irish tax policies were not undermining the ability of other countries to raise revenue to address poverty experienced by children in those countries.

“Our research shows that our tax regime is facilitating the flow of harmful finances damaging to climate change in the Global south. This comes at a cost for the world’s poor, particularly women, who are disproportionately affected by the climate crisis.”

The “European Finance Flows fuelling the climate crisis: The role of Article 2.1c under the UNFCCC” report calls for:

1. COP28 to make progress on the Paris Agreement commitments under Article 2.1c, through a series of measures including new regulations and policies to phase out financing to fossil fuels and other high-emitting activities such as harmful industrial agriculture

2. The EU and its Member States to significantly increase their public, grant-based finance to meet a fair share of their commitments under Article 9.1 of the Paris Agreement, and these contributions should not be conditional on Article 2.1c decisions and

3. The EU and its Member States to take domestic action to address its climate-harming finance flows, in particular by including banks and financial institutions in the Corporate Sustainability Due Diligence Directive (CSDDD) on human rights and environment.

ActionAid Ireland is also calling on the Irish government to ensure that it reviews and analyses relevant structures and processes to ensure that investment made through Foreign Direct Investment and international subsidiaries based in Ireland don’t undermine our climate and development objectives.

Protestors at COP 28 in Dubai. Photo: Konrad Skotnicki.

Belfast Climate Change March, 2019. Photo: Trócaire.

The Profit Driving the Crisis

Despite their overwhelming contribution to global emissions, fossil fuel companies continue to attract significant financial backing—driven by their enduring profitability. This is starkly illustrated by the case of ExxonMobil, the top fossil fuel investment held by asset managers based in Ireland. In 2023, ExxonMobil reported €33.63 billion ($36 billion) in profit. That is almost twice the GDP of Botswana (€18.1 billion) and nearly three times Namibia’s GDP (€11.5 billion).

Ireland plays a hugely disproportionate role in facilitating investments into fossil fuel companies like ExxonMobil. In 2023, the investments made into fossil fuel companies by investment managers based in Ireland generated an estimated 72.5 million tons of CO2e. This is more than the CO2e emissions for the entire country of Ireland—and more than ten times that generated by Sierra Leone.

The Global Human Impact

The climate crisis is here, now, and it is causing disproportionate harm in the Global South. In Bangladesh, rising sea levels and increasingly severe cyclones are displacing coastal communities, with projections indicating that 17% of the entire country could be underwater by 2050. The legally binding Paris Agreement on climate change explicitly acknowledges the importance of tackling private finance. Its three overarching goals are: keeping below 1.5C of warming; increasing adaptation and making finance flows consistent with low emissions and resilience.

This gives a clear mandate for action: both tax reform and corporate regulation are needed to tackle financial flows, and both nationally in Ireland and at EU level, ‘polluter pays’ taxes are lacking and regulation of the financial sector remains weak and fragmented. While EU regulation exists, it is designed more to nudge investors toward more sustainable investment practices by increasing transparency and reporting levels than to enforce strict standards. And it is moving in the wrong direction: the recently passed EU Corporate Sustainability Due Diligence Directive excluded investments; and now the EU Commission’s Omnibus legislative proposal threatens to undo the limited gains made on climate plans, as well as blocking future attempts for stronger action at national level.

The Risk of Inaction

Fossil fuel investment is too profitable to remain weakly regulated. If Ireland continues with its current strategy of encouraging FDI at all costs, and relying on weak EU regulation, we are headed for catastrophe. The Inter-governmental Panel on Climate Change has repeatedly warned that every fraction of a degree beyond 1.5°C brings irreversible consequences: collapsed ice sheets, vanishing coral reefs, and extreme weather events that will make vast regions of the planet uninhabitable. And yet, companies are developing oil and gas fields that could push global warming beyond 2°C.

Our research found that 91% of the investments made into fossil fuel companies by investment managers based in Ireland were to companies that have plans for fossil fuel expansion like these. Ireland cannot afford inaction on this issue.

About This Research

The figures in this report regarding investment from Ireland are based on new research commissioned by ActionAid Ireland and Trócaire. In the paper, we uncover the scale of fossil fuel investment through Ireland, who the investors are, and in which fossil fuel companies they are investing. We analyse the current regulatory framework and explain why it is inadequate—and moving in the wrong direction. And we make specific recommendations for change, which are summarised below.

Summary of Recommendations

Regulate the private financial sector
Ireland must end its outsized role as an enabler of destructive fossil fuel investment. Ireland should introduce a strong gender-responsive national human rights and environmental due diligence framework which includes the regulation of investors with respect to human rights and the environment and climate. The transposition of the EU Corporate Sustainability Due Diligence Directive could achieve this if downstream activities are included and the Omnibus proposal is rejected. Ireland should prohibit investments in fossil fuel expansion and require investors to implement climate transition plans consistent with a 1.5°C climate limit.

Endorse the Fossil Fuel Non-Proliferation Treaty
Ireland should endorse developing a Fossil Fuel Non-Proliferation Treaty to curb fossil fuel expansion and commit to a fair and funded phase out of fossil fuels.

Support tax justice
Ireland should support bold and fair new global tax rules through the UN Framework Convention on Tax, should adopt all OECD BEPS measures, and should conduct an updated and comprehensive spillover analysis of its tax policy. Ireland should take coordinated action globally, at the EU level and domestically to introduce a range of new taxes to mobilise finance needed for climate justice, based on ‘polluter pays’ and social equity principles such as wealth taxes for the highest earners, climate damages tax on investors, fossil fuel production taxes and levies on aviation and shipping.

Finance a just transition
Ireland must also meet its fair share climate finance obligations under Article 9.1 of the Paris Agreement, and pay our ecological debt to the Global South. Ireland should support conditionality-free debt cancellation for countries on the front lines of the climate crisis, commit to a new UN Framework Convention on Sovereign Debt, moving debt negotiations from the IMF to the UN, and to a debt workout mechanism that is fully representative and fair.