UK Government could be bankrolling a climate crunch after saving RBS from the credit crunch with taxpayers’ money, reveals a new report [1].

Government should instead aim to turn RBS into a world-leading green bank to kick-start a low carbon economy.

Independent research concludes that taxpayers would get the best return from our massive investment in the Royal Bank of Scotland if the Government motivates RBS to focus on a greener future.

Independent consulting actuary Nick Silver wrote the research report for a coalition of non-governmental bodies [2]. The report argues that ‘business as usual’ at RBS exposes taxpayers to both environmental and financial risks, which can be reduced if the bank withdraws from funding high-carbon projects such as mining and power stations, and instead invests in renewable energy and clean technologies.

By supporting RBS’s current strategy, the Government is undermining its own climate change policies. Worse still, the report argues, it is telling banks and businesses that it will not impose credible policy measures to cut the use of fossil fuels. Yet to meet UK climate change targets it has been estimated that £170bn of new investment will be needed in clean energy by 2025 [3].

As well as failing to meet its own environmental standards, the Government [4] is also failing to meet existing good investor practice and legal obligations under the 2006 Companies Act.

Report author Nick Silver [5] said: “The Stern review showed that the consequences of burning fossil fuels will expose the taxpayer to severe economic damage and risk. Currently the fossil fuels industry does not internalise this risk, which is almost entirely borne by current and future taxpayers. It therefore does not make sense for RBS, which is owned by the taxpayer, to continue financing these activities, which cause economic damage to its owner.
“There is a sound business case for RBS to initiate a transformation into a sustainable bank. It is the duty of RBS’ owner – the Government acting on behalf of the taxpayers – to assess the risks and opportunities involved and to act as responsible, engaged owners to drive such a transformation.”
Dr Craig MacKenzie, Director of the Business and Climate Change Centre at Edinburgh Business School [6] said:

“We need companies to create essential new low carbon technologies; to transform the way we all do business. Banks, like RBS, also have a fundamentally important role to play – we need them to channel much of the capital required to pay for these transitions. And their owners, government or otherwise, should be fully and intelligently engaged.

“The roots of the financial crisis lie partly in a failure of owners to play a sufficiently engaged part in the governance process of banks; it would be ironic if the solution to the current crisis were to create a governance vacuum that contributes to the next one.

Duncan McLaren, Chief Executive of Friends of the Earth Scotland, one of the report sponsors, said: “Weaning the RBS off it’s ‘dirty habits’ of funding climate wrecking projects such as coal mines, and turning it into a powerhouse for renewables and decarbonisation would be great for Scotland’s economy, as well as for the climate. There are dozens of Scottish firms in renewable and other clean technologies desperate for increased financial support to bring their products to global markets. We hope all Scotland’s politicians will take up this case on behalf of us all as taxpayers and citizens”

The report recommends that RBS should sign up to the Carbon Disclosure Project (CDP) enabling investors to assess the climate risks of its investments [7]. RBS should also set and monitor targets for reducing emissions from its lending portfolio. The report also advises that the Government must behave as an active owner and incorporate environmental, social and corporate governance issues into its ownership policies and practices. Additionally, government should insist RBS link Executive pay to, and disclose all information regarding, the bank’s environmental and social performance. In addition, a revised investment mandate should be developed and adopted, drawing on independent sources and best practices to identify which activities should not be funded in future.

The report’s publication coincides with a High Court hearing in London to legally challenge the Treasury’s failure to stop RBS investing in what campaigners describe as ‘some of the most environmentally damaging and socially irresponsible projects and companies around’ [8].

Liz Murray from the World Development Movement Scotland, one of the organisations that is taking legal action against the Treasury and commissioned the report, said: “Driving RBS to pull out of high carbon exploitative investments around the world would offer massive benefits to affected communities in developing nations. But this report shows it would be in the best interest for all of us as taxpayers too. We call on the Government to take a lead here, and it’s absolutely clear that there is a sound legal and business case for the Treasury to stop these investments.”

For media enquiries please contact:

Per Fischer, Press Office, Friends of the Earth Scotland
T: 0131 243 2719

Nick Silver, report author.
T: 07711 566 425.

Notes for Editors

1. “Towards a Royal Bank of Sustainability: protecting taxpayers’ interests; cutting carbon risk”. The report was written by Nick Silver, an independent consulting actuary, using data supplied by Investor Watch and Platform. Advance copies of the report are available on request from Friends of the Earth Scotland.
2. The report was commissioned by Friends of the Earth Scotland, PLATFORM, People & Planet, Investor watch, Landman Economics and the World Development Movement.
3. Figures from Ernst & Young (2009): Securing the UK’s Energy Future: Meeting the financing challenge:
Investment Type………………………………….Increase in spending to 2025 (£bn)
Renewable generation capacity……………………..112.5
Transmission and distribution……………………..28.254
Smart metering…………………………………..13.4
Carbon emission reduction target/Supplier Obligation…15.7
Total…………………………………………..169.8
4. Acting through UK Financial Investments, UKFI – the body which manages such Government shareholdings.
5. Nick Silver is an independent consulting actuary. He is an honorary senior visiting fellow at Cass Business School and chairman of the actuarial profession’s Resource and Environment Group.
6. Dr Craig MacKenzie contributed a Foreword to the report. He is Director of the Centre for Business and Climate Change at the University of Edinburgh Business School, and Chair of the Advisory Group of the Carbon Accountability Programme.
The Carbon Accountability Programme aims to ensure confidence in our actions to reduce carbon. The CAP is hosted by Friends of the Earth Scotland and seed funded by Joseph Rowntree Charitable Trust. www.carbonconfidence.org
7. Carbon Disclosure Project, CDP, an independent not-for-profit organisation holding the largest database of primary corporate climate change information in the world. www.cdproject.net
8. Platform, People and Planet and the World Development Movement are seeking leave to pursue a judicial review of the Treasury’s decision to recapitalise RBS. The court hearing will take place at the High Court of Justice, The Strand on Tuesday 20th October.
9. Friends of the Earth Scotland exists to help people in Scotland look after the planet for everyone’s future. We think globally and act locally in Scotland, delivering solutions to climate change by enabling and empowering people to take both individual and collective action. We offer help to people with the big things in life – helping to sustain a healthy society and environment. We believe that all of our children’s futures will be better because of what we do. www.foe-scotland.org.uk