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After ‘HLEG’: EU Banks, Climate Change Abatement and the Precautionary Principle

  • Jay CULLEN (a1)


The EU is making progress in reducing its carbon footprint. The creation of a High-Level Group on Sustainable Finance has supplemented recent market-led initiatives and provided some recommendations for future reform. This article argues that more remains to be achieved. In particular, in light of the fundamental structural uncertainties attached to climate change, precautionary approaches to the funding of GHG-intensive industries are worth contemplating. Such measures include raising the capital requirements on assets with ‘brown’ credentials. The high dependence on banks for external financing in the EU makes these reforms particularly appropriate for implementation within the bloc.



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Reader in Banking Law and Financial Regulation, School of Law, University of Sheffield and a member of the Sustainable Market Actors for Responsible Trade (‘SMART’) Project (, which is based at the University of Oslo. The SMART Project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 693642, and we gratefully acknowledge its support.



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1 In January 2018, the ‘Doomsday Clock’ of the Atomic Scientists Science and Security Board was moved (by 30 seconds) to ‘two minutes to midnight’, its closest position to midnight since 1953. This metaphorical device indicates the Atomic Scientist Board’s estimation of the threat level to global order. They attributed this partially to the lack of action in ‘avoiding catastrophic temperature increases in the long run [which] requires urgent attention now. Global carbon dioxide emissions have not yet shown the beginnings of the sustained decline towards zero that must occur if ever-greater warming is to be avoided … the global response has fallen far short of meeting this challenge’. See Atomic Scientists Science and Security Board, ‘It Is 2 Minutes to Midnight: 2018 Doomsday Clock Statement’ (Bulletin of the Atomic Scientists, 25 January 2018), p 2.

2 See, for example, the Paris Climate Agreement, which has the central aim of capping future global warming by two degrees Celsius, was ratified in 2016 following the acceptance of its protocols by the vast majority of parties to the United Nations Framework Convention on Climate Change. See United Nations, Paris Agreement (2015).

3 Article 3(3) TFEU states: ‘The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance’.

4 2030 Climate & Energy Framework,

5 European Commission, EU Action Against Climate Change: Leading Global Action To 2020 And Beyond (2009), which states at page 10 that ‘[t]he adoption of the climate and energy package makes the European Union the first region of the world to have both committed to such ambitious targets and put in place the measures needed to achieve them’.

6 Oberthilr, S and Kelly, CR, ‘EU Leadership in International Climate Policy: Achievements and Challenges’ (2008) 43 International Spectator 35 .

7 EU High-Level Group on Sustainable Finance, Financing a Sustainable European Economy (January 2018) Final Report.

8 See, for example, Miller, AS and Swann, SA, ‘Climate Change and the Financial Sector: A Time of Risk and Opportunity’ (2016) 29 Georgetown Environmental Law Review 69 .

9 According to research, globally, a third of oil reserves, half of gas reserves and over 80 percent of current coal reserves should remain unused from 2010 to 2050 in order to meet a target of 2° C warming. Such restrictions would expose the financial sector to significant risks as write-downs impose losses on counterparties. See McGlade, C and Ekins, PThe Geographical Distribution of Fossil Fuels Unused When Limiting Global Warming to 2 °C’ (2015) 517 Nature 187 .

10 This denotes outcomes (be they known, unknown, or disputed), for which probability statements cannot be made, because the data are too ambiguous. FH Knight, Risk, Uncertainty, and Profit (Hart, Schaffner, and Marx, 1921).

11 Weitzman, M, ‘On Modeling and Interpreting the Economics of Catastrophic Climate Change’ (2009) 91 Review of Economics and Statistics 1 , p 1.

12 For discussion of the precautionary principle and financial regulation, see Omarova, ST, ‘License to Deal: Mandatory Approval of Complex Financial Products’ (2012) 90 Washington University Law Review 64 (arguing at page 85 that ‘adopting and operationalizing the general concept of precaution in the context of post-crisis financial systemic risk regulation may be a worthwhile, and even necessary, exercise’). See also I Webb, D Baumslag and R Read, ‘How Should Regulators Deal with Uncertainty? Insights from the Precautionary Principle’ (Bank of England Underground, 27 January 2017)

13 Faure, M and Vos, E (eds), Jurisdische Afbakening van het Voorzorgsbeginsel: Mogelijkheden en Grenzen (The Hague: Dutch Health Council, 2003) Gezondheidsraad Publicatie Nr A03/03.

14 CR Sunstein, ‘Beyond the Precautionary Principle’ (2003) 151 University of Pennsylvania Law Review 1003. Taleb has argued that: ‘Skepticism about climate models should lead to more precautionary policies in the presence of ruin’. See NN Taleb, Silent Risk, Technical Incerto: Lectures Notes on Probability, Vol 1 (Descartes Publishing, 2015), p 23.

15 M Ferreira, D Mendes and JC Pereira ‘Non-Bank Financing of European Non-Financial Firms’ (European Federation of Financial Analysts Societies, July 2016).

16 See ECB, Report on Financial Structures (October 2013).

17 Weyzig, F, Kuepper, B, van Gelder, JW and van Tilburg, R, ‘The Price of Doing Too Little Too Late; the Impact of the Carbon Bubble on the European Financial System’ (2014) 11 Green New Deal Series .

18 Stern, N, The Economics of Climate Change (2007), p 1 .

19 Financial Stability Board, Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) Final Report.

20 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive (EC) 96/61: [2003] OJ L275/32.

21 Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009 amending Directive (EC) 2003/87 so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community: [2009] OJ L140/63.

22 Campbell, D, Klaes, M and Bignell, C, ‘After Cancun: The Impossibility of Carbon Trading’ (2010) 29 University of Queensland Law Journal 163 .

23 The EU Emissions Trading System,

24 Coase, R, ‘The Problem of Social Cost’ (1960) 3 Journal of Law and Economics 1 .

25 Bogojevic, S, ‘EU Climate Change Litigation, the Role of the European Courts, and the Importance of Legal Culture’ (2013) 35 Law & Policy 184 .

26 See, for example, The Air Transport Association of America, American Airlines, Inc, Continental Airlines, Inc, United Airlines, Inc v The Secretary of State for Energy and Climate Change C-366/10, EU:C:2011:864, which challenged the validity of Directive 2008/101 in light of international law and international customary principles.

27 M Muûls, J Colmer, R Martin and UJ Wagner, ‘Evaluating the EU Emissions Trading System: Take It or Leave It? An Assessment of the Data After Ten Years’ (Grantham Institute, October 2016) Briefing Paper No 21.

28 T Laing, M Sato, M Grubb and C Comberti, ‘Assessing the Effectiveness of the EU Emissions Trading System’ (Centre for Climate Change Economics and Policy, January 2013) Working Paper No 126.

29 Campbell et al, note 22 above.

30 For example, in 2017, a new European Green Securities Steering Committee was launched with the goal of promoting green securities market development in the EU. See S Kidney, ‘New EU Green Securities Steering Committee to Promote Climate Finance Opportunities’ (Climate Bonds Initiative, 4 July 2017)

31 The EIB issued the world’s first Green Bond, labelled a Climate Awareness Bond (‘CAB’). As of 31 December 2016, EIB remained the largest issuer of Green Bonds with over €15bn raised across 11 currencies.

32 See Climate Bonds Initiative, Bonds and Climate Change: The State of the Market (2017).

33 S Kidney, D Giuliani and B Sonerud, ‘Stimulating Private Market Development in Green Securitisation in Europe: The Public Sector Agenda’ (Climate Bonds Initiative, April 2017), p 4.

34 COM (2015) 468 (30.9.2015), Action Plan on Building a Capital Markets Union Brussels.

35 Regulation (EU) 2017/2402 of the European Parliament and of the Council laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation: [2017] OJ L347/35.

36 OECD, Green Bonds: Mobilising the Debt Capital Markets for a Low-Carbon Transition (December 2015).

37 Ibid.

38 European Commission and DG Climate Action, Shifting Private Finance Toward Climate-Friendly Investments (March 2015).

39 Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy performance of buildings: [2010] OJ L153/13.

40 Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC: [2012] OJ L315/1.

41 Dutch-based Obvion issued the world’s first green Residential Mortgage-Backed Security in June 2016, a €500m deal certified under the Climate Bonds Standard.

42 Mark Carney, ‘Breaking the Tragedy of the Horizon – Climate Change and Financial Stability’, speech given at Lloyd’s of London, 29 September 2015.

43 See note 7 above, p 19.

44 AG Haldane, ‘Patience and Finance’, speech given at Oxford China Business Forum, Beijing, 2 September 2010.

45 Gigler, F, Kanodia, C, Sapra, H and Venugopalan, R, ‘How Frequent Financial Reporting Can Cause Managerial Short-Termism: An Analysis of the Costs and Benefits of Increasing Reporting Frequency’ (2014) 52 Journal of Accounting Research 357 .

46 Cullen, J, Executive Compensation in Imperfect Financial Markets (Elgar, 2014).

47 Chevalier, J and Ellison, G, ‘Career Concerns of Mutual Fund Managers’ (1999) 114 Quarterly Journal of Economics 389 .

48 Louw, A, ‘Clean Energy Investment Trends, 3Q 2017’ (Bloomberg New Energy Finance, 5 October 2017), p 16 .

49 EU High-Level Expert Group on Sustainable Finance, Financing a Sustainable European Economy: Interim Report (July 2017), p 13.

50 COM (2018) 97 (8.3.2018), Action Plan: Financing Sustainable Growth.

51 E Ferran, Building an EU Securities Market (Cambridge University Press, 2004).

52 B Jones, ‘Asset Bubbles: Re-thinking Policy for the Age of Asset Management’ (2015) Working Paper No 15/27.

53 As noted by Hands: ‘This is the “rational economic agent” of mainstream microeconomics—the agent who maximizes a well-behaved utility function subject to a budget constraint in demand theory and makes decisions based on maximization of expected utility in risky environments—as well as the rational individual agents in “decision theory” and “rational choice theory” … this familiar utility-maximizing individual is used to model the demand, supply or equilibrium of an entire market or characterize the equilibrium of an entire economy’. See Hands, DW, ‘Conundrums of the Representative Agent’ (2017) 41 Cambridge Journal of Economics 1685 .

54 Avgouleas, E, ‘The Global Financial Crisis and the Disclosure Paradigm in European Financial Regulation: The Case for Reform’ (2009) 6 European Company and Financial Law Review 440 .

55 Fama, EF, ‘Random Walks in Stock Market Prices’ (1965) 21 Financial Analysts Journal 55 , p 56.

56 EU Directive 2014/95/EU regarding disclosure of nonfinancial and diversity information by certain large companies and groups: [2014] OJ L330/1.

57 See note 19 above, p iii.

58 Financial Stability Board, Proposal for a Disclosure Task Force on Climate-Related Risks (9 November 2015).

59 Ibid.

60 Mark Carney, ‘Better Market Information Can Help Combat Climate Change’ (Financial Times, 28 June 2017)

61 Ibid. Indicatively, the European Banking Federation (‘EBF’) argues that: ‘Clear terminology must be defined and financial regulation needs to be assessed at every level to achieve optimal disclosure and transparency and to ensure success. … A common taxonomy, set of minimum standards and disclosure framework on Green Finance are essential for efficient allocation of financial resources to green projects …’. See EBF, Towards a Green Finance Framework (2017), pp 2, 7. The TCFD argues that: ‘Without the right information, investors and others may incorrectly price or value assets, leading to a misallocation of capital. … Increasing transparency makes markets more efficient and economies more stable and resilient’. See note 19 above, p 3.

62 Azar, C and Lindgren, K, ‘Catastrophic Events and Stochastic Cost-Benefit Analysis of Climate Change’ (2003) 56 Climatic Change 245 .

63 Mandel, GN and Gathii, JT, ‘Cost-Benefit Analysis Versus the Precautionary Principle: Beyond Cass Sunstein’s Laws of Fear’ (2006) 5 University of Illinois Law Review 1037 .

64 NN Taleb, Y Bar-Yam, R Douady, J Norman and R Read, ‘The Precautionary Principle: Fragility and Black Swans from Policy Actions’ (NYU Extreme Risk Initiative, 24 July 2014) Working Paper.

65 As an example of this uncertainty, the IPCC in 2001 argued that global temperatures might rise anywhere between 1.4°C and 5.8°C by 2100; however, no assessment was made of the relative likelihood of intermediate warming values, because the scientists involved held significantly divergent views on the scale of warming, and consequently believed that a single probability distribution could not capture this divergence.

66 Weitzman, M, ‘Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change’ (2011) 5 Review of Environmental Economics and Policy 275 .

67 Weitzman, M, ‘GHG Targets as Insurance Against Catastrophic Climate Damages’ (2012) 14 Journal of Public Economic Theory 221 .

68 Stern, N, ‘The Structure of Economic Modeling of the Potential Impacts of Climate Change: Grafting Gross Underestimation of Risk onto Already Narrow Science Models’ (2013) 51 Journal of Economic Literature 838 .

69 World Bank Group, Turn Down the Heat: Confronting the New Climate Normal (2014). According to Covington and Thamotheram of Cambridge and Oxford Universities respectively, these World Bank Reports ‘describe a world for which projections are highly uncertain, climatic tipping points may be exceeded and impacts may cascade at regional scales. They estimate that about 60% of the global land surface will be subjected to unprecedented heat extremes, implying a completely new climatic regime posing immense pressure globally on natural and human systems. There will be severe droughts, major floods, inundations of coastal cities, unprecedented heat waves and more high-intensity cyclones. Monthly temperatures will increase by six standard deviations in the tropics and two to five standard deviations in the mid-latitudes. The warmest July could be 9 [degrees Celsius] warmer in the central US and Mediterranean than the warmest July at present. There will be substantially increased water scarcity, increased risks to global and regional food production, an increase in ocean acidity of one and a half times and an irreversible loss in biodiversity’. See H Covington and R Thamotheram, ‘The Case for Forceful Stewardship (Part 1): The Financial Risk from Global Warming’ (2015), pp 7–8, available at SSRN:

70 According to two of the authors of the 2014 IPCC Report, ‘The [2°C] goal is effectively unachievable. Owing to continued failures to mitigate emissions globally, rising emissions are on track to blow through this limit eventually. To be sure, models show that it is just possible to make deep planet-wide cuts in emissions to meet the goal. But those simulations make heroic assumptions—such as almost immediate global cooperation and widespread availability of technologies such as bioenergy carbon capture and storage methods that do not exist even in scale demonstration’. See Victor, DG and Kennel, CF, ‘Climate Policy: Ditch the 2°C Warming Goal’ (2014) 514 Nature 30, pp 3031 . See also Raftery et al, who argue that: ‘The likely range of global temperature increase is 2.0–4.9°C, with median 3.2°C and a 5% (1%) chance that it will be less than 2°C (1.5°C)’. See Raftery, AE, Zimmer, A, Frierson, DMW, Startz, R and Liu, P, ‘Less than 2°C Warming by 2100 Unlikely’ (2017) 7 Nature Climate Change 637 .

71 Dietz, S and Stern, N, ‘Endogenous Growth, Convexity of Damage and Climate Risk: How Nordhaus’ Framework Supports Deep Cuts in Carbon Emissions’ (2015) 125 The Economic Journal 574 .

72 Cambridge Institute of Sustainability Leadership, Unhedgeable Risk: Stress Testing Sentiment in a Changing Climate (2015).

73 Schneider, SH, ‘Abrupt Non-linear Climate Change, Irreversibility and Surprise’ (2004) 14 Global Environmental Change 245 .

74 Intergovernmental Panel on Climate Change, ‘Climate Change 1995—the Science of Climate Change’ in Houghton, JT, Meira Filho, LG, Callander, BA, Harris, N, Kattenberg, A and Maskell, K (eds), The Second Assessment Report of the IPCC: Contribution of Working Group I (Cambridge University Press, 1996).

75 As noted by Schneider: Such surprises are ‘defined as rapid, non-linear responses of the climatic system to anthropogenic forcing, such as a collapse of the “conveyor belt” circulation in the North Atlantic Ocean or rapid deglaciation of polar ice sheets. Potential climate change, and more broadly, global environmental change, is replete with such surprises because of the enormous complexities of the processes and interrelationships involved (such as coupled ocean, atmosphere, and terrestrial systems) and our insufficient understanding of them’. See note 74 above, p 245.

76 Lenton, TM, Held, H, Kriegler, E, Hall, JW, Lucht, W, Rahmstorf, S and Schellnhuber, HJ, ‘Tipping Elements in the Earth’s Climate System’ (2008) 105 Proceedings of the National Academy of Science USA 1786 .

77 See note 69 above, p 7.

78 Fair Finance Guide, Undermining our Future: A Study of Banks’ Investments in Selected Companies Attributable to Fossil Fuels and Renewable Energy (2 November 2015), p iv.

79 Emanuele, C, ‘Beyond Carbon Pricing: The Role of Banking and Monetary Policy in Financing the Transition to a Low-Carbon Economy’ (2015) Ecological Economics 121 .

80 ‘Extreme’ in this context refers to extreme oil (such as tar sands oil or Arctic drilling); coal mining; coal power (mainly the funding of power stations); and liquefied natural gas export. Many EU banks have pledged to end their funding support for coal mining; however, there are no such pledges in relation to other extreme activities.

81 BankTrack et al, Banking on Climate Change: Fossil Fuel Finance Report Card (June 2017).

82 ShareAction, Banking on a Low-Carbon Future (December 2017).

83 European Systemic Risk Board, Too Late, Too Sudden: Transition to a Low-Carbon Economy and Systemic Risk (February 2016) Reports of the Advisory Scientific Committee, No 6, p 2.

84 Battiston, S, Mandel, A, Monasterolo, I, Schutze, F and Visentin, G, ‘A Climate Stress-Test of the Financial System’ (2017) 7 Nature Climate Change 283 .

85 M Aglietta and É Espagne, Climate and Finance Systemic Risks, More than an Analogy? The Climate Fragility Hypothesis (CEPII, 2016) Working Paper No. 10.

86 S Batten, R Sowerbutts and M Tanaka, Let’s Talk About the Weather: The Impact of Climate Change on Central Banks (Bank of England, May 2016) Staff Working Paper No 603.

87 Garmaise, M and Moskowitz, TJ, ‘Catastrophic Risk and Credit Markets’ (2009) 64 Journal of Finance 657 .

88 C Lambert, F Noth and U Schuewer, ‘How Do Banks React to Increased Asset Risks? Evidence from Hurricane Katrina’ (29th International Conference of the French Finance Association (AFFI), 2012).

89 L Zhang and M Massa, ‘The Spillover Effects of Hurricane Katrina on Corporate Bonds and the Choice Between Bank and Bond Financing’ (AFA, 2012) Chicago Meetings Paper.

90 UN Rio Declaration on Environment and Development, Vol I, A/CONF.151/26.

91 Framework Convention on Climate Change (May 9, 1992), 31 ILM (1992), pmbl 9.

92 For example, see the arguments presented to the World Trade Organisation (‘WTO’) between the EU on the one hand, and the US, Canada, and Argentina on the other, concerning the status of the precautionary principle in international law in European Communities. Measures Affecting the Approval and Marketing of Biotech Products, Report of the Panel, WT/DS291/R, WT/DS292/R and WT/DS293/R, Final Report issued 29 September 2006.

93 COM (2000) 1 final (2.2.2000), Communication from the Commission on the Precautionary Principle.

94 For example, the Water Framework Directive (notably where the identification of priority hazardous substances is concerned) decisions regarding phthalates take the principle into account.

95 See Regulation (EU) No 528/2012 of the European Parliament and of the Council of 22 May 2012 concerning the making available on the market and use of biocidal products: [2012] OJ L167/1.

96 See Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (‘REACH’), establishing a European Chemicals Agency, amending Directive 1999/45/EC and repealing Council Regulation (EEC) No 793/93 and Commission Regulation (EC) No 1488/94 as well as Council Directive 76/769/EEC and Commission Directives 91/155/EEC, 93/67/EEC, 93/105/EC and 2000/21/EC: [2006] OJ L396/1.

97 See Directive 2009/41/EC of the European Parliament and of the Council of 6 May 2009 on the contained use of genetically modified micro-organisms: [2009] OJ L125/75.

98 Consolidated version of the TFEU Part Three: Union Policies and Internal Actions – Title XX: Environment – Article 191 (ex Article 174 TEC): [2016] OJ C202 1-388.

99 Ashford, NA, ‘The Legacy of the Precautionary Principle in US Law: The Rise of Cost-Benefit Analysis and Risk Assessment as Undermining Factors in Health, Safety and Environmental Protection’ in N De Sadeleer (ed) Implementing the Precautionary Principle: Approaches from the Nordic Countries, the EU and the United States (Routledge, 2007).

100 IPCC, Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC, 2014), p 8.

101 See note 64 above, p 10.

102 See note 93 above, pp 4–5.

103 Ibid, p 6.

104 See note 14 above, p 1017.

105 See note 102 above, p 3

106 See note 14 above, p 1017.

107 Ibid, p 4

108 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC: [2013] OJ L176/338.

109 Basel Committee on Banking Supervision, Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (December 2010, rev June 2011).

110 See note 84 above.

111 K Alexander, ‘Stability and Sustainability in Banking Reform: Are Environmental Risks Missing in Basel III?’ (CISL & UNEP FI, 2014), p 15.

112 Ibid, p 19.

113 J Brunsden, ‘Brussels Looks at Easing Bank Capital Rules to Spur Green Investment’ (Financial Times, 10 January 2018).

114 See, for example, the HLEG comment that: ‘There is … a perception that calibrations on project financing and specialised lending are high. Feedback from banks with a long history of project financing suggests that regulatory capital requirements far exceed economic capital calculations’. See note 50 above, p 32.

115 European Commission, Fact Sheet: Frequently Asked Questions: Action Plan on Financing Sustainable Growth, Brussels (8 March 2018), p 3.

116 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012: [2013] OJ L176/1.

117 Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates): [2017] OJ L236/14.

118 Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and amending Regulation (EU) No 648/2012, COM (2016) 850, p 3.

119 S Matikainen, Green Doesn’t Mean Risk-Free: Why We Should Be Cautious About a Green Supporting Factor in the EU (Grantham Research Institute on Climate Change and the Environment, 18 December 2017)

120 A Boot and D Schoenmaker, ‘Climate Change Adds to Risk for Banks, but EU Lending Proposals Will Do More Harm than Good’ (Bruegel, 16 January 2018)

121 See note 111 above.

122 Ibid, p 16.

123 European Banking Authority, Report on SMEs and SME Supporting Factor, EBA/Op/2016/04 (23 March 2016).

124 Ibid.

125 Articles 144(2), 173(3), and 180(3)(b) of Regulation (EU) No 575/2013.

126 See note 49 above, p 31.

127 H Fraisse, M Lé and D Thesmar, The Real Effects of Bank Capital Requirements (ESRB, June 2017) Working Paper Series No 47.

128 Bank of England, The Financial Policy Committee’s Powers to Supplement Capital Requirements: A Policy Statement (January 2014), p 10.

129 Chaudhry, SM, Mullineux, A and Agarwal, N, ‘Balancing the Regulation and Taxation of Banking’ (2015) 42 International Review of Financial Analysis 38 .

130 See note 84 above, p 6.

131 This valuable point was made by a reviewer of the article.

132 For example, according to the Financial Times, ‘Pension funds cite both ethical and financial reasons for reducing exposure to fossil fuels’. See A Mooney, ‘Growing Number of Pension Funds Divest from Fossil Fuels’ (Financial Times, 28 April 2017).

133 For example, according to Arabella Advisors: ‘On the one-year anniversary of the Paris climate agreement, the value of assets represented by institutions and individuals committing to some sort of divestment from fossil fuel companies has reached $5 trillion. To date, 688 institutions and 58,399 individuals across 76 countries have committed to divest from fossil fuel companies, doubling the value of assets represented in the last 15 months’. See The Global Fossil Fuel Divestment and Clean Energy Investment Movement (December 2016) Such momentum continued in 2017, with institutions including the World Bank, Axa, ING, Norway’s Government Pension Fund Global, and the New York City Common Fund declaring they would scale back or end investment in some fossil fuel industries.

134 AG Haldane, ‘Control Rights (and Wrongs)’, Wincott Annual Memorial Lecture, Westminster, London, 24 October 2011.

* Reader in Banking Law and Financial Regulation, School of Law, University of Sheffield and a member of the Sustainable Market Actors for Responsible Trade (‘SMART’) Project (, which is based at the University of Oslo. The SMART Project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 693642, and we gratefully acknowledge its support.



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