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Hedge fund billionaire calls for higher capital requirements for fossil fuel financing
(EurActiv, 20 Oct 2021) Days before the Commission is expected to publish its proposal to change capital requirements rules, billionaire hedge fund manager Chris Hohn called for a stricter treatment of fossil fuel investments in banks’ balance sheets. His call is supported by activists and experts who fear the effects of climate change on financial stability.
At the end of October, the European Commission is expected to present its proposal to adapt the capital requirements for European banks. The adaptation aims to make the EU banking sector comply with the international Basel III regulatory framework for the stability of the banking system.
Stranded assets
The stability of the financial system requires banks to hold enough capital to cover the risks, including climate change, in their balance sheets.
If the economy is to shift away from fossil fuels, many assets relying on fossil fuels will lose their value. They become so-called “stranded assets”. However, the current capital requirements for banks do not reflect this risk. Exposures to fossil fuels are treated the same as any other exposure.
Some financial experts hope that this will change.
On 8 October, Hohn, who is also an activist investor, wrote a letter to the European Central Bank and the European Banking Authority, urging European authorities to incorporate climate risks into prudential regulation.
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