Ireland a channel for climate-harming investment

September 4, 2023

€5.7 billion (US$6.2 billion) in climate-harming investment to the Global South is channelled through Ireland

Banks worldwide have provided an estimated €3.3 trillion (US$3.8 trillion) to the fossil fuel and industrial agriculture industries in the Global South

ActionAid Ireland says Fossil Fuel Divestment Act 2018 needs to be strengthened

Climate-harming investment

A new report reveals that 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.

The ActionAid Ireland report also reveals that as of January this year Irish financial institutions held €12.1 million (US$13.2 million) of investments in fossils fuels. Of this figure the Ireland Strategic Investment Fund (ISIF) held €10.4 million (US$ 11.2 million), mostly in bonds issued by Chinese electric utility company State Grid Corporation of China.

Staggering Global Figures

The report How the Finance Flows: The Banks Fuelling the Climate Crisis and Ireland’s Role in Enabling This was released to coincide with the global launch of an ActionAid International study which shows that banks all over the world provided an estimated €2.98 trillion (US$3.2 trillion) to the fossil fuel industry in the Global South in the seven years since the Paris Agreement on Climate Change was adopted.

It further shows that bank financing provided to the largest industrial agriculture companies operating in the Global South amounted to €320 billion (US$370 billion) over the same period.

Since the Paris Agreement, banks have provided 20 times more financing to fossil fuels and agriculture activities in the Global South than Global North governments have provided €465.9 billion ($513 billion) as climate finance to countries on the front lines of the climate crisis.

Shocking destructive practice

Today ActionAid Ireland CEO, Karol Balfe, said: “At a time of unprecedented climate crisis, the world’s banks and investments funds continue to invest staggering amounts into fossil fuels and environmentally harmful large-scale agribusiness in the Global South. This is destructive practice and truly shocking. Our research shows that Ireland plays a role in this through our corporation tax regime which depends on foreign direct investment.”

Ms Balfe continued: “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. But this comes at a cost for the world’s poor, particularly women, who are disproportionately affected by the climate crisis.”

“The negative impact of Ireland’s corporation tax regime on the human rights and poverty levels of citizens of the global south, and its lack of coherence with Irish Aid priorities, needs to be questioned.” she said.

Fossil Fuel Divestment Act 2018

Ms Balfe said Ireland became the first country in the world to divest public money from fossil fuel assets through the Fossil Fuel Divestment Act 2018. But as the climate crisis accelerates alarmingly, the Act needs to be reviewed.

“The Fossil Fuel Divestment Act 2018 drew important attention to the responsibility the Irish State has in ensuring investment of public monies does not exacerbate the climate crisis. However, this only referred to one investment fund, and as we now understand the scale of harmful financial flows from Ireland, we must review and expand this Act.”

The Act is principally concerned with fossil fuel exploration (undertakings) as opposed to all fossil fuel use. This essentially still allows for investment from the Irish Strategic Investment Fund in fossil fuel use, and the Act is silent on agribusiness.

“The fact is that Irish investment managers over the last five years held billions in bonds and shares attributable to fossil fuels and agribusiness in the Global South. This reveals huge flaws in regulation.” said Ms Balfe.

“Unbelievably, given that the world faces a devastating climate crisis, businesses, banks and private pension funds have no legal obligation to divest from practises that are harmful to the environment.”

Ms Balfe added: “Ireland is on one hand making important commitments on climate financing, poverty reduction and domestic climate targets, all of which need greater action and implementation. But Ireland needs to examine the role it plays in enabling billions to flow to harmful fossil fuel and agribusiness in the Global South.”

Fuelling poverty

There are many examples of how fossil fuels are devastating communities.

In Brazil, deforestation for agribusiness is displacing communities.
In the Niger Delta fossil fuel exploration is contaminating people’s water and food supplies.
Climate change has resulted in Malawi and Mozambique facing the terrifying effects of Cyclone Freddy, the longest-lasting cyclone on record.
Five seasons without rainfall in East and The Horn of Africa has caused severe drought and unprecedented hunger. Women and children, who are 14 times more likely to die from climate disasters than men, are facing the greatest distress.

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.