4.4.3.5 Tipping points in financing of fossil fuels

Over the last decade, the notions of carbon bubble and stranded assets have been at the core of the attention of financial institutions involved in the fossil fuel sector. Additionally, theoretical modelling reveals tipping elements in the global network of banks which supply debt to the fossil fuel industry (Rickman et al., 2023b). While fossil fuel debt markets are resilient to the unregulated phase-out of capital, the introduction of capital requirements rules (e.g. setting limits on banks’ fossil fuel investments based on their capital reserves) can trigger a rapid contraction of fossil fuel debt flows. The tipping point depends on the stringency of rules and can be reached sooner if large banks lead the phase-out. Appropriate capital requirements rules, developed by standard-setting bodies and regulators, can facilitate a managed and smooth decline in fossil fuel lending. Banks should also coordinate transition plans through alliances like the Net Zero Banking Alliance to enhance their collective impact on debt markets.

Bezos Earth Fund University of Exeter logo
Earth Commission Systems Change Lab logo Systemiq logo
Global Tipping Points logo
Share this content
Top