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Banking on a sustainable future

University of Southern Queensland project to explore how banks can finance the fight against climate change

Banks and financial institutions are standing in the way of Australia and the rest of the world reaching its climate targets.

That’s the view of University of Southern Queensland researchers who aim to play a major role in helping banks and financial institutions warm up to financing renewable energy projects.

Professor Tapan Sarker and Associate Professor Syed Shams were granted funding from the 2022-2023 round of the Council for Australian-Arab Relations (CAAR) program of the Department of Foreign Affairs and Trade (DFAT) to explore the nexus between financing renewable energy projects and banking risk using global banking data, including Australia and Saudi Arabia.

Professor Sarker said many lenders view investment in renewable energy projects and infrastructure as risky business.

“Financial, political, and economic concerns are stopping the worldwide banking industry from enthusiastically supporting and continuing to invest in the global renewable energy supply system,” he said.

“Although renewable energy investment has increased significantly in Australia, getting financing for these projects globally is still difficult because banks and financial institutions are still shaky regarding what kind of return on investment these projects can provide in the long run.

“The unpredictability of these projects' cash flows and the inherent risk can expose the banking sector to rapid disruption of financing renewable projects in the wake of the COVID-19 pandemic with uncertain economic outlook and the possible economic recession ”

Data produced by Glasgow Financial Alliance for Net Zero found just seven per cent of global banks’ financing for energy companies went to renewables between 2016-2022.

“Lenders say they must still finance fossil fuels given the global energy needs, but investments in renewable energy must increase drastically this decade to have any chance of reaching the world’s 2030 climate target plan,” Associate Professor Shams said.

Professor Sarker and Associate Professor Shams will work closely with international partners at the King Fahd University of Petroleum & Minerals (KFUPM) – a world renowned research institution based in Dhahran, Saudi Arabia.

Associate Professor Shams said they want to find innovative solutions including government green financing options and incentives to overcome the challenges of financing renewable energy projects and align them with their government's long-term vision to become climate neutral.

“While Australia and Saudi Arabia’s economies are different in that the oil sector dominates Saudi’s economy while Australia’s is more diversified, one thing the two countries have in common is very ambitious emissions reduction goals by 2030,” he said.

Professor Sarker said one of the key aspects of the project was gathering industry feedback by conducting project workshops with key stakeholders in Australia and Saudi Arabia.

“Through our project, we will be exploring the mechanisms currently in place in enhancing and promoting renewable energy projects and supply, and what other mechanisms are needed,” Professor Sarker said.

“Do banks and financial institutions need government support in safeguarding investments in renewable energy? What green finance instruments should be rolled out?

“Information and lessons drawn from this study will be vital in phasing out financing to fossil fuels and accelerating the transition to a greener energy future.”

Acting Dean and Head of School – Business, Professor Toni Brackin praised the project.

“This is a great example of high quality research collaboration and engagement with industry and civil society organisations,” Professor Brackin said.

“The outcomes of this project will have a real impact in understanding how financial institutions can play a great role in reaching renewable energy targets.”

The Council for Australian-Arab Relations program aims to broaden and strengthen Australian-Arab relations by advancing areas of shared political, economic and social interest and building a greater appreciation of each other's cultures and values.

two men in suits smiling
Associate Professor Syed Shams and Professor Tapan Sarker have received funding from the 2022-2023 round of the Council for Australian-Arab Relations program of the Department of Foreign Affairs and Trade.