Questions about tackling climate change present themselves with a force not found elsewhere. This is, in part, due to the enormity of the downside consequences should policymakers blunder the regulatory environment within which climate-related activities take place. Hence, ‘net zero’ has become the target in many global, regional, and local policy commitments. And growing numbers of the world’s largest firms are declaring their own plans for carbon emission reduction, including financial institutions.

As part of the European Union’s strategy, in 2022, the European Central Bank (ECB) carried out its debut climate stress test to model the impact of global warming and extreme weather on banks’ balance sheets. The results signalled future financial catastrophe. They estimated that the 41 largest eurozone lenders could suffer €70 billion of losses from these risks over three years. Even then the ECB suggested this significantly underestimates the actual climate-related risk. An effective policy response to climate change must therefore include financial sector reform. But, as climate change accelerates, the financial sector risks idling in neutral, unable to keep pace. Whilst the European Green Deal along with the suite of other European-led initiatives are held out as positive developments, the financial sector remains exposed to climate events. One reason for this is that banks continue to be major holders of carbon-heavy assets. As long as carbon-intensive finance remains lucrative, and without additional reform, this is unlikely to change and banks will not genuinely transition to make climate commitments credible.

This paper explores ways to incentivise investment in ‘green’ finance whilst simultaneously discouraging the backing of carbon-intensive projects. In particular, the paper concentrates on the role of banks and argues in favour of three policy changes. The first involves imposing greater capital requirements contingent on the holding of carbon-heavy assets. The second is to tether part of executive remuneration to a specified percentage of the value of the bank’s ‘green’ assets. Third, and more broadly, it is argued that fossil fuel subsidies should be scaled back.

With the establishment of the European Coal and Steel Community (ECSC), questions about the emergence of European unity in the form of a common identity have arisen. Since then, European identity debates have often come to the fore of European Union (EU) developments. The paper explores the puzzle surrounding the EU’s climate actorness, asking how the Green Deal is contributing to the European identity construction and whether we are witnessing a ‘greening’ of European normative power.
Therefore, the paper tests the EU’s green power in the policy context of the Carbon Border Adjustment Mechanism (CBAM). It aims to evaluate what role the CBAM plays in the construction of European identity and how it shapes the EU’s image as a climate actor both internally and externally. The investigation of European identity formation in the case of the CBAM is significant owing to the potentially wide-ranging impact of this policy, which has not been significantly studied hitherto owing to its relative novelty. The contrasting opinions on CBAM by third countries (non-EU member states), understood broadly as dissatisfaction with its present design, puts the issue of European identity as normative power at the heart of the policy debate. The paper adopts qualitative research methods with a single case study design. The analysis is framed within the boundaries of multi-level and network governance that draws attention not only to how institutions shape European identity, but also how non-state actors and different stakeholders.