Banks must clean up their financing of fossil fuels

G7 finance ministers and central bank heads met last week to discuss expanding the private sector’s role in climate finance before COP26 in November. It follows a damning report by NGOs that revealed banks have provided US$3.8tn to fossil fuels since the signing of the Paris Agreement five years ago.

The meeting, held on April 6 and chaired by UK chancellor Rishi Sunak, saw the G7 members examine their role in driving forward the transition of their economies and financial systems to net zero – a state where greenhouse gases (GHGs) added to the atmosphere are no more than those removed.

During the discussion, attention was turned to amplifying the role of the private sector in financing climate action.

Companies and banks play a key part in the switch to a more sustainable future that relies less on fossil fuel-based energy. In some instances, they are showing commitment to climate initiatives.

Oil giant BP has committed to reduce oil and gas production by 40% by 2030. Meanwhile, financiers have been establishing more robust climate policies and cutting their support for fossil fuels in recent years. Some French financial institutions in particular have comprehensive coal phase-out strategies.

Several firms and banks, including Shell, Total, Barclays and Citi, have put in a net zero GHG target by mid-century – though quite how that might be achieved is not yet clear.

As well as policy, focus must shift to the amount of finance being secured for fossil fuels. Banking on Climate Chaos, a report published in late March by a group of NGOs, finds that the world’s 60 largest commercial and investment banks poured US$3.8tn into fossil fuels from 2016-20, following the signing of the Paris pact in 2015 to limit global warming.

The five top banks for financing fossil fuels for 2016-20 are all based in North America, with the top four in the US. North American banks make up only 13 of the 60 banks analysed, but account for almost half of global fossil fuel financing.

JP Morgan was the biggest financier of companies involved in fossil fuels for that period, according to the findings, allocating a total of US$316.7bn. A significant dip in financing last year has put the bank’s trend line on a downwards trajectory.

Citi is the second largest financier of fossil fuels, followed by Wells Fargo, Bank of America and RBC. The next five banks are more regionally diverse: MUFG, Barclays, Mizuho, TD and BNP Paribas.

Despite fossil fuel financing dropping by 9% last year compared with 2019 – parallel to the global drop in demand and production due to the pandemic – levels in 2020 remained higher than in 2016, reveals the research.

Additionally, in 2020, bank financing from January to June was the highest of any half year since 2015, as large energy companies loaded up on cheap debt at the start of the pandemic in preparation for tough times ahead.

“The overall fossil fuel financing trend of the last five years is still heading definitively in the wrong direction, reinforcing the need for banks to establish policies that lock in the fossil fuel financing declines of 2020, lest they snap back to business-as-usual in 2021,” the report reads.

Meanwhile, it finds that the banks with the strongest climate policies are Italy’s UniCredit and several French institutions; the banks with the most comprehensive rules are all in Europe. Interestingly, BNP Paribas is second, proving that more robust policies on some aspects of fossil fuels do not mean finance is not being allocated elsewhere.

BNP Paribas hails itself a world leader in sustainable finance on its website and, while it is financing climate-friendly deals that are impressive, it is an incongruous scenario when reviewing its climate and fossil fuel financing together. The bank completed US$40.8bn for fossil fuels in 2020, a 41% increase on its 2019 activity. Last year’s figure is 141% higher than the amount allocated in 2016, finds the research. BNP Paribas has also been criticised by investigative campaign groups for its “weak” plans to cut financing to companies involved in the deforestation of the Amazon.

The report adds that post-pandemic, climate finance will continue to be “fraught with contradictions” and “confusions”.

RBC told GTR: “We have made a commitment to track and report financed emissions in 2022, and subsequently are setting interim targets to reduce financed emissions… this is in addition to growing business activities in the renewable energy and clean technologies.”

MUFG said: “MUFG is committed to addressing environmental issues such as climate change and global environmental protection in order to achieve sustainable growth.”

Barclays said: “We have made a commitment to align our entire financing portfolio to the goals of the Paris Agreement, with specific targets and transparent reporting, on the way to achieving our ambition to be a net zero bank by 2050.”

Bank of America, BNP Paribas, Citi, JP Morgan, Mizuho, TD and Wells Fargo were not available for comment when contacted by GTR.

Source: GTR

Read the latest issue of the OGV Energy magazine HERE.