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The world’s biggest banks have pumped a staggering $3.8 trillion into fossil fuel industries over five years, a new report by an alliance of NGOs has revealed.
The report, ‘Banking on Climate Chaos,’ shows that the world’s 60 largest banks have actually increased their investments in fossil fuels since 2016, the year following the Paris Agreement, peaking in 2019 with total investments of $824 billion. That total dipped by 9% in 2020, in line with the global fall in fuel demand caused by the coronavirus pandemic.
Globally, U.S. banks were named as the worst offenders when it comes to fossil fuel financing, with JPMorgan Chase taking the #1 slot, having invested $316.7 billion in fossil fuels, particularly in oil and gas companies.
Citi came second, and was singled out for its funding of 100 companies with what the NGOs described as “the worst fossil fuel expansion plans,” including firms like oil giant ExxonMobil and oil and gas pipeline company Enbridge. Wells Fargo bank, meanwhile, was awarded the title of “Top Fracking Funder” for its support of oil and gas fracking companies.
In Europe, British bank Barclays was the biggest fossil fuel backer, putting some $144.9 billion into tar sands, fracking, and coal power. And despite putting policies in place to cut out coal investments, French bank BNP Paribas turned out to be the world’s single biggest supporter of offshore oil and gas, with a total of $120.8 billion under investment mainly in that sector.
“This report serves as a reality check for banks that think that vague ‘net-zero’ goals are enough to stop the climate crisis,” said Lorne Stockman, senior research analyst for Oil Change International, one of the NGOs behind the report. “Our future goes where the money flows, and in 2020 these banks have ploughed billions into locking us into further climate chaos. Banks need to be focused on reducing fossil fuel production now, rather than on a far off and insufficient goal in the distant future. The time for half-measures is over.”
In Asia, Japanese bank Mitsubishi UFJ Financial Group was the largest Asian investor overall in fossil fuels, but the ten worst banks for supporting coal, both in coal mining and coal power, were all Chinese banks. These included Industrial Bank, ICBC, China Construction Bank and Bank of China.
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The report also evaluated positive climate actions by banks, scoring them on policies intended to bring their business in line with decarbonization goals. Here, Italian bank Unicredit led the pack, followed by five major French banks: BNP Paribas, Crédit Mutuel, BPCE/Natixis, Crédit Agricole and Société Générale. In general, these banks had adopted strong policies to phase out coal financing.
But even the top scoring banks only earned half the points available for climate-friendly policies, and while many banks had adopted policies to reduce or eliminate coal investment, similar policies covering oil and gas lagged far behind. This, the report’s authors said, showed that “the banking sector remains far from aligning with a climate-stable future.”
Speaking to Forbes.com, Charles Donovan, executive director of the Centre for Climate Finance and Investment at Imperial College Business School, London, explained why banks are still investing trillions in fossil fuels.
“Everybody knows that the end is coming for fossil fuels. You can see it clearly in the way that stock markets around the world are valuing clean energy versus fossil fuels,” Donovan said. “But in commercial banking, most investors aren’t thinking about the next 30 years of cash flows—at most, they’re worried about the next three. With ultra-low interest rates, it unfortunately makes sense for most banks to extend and pretend, rather than take a serious look at their business model for energy lending.”
“What’s often overlooked is that fossil fuel financing is not just an environmental problem, it’s also a chronic cause of financial instability,” he continued. “The volatility of oil and gas prices poses risks that have a knock-on effect on inflation, employment, and consumer spending.”
But despite those risks, Donovan said, the rewards continue to be too great for many banks to resist—regardless of how much harm they do to the planet.
“We can’t expect that U.S. banks are going to just walk away from this business—not until the clean energy sector can absorb the volume of capital that banks want to throw at them,” he said. “Getting to that next stage quickly will require government action to increase the supply of new clean energy projects and make sensible changes in the U.S. tax code that will level the playing field for new energy investors.”
British and European sustainable finance campaigners added their voices to the criticism of the banks.
David Hayman, Campaign Director at British green finance campaign Make My Money Matter commented: “This report once again underlines the importance of finding out exactly where our money is being invested. Banks and pension funds continue to direct record sums into oil and gas, in spite of the fact that such investment remains bad for the planet, bad for returns and goes against the wishes of the general population.”
“Ahead of COP26 this year, we’re calling on all financial institutions to commit to real net zero targets and urgent emission reductions so that our money helps build a world we actually want to retire into,” Hayman added, referring to the United Nations climate conference due to be held in Glasgow, in November.
Meanwhile, Lorette Philippot, private finance campaigner for Friends of the Earth France told Forbes.com: “This report smashes to smithereens all the green talk of the big banks and their many promises to align with the Paris Agreement. French banks are a leading example of this hypocrisy. Paris likes to call itself the international capital of green finance, but in 2020 it has risen to become the number one banker for fossil fuels in Europe. It’s time our governments take responsibility and put banks in line with the climate emergency we’re in.”
The report comes just days after the Financial Times revealed that the EU is considering including fossil gas in its “taxonomy for sustainable finance,” a classification system intended to give investors guidance on what is and what is not considered sustainable finance. Should Brussels take the step, campaigners say it would undermine the integrity of the system. Friends of the Earth told Forbes.com that such a move would be the result of “some pretty disgraceful pressure from the fossil fuel lobby and certain governments.”
In additional to Oil Change International, the other NGOs behind the report are U.S. environmental organization Rainforest Action Network, sustainability and ethical finance campaigner BankTrack, grassroots environmental justice group Indigenous Environmental Network, and sustainable finance NGO and thinktank Reclaim Finance.
Download the report here.