Posted with permission from ESG Impact Zone.

By Eugene Ellmen

New research reveals that banks are doing little to finance a low-carbon future, while investing trillions in multinational oil companies, some of which have doubled their profits in the last year. In response, activist investors and climate action groups are planning campaigns to pressure some of the world’s largest banks to end their massive and ongoing financing of fossil fuels.

According to a new report, just 7% of bank funding has gone towards renewable energy between 2016 and 2022, while the world’s banks continued to plow trillions of dollars into fossil fuel expansion.

“The total amounts of clean energy financing in these years remained abysmally low: US$23.2 billion in 2016 and $34.5 billion in 2021,” notes a recent report by Fair Finance International, Sierra Club, BankTrack and Rainforest Action Network, which looked at loans and underwriting activities at 60 banks. During that timeframe, the banks continued to pour $2.3 trillion into fossil fuel projects.

Citigroup and Bank of America – the two largest banks financing recent fossil fuel projects -- are expected to take the brunt of the action.

“Bank of America has publicly committed to the Paris Agreement but continues to finance fossil fuel expansion with no phase-out plan,” Kate Monahan of Trillium Asset Management said in a statement. “By continuing to fund new fossil fuels, Bank of America and others are taking actions with potentially catastrophic consequences.”

In January, Trillium Asset Management filed a shareholder proposal calling on the bank to set a date for a phase-out of fossil fuel lending and underwriting. 

The resolution is one of 11 investor proposals by members of the Interfaith Centre for Corporate Responsibility (ICCR) scheduled for votes this spring at shareholder meetings of some the largest banks in the United States. ICCR members, which include asset managers and non-profit organizations, are targeting Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo in addition to Bank of America and Citigroup.

In addition to the shareholder proposals, climate activists are planning a wave of public actions, including a campaign of sit-ins on March 21 at U.S. branches of the major fossil fuel lenders.

"The next phase of the climate fight is going to center on the big banks,” wrote veteran climate campaigner Bill McKibben, founder of 350.org, on his website. McKibben says protests have been subdued in recent years because of the pandemic but campaigners are expected to turn out this year in large numbers. “Efforts are mounting to hold them accountable – the demand, across civil society, is that they cease funding the expansion of the fossil fuel enterprise.”

Risky business

A growing body of research shows that fossil fuel financing not only adds to global carbon emissions, but also puts banks and insurance companies under massive financial risk. A recent report from the One to One Campaign – a United Kingdom network of climate action groups – says 500,000 bank employees could lose their jobs with a potential collapse in fossil fuel company values.

The oil and gas industry is facing a huge regulatory burden in the future to become net-zero, the report says, which could devastate banks with major fossil fuel holdings and inadequate capital buffers. 

In addition to financing fossil fuel expansion, most of these banks have also largely neglected the renewable energy sector, putting a damper on the transition to clean energy. Just 2% or less of recent energy financing by Citigroup, Bank of America, JPMorgan Chase, and Royal Bank of Canada went into renewable projects, according to the new report by Sierra Club and other climate NGOs. At least 98% went to fossil fuel companies.

The report notes that consultants for the Glasgow Financial Alliance for Net Zero (GFANZ) estimate that renewable energy financing will have to be four times the amount of fossil fuel financing by 2030 for the Paris Agreement goals to be reached.

Resolute investors

While historically, resolutions targeting banks to push them to end fossil fuel financing have not been successful, investors are hopeful that the tide is turning. ICCR-member shareholder resolutions last year received between 8% and 13 % of investor votes as the banks argued such measures would abruptly end relationships and disrupt financing. ICCR members hope the strategy to request specific dates for phase-outs will attract higher investor votes this spring.

In addition to the ICCR campaign, the US$91-billion New York City Retirement Systems (NYCERS) - a public pension fund - filed proposals with Bank of America, Goldman Sachs JPMorgan Chase and the Royal Bank of Canada calling on them to set absolute, not intensity-based, emission reduction targets for 2030.

Banks using Intensity-based targets report their borrowers’ emissions as a ratio of total production by the borrowers, or the total value of their loans. . While the banks may be able to claim the intensity of their portfolio emissions is going down, absolute emissions may rise as the amount of financing increases.

Citigroup and Bank of America are expected to be a key focus of the actions after a new report by think tank Reclaim Finance shows the two institutions are the world’s largest bankers of new oil, gas and coal projects.

Citigroup has financed more than US$30 billion and Bank of America has financed nearly US$23 billion in new fossil fuel projects between April 2021 and August 2022, according to the report. (April 2021 was used as the start date in the report as that was when the Net-Zero Banking Alliance (NZBA) - a network of global banks pledging to bring their portfolios to net-zero by 2050 – was formed.)

JPMorgan Chase is number five on the list at nearly $17 billion; Morgan Stanley is number eight at US$11 billion; Royal Bank of Canada is number nine at about US$10 billion;

Tea and climate action

Across the pond, a British campaign has drawn support from British celebrities including actors Stephen Fry, Emma Thompson and Mark Rylance. The Make My Money Matter campaign calls on the public to sign an open letter asking the five top UK fossil fuel banks to stop financing new oil and gas projects. The banks include HSBC, Barclays, Santander, NatWest and Lloyds.

The campaign may already be having some impact. In a high-profile announcement late last year, HSBC, the largest bank in Europe, announced it will stop financing new oil and gas fields, related infrastructure projects and oil- and gas-fired power plants. The restrictions will not apply to HSBC Canada, however, which is in the process of being taken over by Royal Bank of Canada.

More recently, Danske Bank, the largest bank in Denmark, also declared that it would end refinancing and new financing of oil and gas exploration and production companies.

It’s uncertain how effective investor and activist campaigns will be. High oil and gas prices are generating interest in new oil projects and liquified natural gas terminals and pipelines. Equity is increasing and debt is decreasing, making oil and gas companies even more attractive to risk-averse, short-term lenders like banks. 

Profits of BP, Chevron, Equinor, Exxon Mobil, Shell and TotalEnergies were US$219 billion in 2022, more than double their earnings the previous year. 

At the same time, the recent rise in interest rates poses a challenge to renewable energy companies, such as solar or onshore wind developers, which are financed on a project basis. Lenders are demanding higher returns on such loans, making many projects uneconomic.

Nevertheless, McKibben says the time is right for ramped up action.

People are angry with GFANZ, he says, and are ready to protest. GFANZ started with great expectations in 2021 that it could deliver on a global agreement to curb financial industry emissions, but angered supporters last year after failing to impose mandatory emission reductions on the financial industry. The action has caused German green bank GLS to pull out of the alliance, saying GFANZ is controlled by large multinational banks without firm net-zero plans. 

“None of this means the fight will be easy: these banks, after all, represent the capital in capitalism,” McKibben wrote on his blog. “But the fight is being fully engaged now.”

Photo from ESG Impact Zone.