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Banks Continue to Fan the Flames of the Climate Crisis

by internationalbanker

By Hilary Schmidt, International Banker

 

On September 4, 2023, the report “How the Finance Flows: The banks fuelling the climate crisis” was published, revealing the true extent of the financial flows propping up fossil fuels and industrial agriculture—the two largest contributing industries to climate change. Produced by global charity ActionAid with the help of international trade-consulting company Profundo, the detailed study highlighted the banking industry’s central role in supporting activities that harm the planet. As such, it is the latest in an increasingly long line of academic indictments of lenders’ abject failures to tackle the incoming climate crisis.

Among the many astonishing statistics laid out by the report was that lenders had committed a whopping $3.2 trillion to the fossil-fuel industry since the historic Paris Climate Accords were agreed in late 2015, along with an additional $370 billion to industrial agriculture. Banks have also provided 20 times more total financing to fossil-fuel and agricultural activities in the Global South than governments in the Global North have dispensed to support climate-change mitigation and adaptation.

“As communities in Africa, Asia and Latin America living on the front lines of the climate crisis suffer floods, droughts, cyclones and rising sea levels, the banks continue to add insult to injury by funding activities that push the same communities off their land and pollute their waters,” Ugandan climate activist Vanessa Nakate explained in the foreword of the report. “True climate leadership means embracing a move away from fossil fuels and other drivers of climate change, but as this vital report by ActionAid exposes, it’s impossible to make this change when banks are consistently funding those causing the most damage.”

Furthermore, it would appear that the worst offenders are located all across the globe, with many of the world’s biggest financial institutions responsible. For example, the report named HSBC, BNP Paribas, Société Générale and Barclays as the largest financiers of fossil fuels and agribusiness in Europe, while the three largest US banks—Citigroup, JPMorgan Chase and Bank of America (BofA)—were deemed the most fervent supporters of both industries throughout the Americas. The largest Asian financiers of fossil fuels and industrial agriculture, meanwhile, were the Industrial and Commercial Bank of China (ICBC), China CITIC Bank, Bank of China (BOC) and Mitsubishi UFJ Financial Group (MUFG).

The report broadly aligns with the conclusions reached by other landmark studies that have similarly laid bare the vast sums being relentlessly poured into the fossil-fuel industry and other environmentally harmful activities by the global banking sector. Indeed, April 2023’s “Banking on Climate Chaos” report put the total figure of fossil-fuel financing over the seven years following the adoption of the Paris Agreement at an even more colossal $5.5 trillion—and that was confined to the world’s largest 60 banks. 2022 alone saw $669 billion in such financing being provided by those lenders, despite fossil-fuel companies managing to generate around $4 trillion in profits for the year, the report (jointly created by Rainforest Action Network [RAN], BankTrack, Indigenous Environmental Network [IEN], Oil Change International, Reclaim Finance, Sierra Club and Urgewald) observed.

US lenders represented a hefty 28 percent of this financing in 2022, with JPMorgan Chase the dominant single funder of fossil fuels since 2016, followed by Citibank, Wells Fargo, Bank of America (all American banks) and Royal Bank of Canada (RBC) rounding out the top five. “Major US banks stalled on their net-zero plans and failed to adopt stronger and more robust financing restrictions for companies pushing unsustainable fossil fuel expansion,” contended Adele Shraiman, senior campaign representative for the Sierra Club’s Fossil-Free Finance campaign.

Perhaps even more concerning is the fossil-fuel funding practised not only by commercial banks but also by renowned multilateral development banks (MDBs). While the World Bank has pledged to end direct finance for coal and upstream oil-and-gas activities, a September 2023 report by Germany-based non-profit environmental organisation Urgewald found that an estimated $3.7 billion in indirect trade-finance deals went to fossil-fuel projects. “They can’t say that they are aligned with the Paris Agreement, because there isn’t enough transparency to be able to tell,” Heike Mainhardt, the report’s author and senior advisor at Urgewald, told The Guardian upon the report’s release, whilst also calling for more transparency from the World Bank and its private-finance arm, the International Finance Corporation (IFC), and decisive endings of their fossil-fuel funding activities. “They can see that they can access public money this way, without drawing attention to themselves, and they’re very clever, so they will do this.”

So, what can be done to reverse these worrying trends? The ActionAid report offered five recommendations for banks to adopt as soon as possible:

  1. Stop financing fossil fuels: Put an immediate stop to the project and corporate financing of fossil-fuel expansion and all coal activities, and develop rapid exit strategies from oil and gas;
  2. Stop financing deforestation and other harmful industrial agriculture activities: Stop project and corporate financing of deforestation and other harmful industrial agriculture activities, and develop robust red lines to guide exit strategies;
  3. Protect the rights of communities: Strengthen policies against human-rights abuses and deforestation, and ensure free, prior and informed consent, robust safeguards and effective disclosure and redress mechanisms;
  4. Work to bring emissions down to “real zero”: Set real and ambitious targets to bring financing-portfolio emissions down to as close to zero as possible, without offsets, and cover the entirety of the emissions arising from loans and underwriting and clients’ scope 1-3 emissions. (Scope 1 emissions = greenhouse gases [GHGs] released and controlled resulting from a company’s own activities, including the extraction of fossil fuels, the production of agrochemicals or the driving of a fleet of vehicles; Scope 2 emissions = GHGs released as a result of the company’s purchased electricity—for example, for office buildings; Scope 3 emissions = all other GHGs, including those that result from customers’ use of a company’s products further down the value chain, such as the GHGs resulting from customers’ burning petrol in their cars.)
  5. Strengthen transparency and tools for verification: Enhance measures to ensure accountability of project and corporate financing, including through reporting made publicly available via online databases on policies, practises and performance indicators in emissions targets, safeguards and human-rights standards.

Whether banks will act on such recommendations, however, remains to be seen. While the financing activities of North American lenders leave much to be desired, there is clearer evidence that Europe’s banking industry is taking at least some steps in the right direction by curtailing its fossil-fuel funding activities, suggesting that shifting trends and mounting public pressure seem to be having an impact. Crédit Agricole, for example, confirmed in December that it will begin regularly publishing its exposures to the fossil-fuel industry, boost its financing of renewable-energy projects threefold to an annual €3 billion and by 2030 lower its funding of fossil-fuel carbon emissions by 75 percent.

Barclays was the only European lender in the “Banking on Climate Chaos” report’s top 10 worst offenders amongst global lenders, and it has been facing considerable scrutiny across several fronts. Last year saw climate activists disrupt the UK bank’s annual general meeting in early May, with protestors calling it out as “the worst fossil fuel funder in Europe”; Wimbledon came under fire for having Barclays as a sponsor of the famous tennis tournament; and the UK’s National Trust has also faced growing pressure to sever its banking ties with the lender. The University of Cambridge is currently mulling similar action, with Barclays currently the prestigious UK academic institution’s lender of choice.

For its part, Barclays confirmed last year that it would stop all financing of oil-sand exploration and production activities as well as extend a previously announced commitment to phase out funding of coal-fired power generation by 2030 (which initially included only clients in the United Kingdom and European Union) to clients in all countries within the Organisation for Economic Co-operation and Development (OECD). The bank also announced in September that it would appoint a London-based climate communications director to create a “compelling narrative for climate transition” in line with broader strategies and work with senior stakeholders “to influence the outcome of such issues in a positive way”.

But climate campaigners have largely baulked at such efforts, noting that Barclays’s restrictions on conventional oil-and-gas funding have not been forthcoming and that the climate communications role was mainly a sign that the bank was becoming more “scared” of climate activists. “In recent years, we’ve seen campaigning pressure expand beyond the oil giants like Shell and Equinor, on to banks and the massive funding they provide to companies building new oil and gas projects that would be impossible without it,” Joanna Warrington of grassroots campaign group Fossil Free London told The Guardian in September. “Barclays is clearly scared. This new PR role is just another way for it to armour itself up.”

 

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