Banking industry one of UK’s ‘most unethical sectors’

The UK's big five high street banks are hindering the sector's efforts to tackle climate change by continuing to profit from some of the world's dirtiest fossil fuel projects.

That is a key conclusion of a damning new report released by Ethical Consumer magazine, which cites Barclays, HSBC, Lloyds, RBS and Santander as key players in making the UK’s mainstream financial industry “one of the most unethical sectors in the nation’s economy”.

The report, which ranks an array of UK firms on their environmental and ethical record, highlights that the banks are directly and indirectly investing in fossil fuels, nuclear weapons and sweatshop labour.

“The UK’s mainstream banking industry has involvement with virtually every ethical ‘problem sector’ from factory farming through to nuclear weapons,” Ethical Consumer’s co-editor Rob Harrison said.

The study reveals that in 2017, all of the big five banks except RBS continued to fund companies behind Colombia’s Cerrejón coal mine, which produced more than 33 million tonnes of coal in 2015, despite committing to deliver the Paris Agreement goals of limiting global warming to below 2C. It additionally claims that globally, banks collectively invested $115bn in “extreme” fossil fuels in 2017, up from $104bn in 2016 – but notes that banks do not always disclose such funding.

Harrison continued: “We’ve been surveying the financial industry for more than 20 years and it’s extremely disappointing to find such little progress on these issues – this situation has arisen because the big five banks simply don’t exercise any effective ethical judgement about who they lend to.”

Call to climate action

The Ethical Consumer report calls for the five banks and other major players in the UK banking sector to divest in fossil fuels and to bring their activities and policies in line with the Paris Agreement’s flagship target to limit the global temperature increase to 1.5C .

The report specifically dubs HSBC the “worst” of the 36 UK firms ranked on climate change action, claiming it is one of the sector’s “biggest backsliders” on fossil investments, having increased its funding by $2.6bn year-on-year to bring its 2017 total to $5.63bn.

Of the remaining ‘Big Five’ banks, RBS ranked best in the Ethical Consumer report’s climate change section with no investments in “extreme” fossil fuels last year, down from $307m in 2016. Barclays followed HSBC with $3.642bn investments, while the report claims that Santander had $816m. It did not provide data for Lloyds.

HSBC confirmed that it had increased lending to both tar sands and coal power sectors last year, but emphasised its recent pledges to divest from new coal-fired power plants, new offshore oil and gas projects in the Arctic and new greenfield oil sands projects.

The banking giant said it ceased financing coal power plants in developed countries in 2011 and last month announced that it would stop financing new coal-fired power in all countries except Bangladesh, Indonesia and Vietnam. The bank claimed that this exception was “targeted and time-limited”, and said in a statement that it was put in place to “balance local humanitarian needs with the need to transition to a low-carbon economy”.

HSBC followed a number of large banks including Lloyds, ING, BNP Paribas and BBVA in making pledges to divest from financing coal, while Allianz last week set a target to eliminate its insurance coverage for coal.

Silver lining?

The report’s publication follows the recent unveiling of research from investment watchdog ShareAction, which found that the shortcomings of global banks on climate action could undermine efforts to achieve a 2C world. This was backed by more than 100 investors worth almost $2trn in assets.

While the Ethical Consumer report paints a bleak picture for sustainable investments, it welcomes the fact that there was an overall improvement in banks disclosing their investments in 2017. The primary cause of this increase in disclosure is attributed to the Government encouraging all listed companies to implement the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations of disclosing climate-related risks and opportunities in mainstream financial filings.

And although the report continued to rank the majority of companies in the UK’s personal finance sector poorly in regard to environmental and ethical issues, it additionally found that alternative choices were beginning to emerge as banks began to seize the opportunities presented by the shift to a low-carbon economy. It cited the newly launched Triodos current account as “exemplary” due to the bank’s extensive ethical investment policy and the fact that it publishes details of every organisation it lends to.

A string of high street banks have increased their investments in green business projects in recent months. For example, Lloyds this week announced it will be providing a further £2bn of funding for sustainable investments, increasing its total UK green finance commitments to £3bn.

Additionally, Barclays last week launched new green trade loans to help companies secure working capital for activities such as renewable energy, energy efficiency and waste management projects and in April, announced its Green Home Mortgage scheme.

edie has approached RBS, Barclays and Lloyds for their comments on the Ethical Consumer report.

Sarah George 

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