Banks accused of undermining climate pledges with $705bn in fossil fuel financing

Stock image: Fossil fuel production in Alberta, Canada

This is the headline finding of the new annual Banking on Climate Chaos report, which is co-produced by eight environmental NGOs and assesses the activity of 60 banks. The assessment is based on deals reported by financial market data providers.

The banks collectively provided $705.8bn to firms involved in the fossil fuel sector last year, bringing the total provided since the Paris Agreement on climate change was ratified in 2015 to almost $7trn.

Companies in North America and Japan represent nine in ten of the largest providers of fossil fuel finance in 2023. Only one British bank, Barclays, is on this list.

The biggest three financiers were JPMorgan Chase ($40.88bn), Mizuho Financial ($37bn) and the Bank of America ($33.68bn).

While the total provision of finance did fall year-on-year from some $778bn, with 33 of the banks decreasing their financing, 27 banks actually increased their financing. Among them are Morgan Stanley, Goldman Sachs, JPMorgan Chase and ING Group.

The problem of expansion

Almost half ($347.5bn) of the finance provided in 2023 was to companies expanding coal and/or oil and gas production and transportation capacity, such as Eni and Trans Mountain Corp.

The biggest backers of expansion companies include the Royal Bank of Canada, Scotiabank, Citi and Mitsubishi UFJ Financial Group.

The report notes that only two banks have policies which significantly restrict finance to fossil fuel expansion activities.

The International Energy Agency (IEA) has recommended that, to give the best chance of the global energy system aligning with net-zero by 2050, the development of all new coal mines, coal mine extension schemes and upstream oil and gas projects with long lead times is halted as soon as possible.

“Banks appear to have reached a plateau with their ‘new normal’ policies which, taken as a whole, remain too weak to tackle oil and gas expansion,” the report cautions.

Barclays has notably questioned the methodology behind the report. A spokesperson said: “We do not recognise the classification or attribution of some transactions. For example, [the authors] appear to be attributing finance raised for national companies involved in UK grid decarbonisation as fossil fuel finance.

“In the absence of their full methodology, it appears the figures in this report capture all general corporate finance provided to a company and attribute it based on their revenue streams, not on the transaction’s use of proceeds or the company’s actual investment activity.”

A path forward

The report authors call on banks to close loopholes in their net-zero plans including through the use of stricter exclusion policies for fossil fuel expanders. Banks should also assess whether their targets and exclusions policies cover the bulk of their exposure and whether their decarbonisation scenarios are appropriate.

Finance Watch, one of the NGOs behind the Banking on Climate Chaos projects, previously warned that the 60 banks collectively have $1.35trn invested in fossil fuel assets at risk of sharply falling in value over the coming years.

The report also alludes to the need for stronger policymaking in the absence of voluntary action from banks.

Positive Money’s joint executive director Fran Boait said: “The financial sector has shown that whilst fossil fuels remain a profitable business, they will continue to funnel money towards them, despite the harms caused to our climate and economy. We urgently need the government to work with financial regulators and the Bank of England to curb risky fossil financing and direct finance towards the green industries of the future.”

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