The
Bottom Line on Banks
Financial
institutions have made big climate pledges. But they’ve also found reasons and
ways to pass the buck, continuing to funnel money toward fossil fuels. Here’s
why.
Manuela
Andreoni Somini Sengupta Andrew Ross Sorkin
By
Manuela Andreoni Somini Sengupta and Andrew Ross Sorkin
Nov. 11,
2022
A year
ago, at the global climate summit in Glasgow, a group of some of the world’s
biggest financial institutions agreed to end or offset all of their
contributions to greenhouse gas emissions by 2050. They also said they’d commit
their combined $130 trillion in assets toward creating a net-zero economy.
But just
ahead of this year’s summit, the group, called the Glasgow Financial Alliance
for Net-Zero, dropped what climate activists say is a critical part of the
alliance’s commitment: that its more than 550 members would adhere to United
Nations criteria requiring them to phase out fossil fuels. Instead, the
alliance is supporting the creation of a separate accountability tool. It would
track and “determine whether commitments are being backed up by action,” a
leader of its central secretariat, Alex Michie, said in a statement.
Despite
their pledges to become carbon neutral, members of the alliance have continued
to provide funding for fossil fuel companies and projects, according to reports
by watchdog nonprofits.
As of
April, only 60 out of 240 of the largest alliance members had any policy
excluding support for coal companies developing new projects, according to an
analysis by Reclaim Finance, a climate advocacy group. And even when firms do
have these policies, there are often loopholes. A recent study by the Global
Energy Monitor, a nonprofit group based in San Francisco, found that members of
the Glasgow alliance continued to support coal developments indirectly —
through corporate finance and investments in the companies responsible for
them.
Mark
Carney, a co-chairman of the Glasgow alliance, has said that financial
institutions fear that banding together to end support for fossil fuel projects
would make them susceptible to antitrust action. And companies face pressure
from Republican lawmakers, who have targeted financial services firms that make
moves to reduce their emissions.
But it’s
more than regulatory risk that may make financial institutions hesitant to pull
support from fossil fuel companies. Somini Sengupta of Climate Forward and
Andrew Sorkin, the founder and editor at large of DealBook, share a few ideas
about banks and climate action at this moment in time.
How can
we understand the decision-making process of financial institutions when it
comes to fossil fuel projects?
Somini:
It’s not just bankers that Mark Carney corralled under the G.F.A.N.Z. banner.
Asset managers, including BlackRock and Vanguard, made similar net-zero
promises.
But
promises can be broken as easily as they are made, especially when there’s gobs
of money at stake. So as coal, oil and gas prices soared in the aftermath of
the Russian invasion of Ukraine, money poured in from finance companies.
As one
former banker who used to do energy deals told me here at COP27, the financial
incentives have tilted back toward fossils.
Andrew:
The banks’ early commitments on reducing fossil fuel financing were, in truth,
never a moral decision. It was, at the time, good business. Clients, investors
and regulators were rewarding firms that were focused on the climate. Banks
were getting more business from like-minded clients: Big pension funds,
especially in Europe, were buying their shares, driving up their price, and
regulators were looking more kindly upon them. It was, all in, considered a
good look to be concerned about the climate. And let’s not be completely
cynical — there were employees and other stakeholders that absolutely did
believe in moving away from fossil fuels.
But when
Russia began its war with Ukraine, fossil fuel prices skyrocketed, and even
more than that, the debate shifted again: Energy is now viewed through the
prism of national security, massive economic pain and keeping humans warm
enough in the winter so that they don’t die.
Is there
any reason for optimism?
Somini:
There’s another way to look at this moment. For years, banks financed way more
fossil fuel projects than renewable energy projects. That’s beginning to shift.
For every
$1.25 invested in fossil fuel projects globally, a dollar is invested in
renewables, mostly solar. It’s not the trajectory that’s needed to stay within
safe climate limits. But it’s something.
Today,
spending on renewable energy and storage account for the vast majority of new
investment going into the power sector, the International Energy Agency says.
Andrew:
The new “good look” has become to support fossil fuels, at least in the short
term. That may be an unpopular view, but it has largely become the conventional
wisdom among business and policy leaders.
Most big
banks haven’t abandoned their efforts to support the transition, but the
timeline is clearly changing.
What are
the lessons we can learn about these twists and turns when it comes to the
finance sector and the climate?
Somini:
It shows me the limits of voluntary commitments. If there are no regulations
and no immediate costs to finance firms bankrolling polluters, then why would
they stop? There is no accountability built into the system.
Banks are
doing what banks do. They are making money for their shareholders, no matter
how it pollutes their balance sheets.
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