Banks: keep your green promises!

By William de Vries, Director of Impact Equities & Bonds at Triodos Investment Management

Home » Banks: keep your green promises!

Published: December 4, 2023
This Article was written by: Contributor
banking, banks, COP28, emissions, fossil fuels, gas, just transition, money, net zero, oil, policy

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While most of our banks have had comprehensive sustainability policies in place since the Paris climate agreement – and many have committed to phasing out fossil fuel investments – the reality is unfortunately different.

When oil, gas and coal companies need new capital, there are still plenty of banks and law firms willing to support them.

Companies that want to expand their fossil activities, for example by developing new oil fields, are still being facilitated by the financial sector.

Making money from fossil fuels

A recent investigation by Investico, Follow the Money and 10 international media organisations including Le Monde, Handelsblatt and the Guardian, revealed which banks and law firms play a crucial role in raising money for oil and gas companies that are still expanding their fossil fuel business.

The total of 1,600 bonds issued by expanding fossil fuel companies since the Paris accord represent a value of more than a trillion euros.

About a third of the financing of oil, gas and coal companies comes from bonds.

In order to issue bonds, companies need a bank that looks for investors to buy them. These banks then turn to large investors who need to invest money and receive a commission for this.

For banks this is a very lucrative business and, unlike direct loans to fossil fuel companies, these supporting activities are not visible on their balance sheets.

In this way, banks can continue to make money from the fossil fuels sector – despite promises to no longer actively finance it.

Banks funding fossil fuels?

While most of the banks that raise billions to finance fossil companies are located in the United States, large European banks still play a very important role.

Many of the top facilitators of fossil fuel bonds will also be recognisable as the retail banks that many of us use for our own personal savings.

The Partnership for Carbon Accounting Financials (PCAF), an initiative aiming to facilitate transparency and accountability of the financial industry to the Paris agreement, will provide guidance on these facilitated emissions – hopefully including strict standards and drawing more attention to the action that must be taken.

At COP28 we have an opportunity to remind banks that they play a critical role and need to look at greatly reducing the greenhouse gas emissions of loans and investments, using science-based targets.

Banks and net zero

Big international banks are broadly advertising their renewable energy portfolios, yet in reality only 7% of energy financing by banks went to renewable energy between 2016 and 2022. The rest was invested in fossil fuel projects.

In order to be CO2 neutral by 2050, we must completely stop the development and production of new oil and gas fields as soon as possible.

This is not only the opinion of many NGOs and civil society, it was also the conclusion of the International Energy Agency in 2021: every new oil, gas or coal project pushes the Paris objectives even further out of sight.

However, the fossil sector continues to consistently oppose sustainability and instead expands production.

Phasing out fossil fuels

It is time for an end to investment in fossil fuel and exploration, even if fossil fuel might seem to be the answer to the energy crisis.

If the financial sector is really serious about its green promises, it should support the Fossil Fuel Non-Proliferation Treaty proposed by a group of Pacific countries and supported by the World Health Organisation and the European Parliament.

The COP28 climate summit in Dubai is a moment to make this clear.

The treaty requires a stop to new fossil fuel projects and a rapid phase-out of fossil energy in a fair and inclusive manner.

Banks must phase down and out all unabated fossil fuels and restrict the financing and facilitation of new fossil fuel assets, which includes no new coal projects.

Given the important role that banks still play in financing fossil projects, it is high time they exert their influence and stop facilitating fossil financing.

If they do set meaningful targets and live up to their promise to become net zero, they will be actively contributing to the transition to a sustainable world.