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How Sustainable Is The Banking Industry?

In 2021 when the financial industries decided to form the Glasgow Financial Alliance for Net Zero (GFANZ), the aim was to remind people how committed the financial sector is to the sustainable agenda and how they are eliminating support to environmentally harmful industries, mainly the gas and oil and coal mining industry. But the truth is some financial institutes didn't live up to the expectations and fell back into the same old pattern leaving us to pay the price.


The financial industry never wastes any chance to dive into profit pools, using the recent oil crisis due to the latest Ukraine/Russia war to make about 4 trillion dollars in revenue. Despite the huge environmental pollution caused by this industry, some banks still refuse to cooperate with the net zero banking alignment goals. In a country like the United States, which strongly advocates tackling climate change, banks seem to have their own goals; reports show that U.S. banks dominate fossil fuel financing, accounting for 28% of all fossil fuel financing in 2022. Since the Paris Agreement in 2016, JPMorgan Chase, Citi, Wells Fargo, and Bank of America are still among the top 5 fossil financiers, providing Loans to companies like ARAMCO.inc. JPMorgan Chase provided around $39 billion in 2022, bringing the total to $434 billion since 2016, remaining the worst contributor to climate chaos. While Citi provided $332 billion, Wells Fargo $316 billion, and Bank of America $279 billion, all since 2016.

The situation for Canadian banks is no different than the U.S.; the Royal Bank of Canada, one of the biggest financial institutes in Canada, hailed oil projects with 41 billion dollars in 2022, including $4.8 billion for tar sands and $7.4 billion for fracking. Canadian banks are becoming the resort for fossil fuels, providing $862 billion to oil companies since the Paris Agreement. Banks in the Asian market didn't miss the chance to jump into the action, with banks in Japan and China pouring billions of dollars into increasing their oil and gas investments. China is very popular among coal mining companies; out of the $13 billion in financing that went to the world's 30 largest coal mining companies, 87% was provided by banks located in China, led by China CITIC Bank, China Everbright Bank, and Industrial Bank. While in Japan, Mitsubishi UFJ Financial Group ranks as the worst of the Asian banks, financing $29.5 billion in 2022 to companies like Vitol Holding BV and Enbridge. According to analysis, China Minsheng Bank had the second-highest percentage change in fossil fuel financing from 2016 to 2020, with a 550% increase, as its funding went from $1.7 billion to $10.8 billion. Furthermore, from 2016 to 2020, the Postal Savings Bank of China had the largest percent change in fossil fuel financing; it increased over 1,200% from $168 million in 2016 to $2.2 billion in 2020.


The financial institutes in the GFANZ, who still support oil and gas extraction, justified this lack of commitment by calling the GFANZ targets unrealistic and set without consultation. As the alignment has tightened its regulation calling for more disclosure of investment activities, banks started to threaten to leave this ailment. While it's one thing to disclose investment plans voluntarily, banks consider falling under this scrutiny a major intervention in an industry one might call prefers working in the shadows. In the meantime, the German bank GLS, one of the initial banks to forge the GFANZ alignment and always known as one of the greenest banks since its inception in 1974, quit the alignment, stating the reasons as being fed up with the reckless behavior.


Climate initiatives from within the financial sector supposed to be a useful way to accelerate the sector's shift towards climate neutrality. However, the success of such initiatives depends on the willingness of most members to cooperate and adapt to new guidelines to achieve climate-friendly business models. While some banks have chosen to behave recklessly, others have chosen to set a great example and maximize their efforts in the climate change battle. Triodos Bank has loaned about 8.2 billion pounds to sustainable projects across Europe to benefit people and the planet. Also, HSBC and Barclays, notoriously known as one the big lenders to fossil fuel companies, have recently announced banning funds from being spent on oil extraction and committing to a more sustainable agenda.


This pattern of misleading the public is familiar for the financial industries claiming to be pro-environmental yet still diving into oil fields. The more banks become stubborn to eliminate financing the fossil fuel industry gradually, the higher the climate change bills will be, especially according to the United Nations Environment Finance Initiative Program, an annual investment of $5 to $7 trillion (£4-5 trillion) is required to support the climate transition plan. It's about time we do things transparently and stop adding more charges to clear out the mess we have created.

 

References List:


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Clifford, catherine (2021a) These are the world’s largest banks that are increasing and decreasing their fossil fuel financing, CNBC. Available at: https://www.cnbc.com/2021/04/22/which-banks-are-increasing-decreasing-fossil-fuel-financing-.html (Accessed: 21 June 2023).


Duncan, H. (2023) So-called ESG Banks who still invest in oil: Dirty secrets?, Investing Reviews. Available at: https://investingreviews.co.uk/blog/dirty-secrets-the-esg-banks-who-still-invest-in-oil/ (Accessed: 21 June 2023).


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Foster, S. (2023) New report: Canadian Bank RBC the #1 financier of Fossil Fuels, world’s biggest banks continued to pour billions into fossil fuel expansion, Rainforest Action Network. Available at: https://www.ran.org/press-releases/new-report-canadian-bank-rbc-the-1-financier-of-fossil-fuels-worlds-biggest-banks-continued-to-pour-billions-into-fossil-fuel-expansion/ (Accessed: 21 June 2023).


Foster, L. (2023) Banks keep pouring cash into fossil fuels. U.S. lenders lead the way., Barron’s. Available at: https://www.barrons.com/articles/banks-financing-fossil-fuels-climate-change-575b3437 (Accessed: 21 June 2023).


Finance, R. (2023) Throwing fuel on the fire, https://reclaimfinance.org/site/en/home/. Available at: https://reclaimfinance.org/site/wp-content/uploads/2023/01/Throwing-fuel-on-the-fire-GFANZ-financing-of-fossil-fuel-expansion.pdf (Accessed: 21 June 2023).


Harvey, F. (2023) Banks still investing heavily in fossil fuels despite net zero pledges – study, The Guardian. Available at: https://www.theguardian.com/environment/2023/jan/17/banks-still-investing-heavily-in-fossil-fuels-despite-net-zero-pledges-study (Accessed: 21 June 2023).


Lehnert, A. (2023) European banks are among the biggest drivers of fossil fuel expansion, Reclaim Finance. Available at: https://reclaimfinance.org/site/en/2023/04/13/european-banks-are-among-the-biggest-drivers-of-fossil-fuel-expansion/ (Accessed: 21 June 2023).


Murdoch, A. (2023) Gfanz: Why GLS Bank’s exit is a serious setback, Capital Monitor. Available at: https://capitalmonitor.ai/sdgs/sdg-13-climate-action/gfanz-why-gls-banks-departure-is-a-serious-setback/ (Accessed: 21 June 2023).


Royal Bank financed $42b worth of fossil fuel development last year, more than any other bank | CBC News (2023) CBCnews. Available at: https://www.cbc.ca/news/business/royal-bank-oil-and-gas-1.6809011 (Accessed: 21 June 2023).


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