Campaigners have warned that banks’ climate commitments are undermined by a failure to incorporate their facilitation of fossil fuel financing via capital markets.
The Bank on Our Future campaign group has revealed that, since the Paris Agreement was signed in 2015, banks have underwritten $2.7tn in bonds for coal companies and those leading oil and gas expansion. It argues that underwriting fossil fuel bonds is a loophole in banks’ net-zero targets, and merits greater scrutiny by regulators, civil society groups and banks themselves.
Most of the world’s largest banks have signed up to reach net-zero emissions under the Glasgow Financial Alliance for Net Zero (GFANZ) which boasts pledges of some $130tn of capital. However, the underwriting of fossil fuel financing was not originally included in membership criteria for the initiative.
Fossil fuel underwriting by banks features among the points of contention in ongoing wrangling over the future of GFANZ. Climate advocates had been optimistic that the alliance would update its rules in line with the recently strengthened criteria of Race to Zero (RtZ), an adjacent scheme backed by the UN. In order to participate in RtZ, banks must publish plans and targets to restrict the development, financing and facilitation of new fossil fuel assets, including underwriting. GFANZ is a partner of the UN scheme, and said in its 2021 progress report that it expected its members to align with RtZ criteria.
But the Financial Times recently reported that some major US banks including JPMorgan have suggested they could withdraw from GFANZ, citing concerns they could be at risk of breaching antitrust laws if they took guidance on investment decisions from the UN campaign. GFANZ is now said to be reviewing its oversight structure in a bid to retain the support of all of its members.
Accreditation for RtZ is currently run by the UN Environment Programme Finance Initiative (UNEP FI), which also convenes the banking element of GFANZ. A group of NGOs including Bank on Our Future, ShareAction and the Sierra Club wrote to the UNEP FI last month saying it should set out clear expectations for how GFANZ should integrate RtZ criteria in its rules. Remco Fischer, climate lead for the UNEP FI, had surprised climate advocates when he said the alliance did not need to update its policies in light of the new criteria.
The letter calls for GFANZ to ensure all financed and facilitated emissions are addressed in bank climate plans, including land-based emissions, such as those related to planned and unplanned deforestation.
Bank on Our Future says banks’ facilitation of capital markets financing for fossil fuels carries a significant reputational risk for those banks, as well as a considerable impact on the planet. A report from the group found that JPMorgan and Citigroup were most involved in fossil fuel bond transactions between 2016 and 2022, followed by the Industrial and Commercial Bank of China.
JPMorgan has included underwriting in its climate targets. However, experts have warned this may have little impact, since the bank’s overall climate target is weak and it has no strong commitment to phase out its financing of fossil fuels.
Bank on Our Future believes that underwriting of capital market transactions is now the primary way by which banks are helping many fossil fuel companies raise money. Research by ShareAction found that 57% of financing provided by European banks to 50 top oil and gas companies was in the form of underwriting shares and bonds.
Bank on Our Future is funded by the Sunrise Project, which also funds Green Central Banking.
This page was last updated October 12, 2022
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