Global warming poses a grave threat to our lives, health, environment and planet. If we are to reach global net zero carbon emissions by 2050, which the International Panel on Climate Change says we must do to limit warming to 1.5℃, it is vital that we stop pouring money into climate-damaging activities, including the extraction and burning of fossil fuels and massive deforestation projects.
Leading U.S banks, however, haven’t gotten the message, and remain among the largest financiers of fossil fuels in the world. Fortunately, shareholders and other stakeholders are pressuring the banks to act. The incoming Biden administration (which is prioritizing climate action) has the chance to impose regulatory pressure that could finally get U.S. banks to shut off the spigot of lending to global warming polluters.
U.S. banks are the world’s biggest private lenders to fossil fuel projects around the globe. A March 2020 report by a coalition including the Rainforest Action Network, the Sierra Club and investor watchdog groups showed that 35 global private banks provided $2.7 trillion in lending and underwriting to the fossil fuel industry from 2016-19. Of these, the report notes the top four U.S. banks – JPMorgan Chase, Wells Fargo, Citigroup and Bank of America – were the largest fossil fuel backers, responsible for 30% of the group’s fossil fuel lending. The report indicates JPMorgan Chase alone provided $269 billion in fossil fuel lending from 2016-2019, nearly one tenth of total lending by these 35 banks.
Over this period, the report shows JPMorgan Chase was the most aggressive lender in fossil fuel expansion, oil and gas projects in the Arctic, offshore oil drilling, and fracking. The four big U.S. banks together were the top funders of fracking from 2016-19. Beyond this, U.S. banks are also funding projects generating widespread deforestation, a prime contributor to global warming as it reduces natural carbon sequestration. A separate report notes that from 2014-19, JPMorgan Chase also financed billions of dollars in projects posing risk to the Amazon and other threatened rainforests around the world.
These banks’ continued lending to fossil fuel companies and projects causing deforestation flies in the face of their global warming pledges. In the runup to the adoption of the Paris Climate Agreement in December 2015, the four banks – joined by Goldman Sachs and Morgan Stanley – said they were “committing significant resources toward financing climate solutions.” The banks’ actual spending on clean energy projects has been dwarfed, however, by their continued funding of fossil fuels.
At the same time, banks in Europe and other countries with strong public and regulatory support for climate action are taking meaningful steps to put their commitments into practice. Dutch banks and regulators launched an initiative in 2015 to measure and disclose greenhouse gas emissions associated with bank lending – the Partnership for Carbon Accounting Financials (PCAF) – which now counts more than 91 banks, insurance companies and investors representing nearly $19 trillion in assets as members. European banks financing fossil fuel and deforestation projects continue to face strong reputational risk and public pressure to change course.
The biggest U.S. banks, on the other hand, have much still to do. In November 2018, Citigroup became the first of the big four to issue a report, called for by the G-20 Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), on the bank’s potential financial exposure to climate change impacts in its oil, gas and utility lending portfolios.
JPMorgan Chase has been notable among the banks for not moving quickly enough to change its lending practices, despite its commitments. The bank did take a positive step in October 2020 by announcing its adoption of a financing commitment “aligned to the goals of the Paris Agreement” and recognizing the world should target net-zero carbon emissions by 2050. The bank said it would set an intermediate emissions target for 2030 for its lending portfolio, but maintained that oil and gas will need to be major energy sources for some time.
There has been some other progress in 2020 as well. Two of the other biggest U.S. banks joined the PCAF – Bank of America in July and Citigroup in August. After intense pressure from environmentalists and shareholders, the big four U.S. banks also pledged not to fund oil or gas drilling in the Arctic National Wildlife Refuge. A smaller bank, Morgan Stanley (#14 in the U.S.) committed to reach net-zero financing of carbon emissions projects by 2050 and also joined PCAF.
To ensure the banks honor these commitments and go farther, shareholders such as Green Century Capital Management have been adding resolutions to bank shareholder meeting agendas demanding action against global warming. Corporate accountability group As You Sow filed shareholder resolutions in November 2019 and again in December 2020 calling on major U.S. banks to take immediate steps to measure, reveal and cut greenhouse gas emissions connected with their fossil fuel lending, including whether the banks would join PCAF. Such resolutions are near to securing majority shareholder support.
We already have the renewable energy technologies needed to slash emissions, and they are gaining momentum faster than anyone predicted. It is past time for the big U.S. banks to stop propping up a dying industry and end their support for projects that worsen global warming. This is not just a moral issue but is also a growing financial risk to the banks themselves. Between October 2019 and June 2020, seven of the world’s largest fossil fuel companies wrote down the value of their oil and gas assets by $87 billion, as the COVID pandemic and the ongoing global transition to clean fuels reduced oil prices and increased the likelihood that the companies will be forced to leave dirty assets in the ground.
The big banks’ slow pace of action shows we need to keep up strong pressure to hold them accountable for dirty lending. The Biden Administration can make the difference by exerting its full regulatory authority. The Federal Reserve and the Securities and Exchange Commission (SEC) can use existing powers to push financial firms toward more aggressive action on global warming. The Fed announced December 15 it is joining a global network of financial supervisors working to green the financial system, a positive if overdue step. The SEC should require banks to disclose global warming exposure and risks, including auditing emissions financed by the financial sector. This will highlight for markets the risks of continuing to invest in companies extracting fossil fuel or contributing to deforestation, as the world increasingly moves to rein in global warming.
Shareholders and accountability groups can build on stronger regulation by continuing to push to hold the big banks accountable for their lending practices, which will force the banks to act when resolutions begin to pass.
By encouraging the Biden administration to use its regulatory power, buttressed by shareholder and public pressure, we have the opportunity to pivot America’s largest banks from funding fossil fuel energy and deforestation projects to funding clean energy – making them part of the global warming solution, rather than part of the problem.
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