- New data reveals the world’s largest 60 banks provided $742bn of capital to fossil fuels companies in 2021.
- A new tool scrutinising oil and gas policies helps to explain these high figures, as the biggest financiers are revealed to be those lacking robust restrictions.
- Of the 13 exclusion policies adopted by financial institutions since early 2022, five include an exception for companies that have ‘credible’ transition plans.
Last year was the year that many of the world’s largest banks adopted new net-zero commitments while still supporting the fossil fuel sector, according to fresh data from climate pressure group the Rainforest Action Network (RAN).
Capital Monitor’s analysis of RAN’s latest annual ‘Banking on Climate Chaos’ report alongside banks’ fossil fuel policies, according to financial non-profit Reclaim Finance’s first Oil and Gas Policy Tracker, highlights where banks could be going much further to combat climate change.
The world’s 60 banks by asset size provided $742bn of funding to coal, oil and gas companies last year, according to the RAN report, despite a majority, 44, having committed to reaching net zero by 2050. That’s a total of $4.6trn in fossil fuel financing since the ratification of the Paris Agreement in 2016.
RAN focuses on banks’ lending, debt underwriting and equity capital market activity, and adjusts each transaction according to how much exposure the borrower or issuer has to a specific sector. For example, if a bank loans a sum to a diversified oil and gas company and 10% of its business comes from tar sands, the bank will be credited with loaning 10% of the sum to the tar sands sector. All transitions marketed as green loans or bonds were removed from the analysis, meaning all of the financing in this report is for fossil fuels rather than transition finance.
As they were in 2020, J.P. Morgan, Citi, Wells Fargo and Bank of America are the most active supporters of fossil fuel companies. Together, they account for one-quarter of all financing identified over the past six years.
The report’s methodology shows these figures as a percentage of a bank’s total lending. In context, Morgan Stanley provided a fairly small amount of its overall financing (4%) to the fossil fuel sector, while Canada’s CIBC provided almost a fifth of its total financing to fossil fuels.
The total financing figure for 2021 marks a slight decrease from 2020’s $749bn, but an increase from the $723bn provided in 2016. The data shows that while financing to some sectors, such as coal mining, declined over the past year, banks have increased financing to tar sands projects by 50% since 2020, to the tune of $23.3bn.
Banks spending the most have the weakest policies
Given the rise in financial institutions’ public commitments to cutting exposure to fossil fuels, Capital Monitor was curious about why the funding levels had stayed flat over the past five years. Analysis of banks’ fossil fuel policies alongside spending offers some insight into the reasons for this.
Combing coal, oil and gas policy scores produced by Reclaim Finance shows that many of the biggest financiers of fossil fuels have yet to implement strong policies. Reclaim Finance gives banks a score for their coal and oil and gas policies in its Coal Policy Tool and the recently launched Oil and Gas Policy Tracker mentioned above, which assesses policies across three indicators: oil and gas projects, those developing or expanding new oil and gas projects, and strategies to phase out oil and gas.
J.P. Morgan, for example, has an average combined coal and oil and gas policy score of 2.5 out of 20, implying it is taking fewer steps than other banks to curb fossil fuel financing. As several of the banks’ oil and gas policies were adopted after the financing data was gathered, the link between policies and financing is unlikely to reflect where policies are effective. Rather, it more likely reveals that banks with a larger stake in the fossil fuel industry are more reticent about implementing such policies.
Where fossil fuel policies fail to have an impact
While many banks have now adopted some sort of coal policy, further analysis reveals this is not the case with oil and gas. The majority of financing goes towards these two sectors. According to RAN’s data, financing for coal mining companies represents just 4% of total fossil fuel lending and underwriting, compared with 26% for coal power utilities. The figure is far higher for oil and gas, standing at 67%.
And while 34 out of the 60 banks in RAN’s report have a coal policy that applies to the whole company, just 23 banks have a similar company-wide policy for oil and gas companies. It is more common for banks to have policies with a much narrower remit: 48 banks have a policy that restricts coal projects, while just 38 have a similar policy in place for oil and gas projects. As 91% of the financing in RAN’s analysis is not project-related, most policies fail to have maximum impact.
Some banks are continuing to support companies expanding their oil and gas operations, lending $185.5bn to 100 companies most linked to fossil fuel expansion, such as Saudi Aramco and ExxonMobil.
Such activity is out of line with the International Energy Agency (IEA) recommendation in its 'Net Zero by 2050' scenario that there is no need for new oil and gas fields.
"The net-zero scenario from the IEA published last year didn't make a distinction between unconventional and conventional oil and gas – it said there is no room for any new oil or gas fields beyond 2021,” says Clément Faul, policy analyst at Reclaim Finance. “So far, financial institutions are focused on ruling out unconventional fossil fuel projects, but it's crucial that they also commit to excluding new conventional fossil fuels as well."
Faul also points out that an increasing number of banks are making exceptions for companies with ‘credible transition plans’ within their policies, something he is not convinced about. He argues so-called "best-in-class" producers – like ENI, TotalEnergies, BP and Shell – are overshooting the remaining carbon budget very quickly, despite their net zero by 2050 claims.
Capital Monitor has previously documented where a handful of financial institutions have accepted accreditation by a third-party organisation, like the Science-Based Targets initiative, as grounds for exemption from a fossil fuel restriction policy.
New figures shared with Capital Monitor by Reclaim Finance show that of the 13 exclusion policies adopted since early 2022, five include an exception for companies that have adopted a credible transition plan.
For example, NatWest will stop lending and underwriting to major oil and gas producers “unless they had a credible transition plan aligned with the 2015 Paris Agreement in place by the end of 2021”, according to its climate-related disclosures report published this year. The UK banking group assesses the credibility of a company’s plan itself through its own metrics and in line with an “independent third-party proprietary model”.
It is likely that policies with such exemptions will become more common, as increasing numbers of fossil fuel producers present transition plans that are verified by accredited sources. For example, the investor-led Transition Pathway Initiative recently assessed oil and gas major TotalEnergies as in line with a 1.5°C pathway.
Cases like these will continue to divide investors from activists, who would argue that any fossil fuel financing is incompatible with the IEA’s net-zero scenario. Either way, an increase in such exemptions will likely lead to an increase in fossil fuel financing. At least according to RAN’s methodology.