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November 10, 2015

Bank Financing of Fossil Fuels Dwarfs that of Renewables
    by Robert Kropp

A new study by Fair Finance Guide and BankTrack reveals that since 2009, investment in fossil fuels by 75 of the world's largest financial institutions is more than nine times greater than investment in renewable energy. -- I recently wrote on about a new repo rt by the investment firm Boston Common Asset Management, which concluded that banks are still failing to account for Scope 3 emissions, which in the case of financial institutions is largely found in their lending and underwriting portfolios.

new report, this one from Fair Finance Guide International and BankTrack, reveals the extent to which the greenhouse gas (GHG) emissions in banks' lending practices constitute seriously problematic operational and reputational risks for the institutions.

According to the report, from 2009 through 2014 the world's 25 largest private sector banks have provided $931 billion in financing to fossil fuel companies, while during the same time period providing only $98 billion to renewable energy technologies. Three US banks—Citi, JPMorgan Chase, and Bank of America—lent the most money to fossil fuel companies.

“Between 2009 and 2014, Citi and JPMorgan Chase each provided over $76 billion to fossil fuel companies and only $6.5 billion and $4.4 billion respectively to renewable energy,” the report's authors stated. “Bank of America provided $62.7 billion to fossil fuel companies, and only $5.4 billion to renewable energy.”

The Executive Summary of the 239-page report repeats a number of scientifically grounded facts: that over 80% of GHG emissions are CO2 emissions; that the burning of fossil fuels is the single greatest contributor to emissions and thus to climate change as well; and that if planetary temperature increases are to stay within the 2°C limit recommended by the Intergovernmental Panel on Climate Change (IPCC), 80% of the reserves already counted as assets on the books of fossil fuel companies will have to stay in the ground.

“When financial institutions provide financing to companies engaged in fossil fuels related sectors, and this financing is being used for the extraction or production of fossil fuels, these financial institutions can be said to be financing GHG emission,” the report states. “Thus by implication, financial institutions financing such business activities can be said to be financing climate change.”

Echoing the finding in Boston Common's report, Fair Finance Guide and BankTrack found that many banks do not have policies and commitments relating to climate change, and that many of those that do have nevertheless increased their financing of fossil fuel projects. While increases in the financing of renewable energy were noted, these increases have been “undermined,” the report states, by an increase in funding of fossil fuel projects as well.

The report concludes with the following recommendations for financial institutions:
1. Increase financing of renewable energy sources;
2. reduce and phase out financing of fossil fuels, starting with coal;
3. calculate and disclose financed emissions associated with loans and investments;
4. publish global and detailed amounts of all annual financing to the energy sector; and
5. commit to phase out all fossil fuel financing and investments.

“Banks play a pivotal role in the economy and have a responsibility to promote a less carbon intensive world,” Alexandre Naulot of Fair Finance Guide said. “We certainly hear enough from them about their green finance aspirations, but they lack clear commitments.”

Yann Louvel of BankTrack added, “We need ambitious action from the banks now... no major international bank has so far done the
Paris Pledge, and committed before COP21 in Paris to a full phase out of coal financing. This is the kind of practical commitment we need to see happening.”

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