Banks, climate change and the environmental crisis

The world’s 60 biggest banks have provided $4.6 trillion in financing for fossil fuels since the 2015 Paris Agreement, according to the most recent Banking on Climate Chaos report.

Fossil fuel financing plateaued in 2021 but at levels still higher than in 2016, the first year after the Paris Agreement was adopted. The overall linear financing trend since Paris is still headed upward.

And there is a disconnect between banks’ net zero aspirations and their practices. While a growing number of banks are making green claims, the majority of high street banks continue to fuel climate catastrophe. 44 of the 60 banks in the report had committed to net zero by 2050 but were still funding companies opening new oil and gas fields, potentially locking the planet into decades of climate-warming emissions.

Luckily, ethical alternatives are providing better options for consumers. 

How are banks funding climate change?

Banks provide loans, insurance and other forms of financing to fossil fuels companies. In doing so, they prop up those extracting coal and burning oil, which pump enormous amounts of greenhouse gas into our atmosphere.

Banks can also be involved in funding specific projects, like the expansion of a coal mine or the construction of a new oil rig. Without their money, projects like these would not be able to take place.

But their climate impacts don’t stop there. Banks pretty much finance every high climate impact industry, from arms to animal farming. Companies funded by UK banks are also behind some of the worst environmental abuses, such as massive deforestation of the Amazon.

Why is fossil fuel financing a problem?

In deciding what to finance, banks shape our future. The infrastructure they fund will exist for years to come: a new oil rig, a wind farm or a coal mine will provide our power for the next 20 to 30 years. Banks therefore have the power to lock us into a fossil fuel dependent future, or turn us towards a green transition.

Fossil fuel projects, funded by these banks, are also having serious impacts today, not only by funding rising climates. The Banking on Climate Chaos report says,

“Bank funding for fossil fuels often brings dire threats to the lives and livelihoods of local communities around the world — harming Indigenous Peoples, Black and Brown communities, and poor and working-class communities first and worst.”

For example, banks including HSBC, Barclays and Santander have supported the expansion of the Cerrejón coal mine in Colombia. The project has wiped multiple Indigenous communities off the map, and those living in the area are facing serious droughts fuelled by the mine’s enormous water extraction.

Which banks are financing fossil fuels?

Unfortunately, almost all UK high street banks are financing fossil fuels. Since the Paris Agreement in 2015 – where the world first agreed to limit global warming to below 2 degrees – the most UK banks have provided billions in funding to fossil fuels.

Several big high street banks in the UK appear in the Banking on Climate Chaos report of the top 60 banks for fossil fuel financing. The report covers eight of the banking groups that appear in the our guides to ethical current accounts, savings and mortgages for example.

JP Morgan Chase is the biggest funder from 2015-2021 with a total of $382 billion. It even increased its funding of fossil fuels by $10 billion more in 2021 than in 2020.

Barclays is at number seven with $167 billion and is the biggest banker of fossil fuels in Europe.

For the full listing of all 60 banks visit the Banking on Climate Chaos report website.

For years, fossil fuel financing has been so much the norm that unless banks have a robust policy on it, they may well be financing the industry. Unfortunately, only a handful of banks have fully committed to ensure that your money won’t go to oil, gas or coil.

In fact, many banks are still funding the very worst fossil fuels. For example, Citi has provided $45.41 billion in financing to companies behind fracking, and Barclays $28.82 billion since 2015.

What's in the Banking on Climate Chaos report?

The report looks at 60 private-sector banks and their lending and underwriting of debt and equity issuances to major fossil fuel companies since 2016. It examines:

• Financing for the most damaging fossil fuels – coal, tar sands, Arctic oil and gas, offshore oil and gas, fracked oil and gas, and liquified natural gas (LNG).
• Financing for the top 100 companies involved in fossil fuel expansion, through new extraction or infrastructure.

The Banking on Climate Chaos 2022 report is published annually by Rainforest Action Network, BankTrack, Indigenous Environmental Network, Sierra Club, Oil Change International and Reclaim Finance.

Our climate change impact rating for banks

Ethical Consumer rates banks on a number of key climate change areas:

1. We check whether they have a robust policy not to finance fossil fuels.
2. We check whether they’re invested in any companies that we have previously criticised for their climate change record.
3. We look whether they have commitments to reduce their emissions, including all emissions from financing, in line with the Paris agreement.
4. And we check whether they have been named in relation to any dirty fossil fuel projects.

Our latest research, conducted as part of our guides to ethical current accounts and ethical savings accounts, found that 29 of the 31 banks reviewed were rated middle or worst for their climate change reporting. Only Triodos and Metro bank scored a best rating.

The big five banks in the UK – Lloyds, Santander, NatWest, HSBC and Barclays – all lost a full mark under Climate Change.

Worst banks for climate change

Barclays has consistently been the worst bank in Europe for the financing of fossil fuels since the Paris agreement. HSBC is also high on the list of key funders.

Although not registered in Europe, Citi offers bank accounts in the UK and is the second largest fossil fuel financier globally.

JP Morgan is the world’s number one funder of fossil fuels, having provided $382 billion since the Paris agreement – almost $100 billion more than the next biggest player. JP Morgan doesn’t offer bank accounts, but it does own Nutmeg, an investment platform that appears in our Stocks and Shares ISA guide.

Financing environmental breakdown

With biodiversity also plummeting, climate change is not the only issue on the agenda. Unfortunately, when it comes to issues like deforestation and pollution, banks don’t have a good funding track record either. 

In the last five years, numerous civil society reports have highlighted the role of financial institutions in funding environmental breakdown and the associated human and animal rights violations.

Below we highlight just four recent reports.

Banks linked to human rights abuses

Bank funding for fossil fuels often brings dire threats to the lives and livelihoods of local communities around the world, particularly Indigenous Peoples.

Communities facing those impacts continued to resist, including Australia’s #StopAdani movement, the camps opposing Enbridge’s Line 3 Pipeline in the U.S., and the growing coalition to stop the East African Crude Oil Pipeline across Uganda and Tanzania.

Below is just one example of human rights abuses lined to fossil fuel extraction.

No faith in fossil fuels

In summer 2022, a total of 35 faith institutions announced their divestment from fossil fuel companies in response to the industry’s expansion plans. 19 of the 35 institutions divesting are from the UK.

The divestment announcement was organised by the World Council of Churches, Operation Noah, Laudato Si’ Movement, Green Anglicans and GreenFaith. It comes from faith institutions in Belgium, Brazil, Canada, Ireland, the UK and the US, just weeks before Anglican bishops from around the world gather for the once-a-decade Lambeth Conference in Canterbury.

A full list of the faith institutions divesting from fossil fuels is available online (opens as a Google spreadsheet).

Faith institutions now represent more than 35% of all divestment commitments globally – more than any other single sector.