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Banks, climate change and the environmental crisis

image: smoke chimney emitting fossil fuels in atmosphere pollution
Clare Carlile
By
Clare Carlile

Banks and their activities with regard to financing fossil fuel expansion and environmental breakdown.

Financing fossil fuel expansion in a climate crisis

Banks, globally, have provided $2.7 trillion in financing for fossil fuels since the 2015 Paris Agreement, according to the most recent Banking on Climate Change report.

The report – published annually by Rainforest Action Network, BankTrack, Indigenous Environmental Network, Sierra Club, Oil Change International, and Reclaim Finance – found that banking for fossil fuels had risen to $736 billion in 2019 alone.

In the report’s own words: “The private banking sector as a whole continues to take a position of extreme irresponsibility in the face of the climate crisis.”

What does the report cover? The report looks at 35 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.
     
  • Companies’ policies across these areas, scoring them out of 200.

Banks backsliding: increasing finance in fossil fuels

Overall fossil financing has increased by 15% since 2016 and many of the banks have increased their individual financing in the last year.

BNP Paribas’ backing has increased by $12.8 billion, HSBC’s by $6.7 billion, and Citigroup’s by $6.3 billion.

Finance for fracking, arctic oil and gas, and offshore oil and gas, continued to grow for the third year running. Finance for tar sands and LNG had also increased since 2018.

'Bright spots': A fall in coal mining

The report found that “the only somewhat bright spots in terms of declining finance are in coal mining and power”. Finance for the top 30 coal mining companies had declined by 6% between 2016 and 2019, and finance to the top 30 coal power companies shrank by 13%.

However, it also said that while coal finance was slowly shrinking, the trend was being more than compensated for by growth in finance for the oil and gas industry. NatWest Group was identified as one bank making progress.

It was said to have slashed its fossil fuel financing in 2019 and significantly strengthened its policies in February 2020.

How do the companies fare?

Six companies in our guides to Bank Accounts and two companies in our guide to Ethical Investment Funds appear on the report.

Rank out of 35 Bank Finance for fossil fuel exploration since 2016  Total fossil fuel finance since 2016 Policy score out of 200
3 Citigroup $71.685 bn $187.666 bn 9.5
7 Barclays $34.931 bn $118.106 bn 13.5
12 HSBC including First Direct $33.385 bn $86.528 bn 18.5
13 BNP Paribas (part owns Impax Fund) $29.628 bn $84.223 bn 58.5
16 Bank of Montreal (BMO Fossil Free Fund) $36.718bn $82.115 bn 0.5
19 Deutsche Bank (part owns ICICI Bank) $25.150 bn $65.885 bn 13
29 Santander (including Cater Allen) $13.742 bn $25.736 bn 20.5
34 NatWest Group (including RBS, Coutts and Ulster Bank) $2.654 bn $12.116bn 59.5

Our climate change impact rating for banks

Our latest research, conducted as part of our guides to ethical banking and ethical savings accounts, asked how banks were measuring the climate impacts of projects they were lending to and what their plans were to change practices to meet globally agreed targets. The 36 banks and building societies were then rated as either a best, middle or worst for their carbon management and reporting.

Worryingly our research found that only two of the thirty six companies reviewed clearly demonstrated effective plans to reduce their carbon impacts in time, with 94% of retail banks failing to convince on climate strategy.

Only two small ethical lenders, Triodos Bank and the Ecology Building Society, appeared to have properly grasped the seriousness of the situation and received a best rating. They had both partnered with the Dutch “Partnership for Carbon Accounting Financials” in order to report their carbon emissions, including those in their loans and investments. Both received a best rating.

Shareaction report on banks' climate change action

In April 2020, ShareAction also published a report ranking the 20 largest European banks on their responses to climate change.

‘Banking on a Low-Carbon Future II’ looks at climate-related risk assessment and management, low-carbon products and services, public policy engagement and collaboration with other actors, and how climate considerations are implemented through governance and strategy. It found that amongst the twenty banks it looked at, none demonstrated ‘Best Practice’.

The average score was just 39.9%, suggesting that they had a long way to go. Eight of the banks in our guides appeared in ShareAction’s report. BNP Paribas and Lloyds Bank were rated as ‘leaders’ scoring 63.2% and 61.7% respectively.

HSBC (47%) and Santander (40.8%) were ‘building capacity’ whilst Barclays (39.5%), Deutsche Bank (36.3%) and NatWest (32.4%) were ‘business as usual’.

Danske Bank was rated as a ‘laggard’ with only a 12.5% score. Differences in the findings of the two reports suggest the distance between policy and practice for many of these companies.

For example, although BNP Paribas was found to be the leader by ShareAction, it continues to be the 13th largest financier of fossil fuels according to Banking on Climate Change which looks at actual finance made available. Read the full report – Banking on a Low Carbon Future.

Fossil fuel expansion projects

UK banks continue to finance some of the most controversial fossil fuel projects and companies around the world.

Based on information collected by BankTrack, Urgewald and the Banking on Climate Change report, we look at the devastating impact two of these projects are having on the environment and local communities.

Project: TransMountain Pipeline Expansion project

Country: Canada

Linked banks: AIG, Barclays, Chubb, Citigroup, Deutsche Bank, HSBC, NatWest

The TransMountain Pipeline Expansion project will nearly triple the flow of tar sands – which produce 15% more carbon dioxide emissions than conventional oil – from the Alberta oil sands to the Canadian coast. Local communities already face oil spills from the pipeline.

In June, 190,000 litres of oil split over an aquifer that supplies water to the indigenous community Sumas First Nations’ reserve. It was the fourth spill in 15 years on the community’s land.

Many groups of First Nations (one of the predominant indigenous peoples in Canada) say that they have not been properly consulted and that the pipeline is a threat to their way of life.

Campaign group, Stand.earth says that the expansion will lead to 590,000 more barrels of tar sands each day and an almost 7-fold increase in oil tankers in the Salish Sea, endangering the Orca Whale population.

Manuel is a member of the Secwepemc Nation resisting the pipeline:

“This movement is reclaiming our lands, our cultures, our language. Our language and culture flows from our land, you can’t have one without the other.”

In 2017, Kinder Morgan, the owner of the project, withdrew following extended criticism. The Canadian government bought the pipeline and now leads the expansion. In February 2020, the Canadian courts upheld approval for the project, rejecting a legal challenge from the First Nations.

Between 2014-17, Citigroup, Deutsche Bank, NatWest Group and others co-financed a CA$14 billion loan to the former owner of the project. In 2017, Barclays and HSBC provided a further CA$315 million and CA$200 million in loans respectively.

At the time of writing, AIG and Chubb had failed to state whether they would renew their insurance of the pipeline when the current contract expires in August, despite many other companies saying that they would no longer be underwriting the project.

image: tiny house warriors fossil fuel expansion
Calling themselves the Tiny House Warriors, a group of Indigenous Secwepemc people from Canada are building tiny houses in the path of the massive tar sands oil pipeline's planned route through their territory.

Project: Cerrejón

Country: Colombia

Linked banks: Bank of Montreal (owns BMO Funds), Barclays, BNP Paribas (owns 25% of Impax Fund), Citigroup, HSBC, Deutsche Bank (owns 19% of ICICI), RBS (now NatWest Group), Santander.

The Cerrejón coal mine is the largest in Latin America. Its expansion over the last five decades has led to the destruction of whole villages populated by local indigenous and Afro-Colombian people.

Last year, one-quarter of the UK’s coal imports came from Colombia. The diversion of water to the mine, combined with a ten-year drought in the region, is said to have left 37,000 indigenous children malnourished and caused at least 5,000 deaths from starvation (with others saying the figure is closer to 14,000).

In June, local indigenous communities appealed to the UN to halt mining at Cerrejón in the light of the Coronavirus. They say that they are facing increased risks due to constant exposure to poor quality air and the violation of their right to water.

“What we are demanding of Cerrejón is our children’s health. We are fighting for our rights to live in a healthy territory, in a reserve without pollution, just as it was before Cerrejón came in,” says Luz Ángela Uriana from the Wayuu Indigenous Community.

Names of just some of the communities devastated or wiped off the map by the project include: Roche, Chancleta, Tamaquitos, Manantial, Tabaco, Palmarito, El Descanso, Caracoli, Zarahita, Patilla.

In 2013, Barclays, HSBC, Lloyds Banking Group and NatWest Group provided loans totalling over $13 billion for the Cerrejón coal mine. Since then, multiple banks have continued to finance its owners – Anglo American, BHP Group and Glencore – including Bank of Montreal (owner of BMO Funds), Barclays, BNP Paribas (part owner of Impax Fund), Citigroup, Deutsche Bank, HSBC, Santander, and NatWest Group.

Financing environmental breakdown

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 of the reports that are reflected in our ranking tables.

In May 2018, Facing Finance published ‘Dirty Profits 6’. The report looked at the global extractives industry, which was involved in some of the worst labour, environmental and human rights violations. It found that:

“The rights of communities, farmers and indigenous people are being trampled in the push for ever more extraction.”

The report also looked at whether implicated companies and the financial institutions behind them had responded to evidence of violations published in its 2012 ‘Dirty Profits’ report.

It found that companies had largely failed to respond.

Barclays, BNP Paribas (owns 25% of Impax), Deutsche Bank (owns 19% of ICICI) and HSBC were all criticised for their financing of the extractive industries.

Amazon Watch’s ‘Complicity in Destruction’ report, published in April 2019, names the funders of Amazon deforestation. The report identifies the worst offending companies operating in the soy, beef, leather, timber and sugar industries, and the financial institutions which enable them. It said:

“The Amazon Rainforest sustains life on earth... While the Amazon’s health depends upon the stewardship of the nine countries that share this 5.5 million km2 biome, the role of global markets – from commodity traders to financiers to consumers – directly implicate us in its fate.”

Barclays, BlackRock (owns 10% of Janus Henderson), Citigroup (Citibank), HSBC, Lloyds Banking Group, NatWest Group and Banco Santander had all provided financing to implicated companies.

In September 2019, Global Witness published ‘Money to Burn’, also looking at the funding for companies involved in rainforest destruction.

It focused on the financing of six huge agribusinesses involved in palm oil, beef or rubber production and operating in the Amazon, the Congo Basin or New Guinea. Since 2013, many financial instructions had provided tens of billions of dollars to the implicated companies.

HSBC, Santander, BNP Paribas (owns 25% of Impax), Barclays, Royal Bank of Scotland, BlackRock (owns 10% of Janus Henderson), Deutsche Bank (owns 19% of ICICI), and Standard Life Aberdeen were among those having provided financing of over £10 million.

‘Butchering the Planet’, released in July 2020 by Feedback, highlighted some of the main companies responsible for funding ‘Big Livestock’, and thereby implicated in the environmental issues arising as a result of the industrialisation of animal farming.

The report looked at the 35 largest meat and dairy corporations, their greenhouse gas emissions and their dodgy practices like chlorine washing chickens, as well as the financial institutions funding them. It said:

“Banks and investors that wear with pride their commitments to end deforestation and combat climate change are deeply implicated in the financial support offered to this ecologically destructive and socially toxic industry.”

Barclays, Citigroup, HSBC and Banco Santander were all named.

Also of interest

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  • Savings Accounts

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