Banking on Climate Change

Two new climate change reports assess how banks are responding to public scrutiny of their financing of fossil fuels.

Rainforest Action Network, in collaboration with BankTrack, the Sierra Club and Oil Change International have just evaluated 36 banks on their policy and practice on financing extreme fossil fuels over the last three years.

Extreme fossil fuels were defined as Arctic, tar sands, and ultra-deep offshore oil; coal mining and coal-fired power; and North American Liquid Natural Gas (LNG) export terminals.

Rank out of 36 for total financing of fossil fuels (2015- 2017)

Bank Amount invested in 2017 Average grade
7 HSBC

$5.663 billion

(increased since 2016)

D+
9 City Group

$5.666 billion

(decrease since 2016)

C-
12 Barclays

$3.642 billion

(decrease since 2016)

D+
14

Deutsche Bank

Part owns (ICICI Bank)

$1.959 billion

(decrease since 2016)

D+
19

Bank of Montreal

(F&C Fund)

$3.71 billion

(increase since 2016)

D-
22

BNP Paribus

(partly owns Impax Fund)

$1.949 billion

(increase since 2016)

C+
27 Santander

$816 million

(decrease since 2016)

D
33 RBS (owns Natwest)

$0

(decrease since 2016)

D+

The report found that despite 2017 being the costliest year on record for weather disasters, banks increased extreme fossil fuel financing last year, led by a more than doubling in lending to tar sands companies and pipelines. Tar sands has now overtaken coal power as the most heavily funded extreme energy sector.

Seven banks that we rate appeared in the ‘Banking on Climate Change 2018’ report and they receive a full mark in the Climate Change column on the score tables. RBS only received a half mark because the report could not find any extreme fossil fuel investments for them in 2017 (their investments had declined to $307 million in 2016).

Two of those seven banks – HSBC and Bank of Montreal –  had increased their financing to the top extreme fossil fuel companies from 2016 to 2017. HSBC is being targetted as one of the worst ten banks. It is one of the biggest backsliders having increased its investments by $2.6 billion from 2016 to 2017.

Banks backslide

Financing for extreme fossil fuels overall went from $126 billion in 2015, down to $104 billion in 2016, then up to $115 billion in 2017.

2016, the first year after the adoption of the Paris Climate Agreement, was a year of progress. 2017 was a year of backsliding.

“US and Canadian banks like JPMorgan Chase are moving backwards in lockstep with their wrongheaded political leaders” said Alison Kirsch from Rainforest Action Network.

JPMorgan Chase increased its financing for coal mining by 21 times last year and qaudrupled its funding for tar sands.

The report finds that while some European banks, like RBS and BNP Paribas, have put policy restrictions on some of their fossil fuel financing, major players elsewhere have done little to adopt policies that would bring their activities in line with the Paris Agreement.

Reasons to be cheerful?

On a more positive note, ShareAction, a charity promoting responsible investment practices, was encouraged by improvements in disclosure. In its ‘Banking on a Low-Carbon Future’ report, it describes 2017 as a “landmark” year for corporate climate disclosure. The UK government was encouraging all listed companies to implement the Task Force on Climate-related Financial Disclosures (TCFD) recommendations to disclose climate-related risks and opportunities in their mainstream financial filings.

All of the 15 European Banks reviewed in ShareAction’s report had, to some degree, “considered climate-related risks and opportunities and adopted policies, introduced processes and launched products as a result”.

Of the banks covered in our finance guides, BNP Paribas was listed as the ‘leader’ of the field. HSBC was listed as a ‘challenger’ whilst Deutsche Bank, Barclays, Santander, and RBS were ranked lower as ‘learners’. Bottom of the pile was the Lloyds Banking Group.

ShareAction’s report admits that banks show weakness in the way they have approached climate change, stating:

“It will be a concern to investors that individual banks’ exposures to climate-related risks are not yet fully quantifiable, and that policies covering the sectors most exposed to those risks, as well as engagement strategies with clients, are in most cases misaligned with the target of limiting global temperature rises to <2°C.”

Indeed, most of the banks that we have covered that are in ShareAction’s report also appear in the Banking on Climate Change report for financing extreme fossil fuels.

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