Financial institutions have made big climate pledges. But they’ve also found reasons and ways to pass the buck, continuing to funnel money toward fossil fuels. Here’s why.
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Manuela Andreoni, Somini Sengupta and
A year ago, at the global climate summit in Glasgow, a group of some of the world’s biggest financial institutions agreed to end or offset all of their contributions to greenhouse gas emissions by 2050. They also said they’d commit their combined $130 trillion in assets toward creating a net-zero economy.
But just ahead of this year’s summit, the group, called the Glasgow Financial Alliance for Net-Zero, dropped what climate activists say is a critical part of the alliance’s commitment: that its more than 550 members would adhere to United Nations criteria requiring them to phase out fossil fuels. Instead, the alliance is supporting the creation of a separate accountability tool. It would track and “determine whether commitments are being backed up by action,” a leader of its central secretariat, Alex Michie, said in a statement.
Despite their pledges to become carbon neutral, members of the alliance have continued to provide funding for fossil fuel companies and projects, according to reports by watchdog nonprofits.
As of April, only 60 out of 240 of the largest alliance members had any policy excluding support for coal companies developing new projects, according to an analysis by Reclaim Finance, a climate advocacy group. And even when firms do have these policies, there are often loopholes. A recent study by the Global Energy Monitor, a nonprofit group based in San Francisco, found that members of the Glasgow alliance continued to support coal developments indirectly — through corporate finance and investments in the companies responsible for them.
Mark Carney, a co-chairman of the Glasgow alliance, has said that financial institutions fear that banding together to end support for fossil fuel projects would make them susceptible to antitrust action. And companies face pressure from Republican lawmakers, who have targeted financial services firms that make moves to reduce their emissions.
But it’s more than regulatory risk that may make financial institutions hesitant to pull support from fossil fuel companies. Somini Sengupta of Climate Forward and Andrew Sorkin, the founder and editor at large of DealBook, share a few ideas about banks and climate action at this moment in time.
How can we understand the decision-making process of financial institutions when it comes to fossil fuel projects?
Somini: It’s not just bankers that Mark Carney corralled under the G.F.A.N.Z. banner. Asset managers, including BlackRock and Vanguard, made similar net-zero promises.
But promises can be broken as easily as they are made, especially when there’s gobs of money at stake. So as coal, oil and gas prices soared in the aftermath of the Russian invasion of Ukraine, money poured in from finance companies.
As one former banker who used to do energy deals told me here at COP27, the financial incentives have tilted back toward fossils.
Andrew: The banks’ early commitments on reducing fossil fuel financing were, in truth, never a moral decision. It was, at the time, good business. Clients, investors and regulators were rewarding firms that were focused on the climate. Banks were getting more business from like-minded clients: Big pension funds, especially in Europe, were buying their shares, driving up their price, and regulators were looking more kindly upon them. It was, all in, considered a good look to be concerned about the climate. And let’s not be completely cynical — there were employees and other stakeholders that absolutely did believe in moving away from fossil fuels.
But when Russia began its war with Ukraine, fossil fuel prices skyrocketed, and even more than that, the debate shifted again: Energy is now viewed through the prism of national security, massive economic pain and keeping humans warm enough in the winter so that they don’t die.
Is there any reason for optimism?
Somini: There’s another way to look at this moment. For years, banks financed way more fossil fuel projects than renewable energy projects. That’s beginning to shift.
For every $1.25 invested in fossil fuel projects globally, a dollar is invested in renewables, mostly solar. It’s not the trajectory that’s needed to stay within safe climate limits. But it’s something.
Today, spending on renewable energy and storage account for the vast majority of new investment going into the power sector, the International Energy Agency says.
Andrew: The new “good look” has become to support fossil fuels, at least in the short term. That may be an unpopular view, but it has largely become the conventional wisdom among business and policy leaders.
Most big banks haven’t abandoned their efforts to support the transition, but the timeline is clearly changing.
What are the lessons we can learn about these twists and turns when it comes to the finance sector and the climate?
Somini: It shows me the limits of voluntary commitments. If there are no regulations and no immediate costs to finance firms bankrolling polluters, then why would they stop? There is no accountability built into the system.
Banks are doing what banks do. They are making money for their shareholders, no matter how it pollutes their balance sheets.
Who’s driving global warming? A nonprofit coalition says it can track emissions down to individual power plants, oil fields and cargo ships.
COP27, live: We’ve got daily updates about the U.N. climate summit in Sharm el Sheikh, Egypt, here.
Rising emissions: Global fossil fuel emissions will most likely reach record highs this year, according to new data, and they do not yet show signs of declining.
Fixing global finance: Some leaders at COP27 say it’s time to radically overhaul the World Bank and the International Monetary Fund.
Climate compensation: In a shift, several countries at the climate talks announced funds to help poor nations recover from loss and damage caused by climate change.
Chilly relations warm, a bit: John Kerry, the top U.S. climate negotiator, said he had met with his Chinese counterpart at COP27 at least three times.
The World Bank chief’s troubles: David Malpass has faced continuing criticism from those who question his commitment to climate action.
Ahead of his time: Herman Daly, an ecological economist who faulted his mainstream peers for failing to account for the environmental harm that growth can bring, has died at 84.
More than 600 of the delegates at the U.N. climate talks in Egypt have links to the fossil fuel industry, according to a study reported by the BBC.
From National Geographic: Around the world, environmental cooperation is helping to solve some local conflicts.
Forbes reported that the actor Rainn Wilson had changed his name to Rainnfall Heat Wave Extreme Winter Wilson to draw attention to climate change.
Vox looked at what some of the midterm election results mean for climate change.
There’s a transformation happening in Nepal, thanks to a policy adopted by the government more than 40 years ago. Large swaths of national forest land were handed to local communities, and millions of volunteers were recruited to protect and renew their local forests, an effort that has earned praise from environmentalists around the world. The country’s forest cover has increased by about 22 percent since 1988.
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Claire O’Neill and Douglas Alteen contributed to Climate Forward. Read past editions of the newsletter here.
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The Bottom Line on Banks – The New York Times