top of page

Net-zero banks fall far short on emissions front

Banks that sign up for the Net-Zero Banking Alliance commit to align their lending and investment portfolios with the goal of achieving net-zero emissions by 2050.

It’s an urgent necessity, seeing as the Earth is getting hotter and the goal of limiting global temperatures to 1.5°C above pre-industrial levels is looking increasingly out of reach.

But the reality is that the biggest financiers of the world’s energy supply — many of which happen to be members of the NZBA — are a long way from meeting their commitments. Analysts at BloombergNEF reported Tuesday that most banks in the NZBA have provided less financing for low-carbon energy companies and projects than they have for planet-warming fossil fuels. The goal is for a 4-to-1 ratio — with the 4 being the low-carbon part — to be reached by 2030. At the end of 2021, their average ratio was 0.92 to 1. Of the 126 NZBA banks reviewed by BNEF, NatWest Group Plc was a standout at 5.5.

Getting the NZBA banks to deliver on their pledge is just “challenge number one,” said Adair Turner, the former City of London finance regulator who now chairs the Energy Transitions Commission. The second task is demanding lenders outside of the alliance, especially in developing countries, take action to cut emissions, he said.

In 2021, JPMorgan Chase & Co., the biggest US bank, had an energy-supply banking ratio of 0.7 to 1. That was slightly worse than Citigroup Inc.and Bank of America Corp., but better than Wells Fargo & Co.’s 0.4-to-1 ratio, according to BNEF. BNP Paribas SA did the best out of the 10 largest banks, coming in at 1.7 to 1. None of 10 largest financiers were anywhere near the 4-to-1 goal.

NZBA banks provided energy supply-related financing totaling $1.2 trillion in 2021, with $585 billion going to low-carbon energy and $636 billion earmarked for fossil fuels. From these figures, BNEF came up with the energy-supply banking ratio (ESBR) average of 0.92 to 1. That ratio is higher than the 0.81-to-1 average for all of the banks in the report. And the average ESBR for banks not in the alliance was considerably lower: 0.64 to 1.

For its study, BNEF examined the loans, bonds, equity and project finance that were underwritten for the energy sector and other relevant issuers. BNEF then applied what it calls an adjustment factor to each of the more than 2,895 issuing companies to measure the amount of funding raised for low-carbon energy relative to fossil fuels by 1,142 financial institutions.

Climate activists are becoming more critical of banks with each passing year, as global warming wreaks havoc across the world with deadly floods in India and other countries, and long-lasting droughts in Europe and other regions.

As financial industry CEOs repeatedly pledge to reduce their carbon footprint and pursue net-zero goals, every week seems to bring more news showing them doing just the opposite.

“We can still limit global warming to 1.5C, but banks will fail us unless they deeply review their lending and underwriting practices,” said Lucie Pinson, founder and director of the environmental nonprofit Reclaim Finance.

Banks can adopt as “many decarbonization targets as they like, but they will continue to make the climate situation worse as long as their support for fossil-fuel companies isn’t conditional on an end to the development of new coal, oil and gas projects and a reduction in production levels by 2030,” she said.

JPMorgan, the world’s largest underwriter of energy deals, points out that BNEF’s analysis excludes tax equity, which represents a growing share of project finance in the US. The New York-based bank said it committed more than $5 billion of tax-equity financing in 2021.

That would have raised its ESBR to 0.8 to 1.

The bank contends that, going forward, the use of tax equity will almost certainly increase given last year’s passage of US President Joe Biden’s Inflation Reduction Act. The massive climate provisions within the landmark law, JPMorgan said, break new ground on tax-credit policy and will lead to more low-carbon projects.

Source: Bloomberg


bottom of page