A new report released today shows commercial banks are still heavily funding coal, eight years on from the Paris Agreement. Since 2021 alone they have provided $470bn in support to the coal industry.
The Paris Agreement
To try and counter the climate crisis, world leaders at the COP21 in Paris agreed upon the historic Paris Agreement. It aims to guide nations to substantially decrease their greenhouse gas emissions to hold the global temperature increase to well below 2ºc above pre-industrial levels. Ultimately, it is aiming for only 1.5ºc above those levels. It recognises that this would drastically reduce the risks of the climate crisis.
Banks were encouraged to align their portfolios with the agreement. This included engaging with governments to “develop mandatory decarbonisation pathways”. It was also noted that banks have a “pivotal role in facilitating change”.
According to Urgewald, 2021 was supposed to be a turning point for green energy and moving away from coal. The International Energy Agency issued its Net Zero by 2050 scenario, highlighting the need for a rapid transition out of coal. It was also the year in which COP26 in Glasgow agreed to accelerate the phase-down of coal and in which commercial banks launched the Net Zero Banking Alliance.
Katrin Ganswindt, Director of Financial Research at Urgewald said:
2021 should have been a turning point. Yet our data shows that banks are still injecting hundreds of billions of dollars into the industry, which is our climate’s worst enemy.
Net Zero Banking Alliance
The UN-convened, bank-led Net Zero Banking Alliance (NZBA) is a group of banks globally that are committed to funding climate change action. It aims to transition the real economy to net-zero greenhouse gas emissions by 2050. Banks that join have to sign the commitment statement. There are several guidelines they must adhere to, but most importantly:
Banks shall use widely accepted science-based decarbonisation scenarios to set both long-term and intermediate targets that are aligned with the temperature goals of the Paris Agreement.
Now, Urgewald – a German environment campaign group, along with BankTrack, Rainforest Action Network, Reclaim Finance, Friends of the Earth Japan, and nine other NGOs released new research on commercial banks’ support for the coal industry. The data shows that commercial banks provided $470bn in loans and underwriting to the industry between January 2021 and December 2023.
As joining the NZBA is entirely voluntary, many of the banks featured in the report are not part of it. Clearly a voluntary alliance doesn’t go far enough. 92% of the $470b came from commercial banks based in seven countries, meaning the NZBA is completely insufficient.
China funnelled far more into the coal industry than any other country, a total of $324.4bn. The US total stood at $49.7bn, followed by Japan ($23.6bn), Canada ($12.6bn), India ($10.7bn) Indonesia ($6.8bn), and the UK ($6.5bn).
Banks investment choices in coal raising questions
In 2023 alone, commercial banks’ support for the coal industry equaled almost $136bn. This is only 20% less than it was in 2016, the year the Paris Agreement came into force. Worryingly, nowhere near the reduction level needed and raises the question: Why is commercial banks’ support for the coal industry still so high?
Ganswindt commented:
Out of the 638 banks covered in our research, only around 140 have significantly decreased their lending and underwriting services for the coal industry since 2016. 423 banks are still roughly at the same level, while 75 banks have actually increased their support for the coal sector
Eight years after the Paris Agreement came into force, the public needs to know which banks are failing to roll back their support for the coal industry.
Most notably, Jefferies Financial Group increased its investment in coal power more than any other bank. From 2016 to 2023 there was a 40,471% increase in the amount it was ploughing into the coal industry. Jeffries is not part of the Net Zero Banking alliance, however it does state on their website:
As outlined in our most recent ESG report, our energy consumption and greenhouse gas emissions from our global offices, data centers, aviation and vehicle fleet have achieved net zero carbon emissions.
Interestingly, Jefferies is reporting on its environmental impact through CDP:
a global nonprofit that runs the world’s leading environmental disclosure platform.
However, CDP has faced controversy for several reasons. Firstly, they use carbon offsetting which can have negative consequences for the environment. Most importantly, it doesn’t reduce emissions. CDP has also reported that less than half of the companies reporting to them are including any of their supply chain emissions.
They have also noted that these are on average 11.4 times higher than operational emissions.
‘Net-zero impact’
The Bank of America invested 30% more in coal power in 2023 than they did in 2016, when the Paris Agreement was put into play.
Their website also states:
For years, our financing commitment has focused on providing capital that supports innovative solutions to climate change and other environmental challenges.
Other US banks who increased how much they were pushing into coal power, included US Bancorp and PNC Financial Services.
In total, US banks invested $19.8bn into the coal industry in 2023, a 22% increase from 2021. Similarly in Canada, most of the country’s top commercial banks doubled down on coal. On the other hand, in Europe there was a 51% decline in coal financing. However, the European Central Bank warned in January 2024:
Currently banks’ credit portfolios are substantially misaligned with the goals of the Paris Agreement, leading to elevated transition risks for roughly 90% of these banks.
Clearly, the NZBA doesn’t go far enough and banks need holding to account for funnelling so much money into fossil fuels.
As Ganswindt warned:
Although some banks in some countries have definitely moved in the right direction, the ‘good’ banks are still far outnumbered by the ‘bad’ and the ‘ugly’. And initiatives like the Net Zero Banking Alliance have delivered net-zero impact up to now. What we need is a wind of change from regulators.
Voluntary coal exclusion policies are necessary and good, but it often takes years of public pressure to achieve them – and time is running out.
Featured image via Wikimedia
