U.S. banks curtailed their lending to the fossil fuel industry last year, according to a new report, but environmental groups say the decline stemmed more from weak energy demand during the pandemic than big banks’ pledge to reduce financing to firms that contribute to climate change.
In recent months, many large U.S. banks have announced plans to reduce the environmental impact of their financing activities by working with clients in fossil fuel-intensive sectors to shrink their carbon footprints or halting financing of certain sectors entirely. The four largest U.S. banks decreased their fossil fuel financing by a combined $44 billion in 2020 from the year before, according to a report from the Rainforest Action Network and five other groups that analyzed bank financing of 2,300 fossil fuel companies worldwide.
Still, JPMorgan Chase remained the world’s top lender to the fossil fuel industry, providing $51.3 billion worth of financing last year. Citigroup ranked No. 2, providing $48.4 billion in financing to the sector and Bank of America ranked No. 3 at $42.1 billion. Wells Fargo, which two years ago was the world’s second-largest lender to the sector, fell to No. 9 in 2020.
The report’s authors, though, said that financing to the fossil fuel industry would have been much higher in 2020 if the coronavirus pandemic hadn’t hit and weakened demand for oil and gas.
“We must go forward to a world where even without a pandemic, fossil fuel production declines almost as quickly every year for the next decade as it did in 2020 — but this time in a managed way,” the report’s authors said in the report, “Banking on Climate Chaos.”
The report also largely criticized big banks’ climate pledges, calling them “distant and ill-defined.”
Citigroup, Wells Fargo and Bank of America recently announced plans to achieve net zero greenhouse gas emissions from their financing activities by the year 2050. JPMorgan Chase also announced its own plan to reduce its financed emissions, although it did not commit to doing so by 2050. While banks generally suggest those plans will mean financing less carbon-intensive sectors, environmentalists point out that “net zero” leaves them wiggle room to also use carbon offsetting or carbon capture.
The Rainforest Action Network, one of six groups that worked on the report, urged banks to set more short-term goals and publicly provide more details about how they will reach those goals. They want to know, for example, that banks will change their lending policies, rather than rely on carbon offsets.
“These net zero commitments need to be paired with intermediate commitments,” said Alison Kirsch, lead researcher for Rainforest Action Network’s climate energy program. “We also need [banks] to commit to halving their climate impact by 2030. It matters how you get to 2050, not that you just do business as usual until 2049.”
Since the Paris climate agreement was signed in 2015, the 60 largest banks in the world have collectively financed more than $3.8 trillion worth of fossil fuel production.
U.S. banks, for their part, say they are making progress toward achieving their climate goals. Citi, for example, recently said that after 2021 it will no longer take on new clients that plan to expand coal power generation. After 2025 it will stop taking on clients that don’t have a plan to phase out the use of coal power.
“We are hard at work developing our net zero plan, and we will report on our progress along the way,” Chief Sustainability Officer Val Smith said in a recent blog post detailing that policy. “However, as [a] ... global bank, we acknowledge that we are connected with many carbon-intensive sectors that have driven global economic development for decades.”
A JPMorgan Chase spokeswoman said the company had set intermediate targets to reduce its financed emissions by 2030 as part of its plan. The company also established a Center for Carbon Transition in its corporate and investment banking unit intended to help clients with sustainability financing and research.
Wells Fargo also plans to measure, disclose and set targets for certain select carbon-intensive portfolios no later than 2022, a spokesman said.
“We’re also establishing an Institute for Sustainable Finance that will, among other things, work across the enterprise to support clients in their respective transitions, and advocate for policy initiatives that support clients’ efforts to decarbonize and help the U.S. meet the goals of the Paris agreement,” he said.
Bank of America did not respond to requests for comment, but earlier this year said it intended to disclose its financed emissions no later than 2023.
The Rainforest Action Network expanded its study this year to the 60 largest banks in the world, from 35 in past years. The latest edition of its study also included for the first time U.S. Bancorp in Minneapolis, which has $554 billion of assets, and Truist Financial in Charlotte, N.C., with $509 billion of assets.
Kirsch said that the organizations behind the report hope the increased scrutiny on some of those smaller banks will spur them to also make policy commitments to cut their financing of certain sectors.
She said, “Our expectation is that if you’re a big enough player to be in the 60 biggest banks in the world, you need to be dealing with your commitment on fossil fuels and making transparent what you will and won’t finance.”
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