Global Finance Sector Greenwashing
28 September 2021
Financial institutions provide the capital and financial services — from banking to insurance — which keep the dirty energy economy going.
After years of pressure from civil society, financial institutions began to adopt policies to restrict their support to some parts of the coal industry in 2015. More recently they have started to restrict some types of support to the oil and gas industry.
But with only a few exceptions — mostly from European financiers — these policies are nowhere near strong enough to accelerate the transition at the rate needed to keep warming under 1.5°C.
In the last couple of years financial institutions have responded to the increasing pressure to stop financing and insuring fossil fuels with a growing number of “net zero” alliances and initiatives that are supposedly committed to the 1.5°C target.
We already know two of the key actions needed: stopping the financing and insuring of any new fossil fuel projects and stopping the expansion of deforestation. None of the net zero alliances have taken a position on these clear imperatives.
A Glasgow Financial Alliance for Net Zero (GFANZ), chaired by former head of the Bank of England, Mark Carney, acts as an umbrella for six alliances and initiatives of institutions from different parts of the finance industry, including asset owners, bankers and insurers. Over 250 financial firms managing and owning assets of around $80 trillion — about a third of all investable financial assets worldwide — are now part of GFANZ.
With such a vast amount of financial firepower aimed at solving climate change, it would seem like we should be on the way to addressing the problem. Here are some key reasons why we are not:
- When financial institutions have issued policies, these have invariably been designed to give the appearance of climate action while minimizing their impact on the institutions’ profits. Some common examples are:
- policies that restrict direct finance for fossil fuel projects but not the companies that build the projects
- policies that restrict bank lending to fossil fuel companies, but allow banks to continue raising capital for them through underwriting issuances of stocks and bonds.
- Policies that restrict insurance coverage for new clients but allow continued support for existing clients
- The “net” in “net zero” is being used by the finance sector as an excuse to allow major polluters to continue business-as-usual, in the hope that untested technologies and measures will come to the rescue in the future. Most worrying are schemes such as avoided emission offsets, and biofuels with carbon capture and storage. These threaten the rights and livelihoods of millions of Indigenous and other communities directly dependent on access to land, while doing little or nothing to actually reduce atmospheric carbon.
- In May 2021 the International Energy Agency (IEA), long seen as a policy arm of the fossil fuel industry, made clear that the 1.5°C carbon budget has no room for new investments in fossil fuel supply. Financial industry insiders working on climate are well aware of this. They know that the IPCC shows that rapid emission reductions need to start immediately. All the GFANZ alliances and initiatives claim to be committed to following the latest science, yet not one of them calls for halting investments in new fossil projects. And none of the major financial institutions that are part of these alliances and initiatives have ended financing for fossil expansion.
- Many financial institutions accept data and targets from their clients that are limited to Scope 1 and 2 emissions – those generated by the companies’ operations. Banks need to also measure and cut the Scope 3 emissions generated by their financing — the emissions that result from the use of their products, which is the great bulk of the emissions that are caused by providing finance and insurance to coal, oil and gas producers.
- GFANZ and its alliances allow members to set targets only in terms of emissions intensity, rather than also absolute emissions: for instance, targets to reduce the emissions per dollar of financing or barrel of oil produced. Financial institutions could thus meet these targets and still increase emissions in absolute terms.
- GFANZ and its alliances and initiatives contain no mechanisms to hold their members accountable to their commitments. Members are supposed to publish targets and commit to meeting them, but there do not appear to be any consequences for not doing so.
- The Net Zero Asset Owners Alliance is the oldest of the GFANZ groups and has produced the most detailed requirements for its members, including calling for an end to investments in any new coal projects. Yet 28 of its members, including the huge Californian state pension fund CalPERS, still have no policies restricting funding of new coal plants or mines.
- Citi and Bank of America, both founding members of the Net Zero Banking Alliance, were revealed in early September as lead underwriters for a bond issuance by SUEK, Russia’s biggest coal miner and power plant operator. In May, Citi underwrote a bond for the Newcastle Coal Infrastructure Group, the operator of one of Australia’s largest coal export terminals.
What is needed for 1.5°C:
Stop. Financing and insuring. Fossil. Fuel. Expansion. The science is completely clear. There is no room in the global 1.5°C carbon budget for the emissions from any new fossil fuel infrastructure.
Of course, just stopping expansion is not nearly enough. Once expansion stops we need rapid, constant year-on-year reductions in fossil fuel production. The United Nations 2020 Production Gap report says 6% per year reductions are needed through 2030. Yet companies and governments plan to actually expand production by 2% a year over the next decade.
And ultimately, we know that the finance and insurance sectors are never going to voluntarily take responsibility for their full impact on the climate. Ensuring a managed decline of the fossil fuel industry and the transition to a clean and just economy at the rapid rate that science requires will require strong government regulation.