Recommended Next Steps:
- READ the Bank Backgrounder for your Bank(s)
- SEND a letter to your bank using the BankFWD template
- REQUEST a meeting with your asset manager or bank executive
- JOIN a bank-specific sub-group for collective efforts with your bank(s)
- RECRUIT new network members via personal outreach and social media
- SPEAK OUT publicly via op eds or open letters
- TRANSFER assets away from banks that fail to make sufficient progress
While fossil fuel companies that directly emit carbon emissions by extracting and burning oil, gas and coal are often assigned the bulk of the blame for driving and profiting from climate change, they share that responsibility with the world’s big banks that make their work possible with significant financial backing.
Banks make money by leveraging or “borrowing” money from their depositors to make loans to both individual and corporate borrowers. Many of the largest borrowers from big banks include fossil fuel companies which use their bank financing to sustain and expand their high-carbon emitting operations. Some clients may choose to specify that their personal dollars cannot be used to invest or otherwise finance fossil fuel – or other unsustainable – companies. However, until the majority of institutional as well as individual clients direct banks not to allocate their funds to high-carbon emitting companies, the impact of these limits is minimal. On average, $1 of every $10 you deposit with the largest US banks goes towards fossil fuel financing (JPMorgan Chase, Citibank, Wells Fargo, Bank of America, Morgan Stanley, and Goldman Sachs).
The world’s 60 largest banks have poured $3.8T into new and existing fossil fuel projects since 2015 when world leaders signed the Paris Agreement committing all countries to cutting their fossil fuel emissions in half by 2030. As fossil fuel combustion accounted for 74% alone of total U.S. emissions in 2019, the country and world cannot achieve this goal without decreasing the volume of fossil fuels it develops and deploys. Yet banks are doing the opposite of what is necessary, logging record increases in the total sums they invest, lend and use to underwrite new and existing fossil fuel projects since 2015. In fact, banks allocated 39% of their $3.8T in fossil fuel financing to the world’s 100 least sustainable fossil fuel companies that are pursuing the biggest plans to expand their fossil fuel production. In May (2021), the International Energy Association (IEA) published a report with the conclusion that achieving a Net Zero emissions global energy system by 2050 is contingent on ending all investments in new fossil fuel supplies beyond 2021 commitments.
The Paris Agreement is an international, UN agreement that provides a framework for reducing climate change globally on an achievable timeline. Signed in Paris in December 2015 by 197 countries, including the US, it committed signatories to reducing their carbon emissions 45% by the year 2030, with a goal of reaching net-zero emissions by 2050. In March 2021, the watchdog Climate Action Tracker (CAT) released a report recommending updating those reduction targets for US emissions in order to keep the world on track for the Paris Agreement’s Goals. CAT’s report recommended that the US aim to reduce its 2030 emissions by at least 57-63% below 2005 levels.
During President Biden’s Leaders Summit on Climate, Biden committed the United States to reducing its greenhouse gas emissions by 50-52% below its 2005 emissions levels by 2030. This target will be a core component of the US’ national climate plan and NDC (Nationally Determined Contribution), a strategy document required from all Paris Agreement signatories before the 2021 UN Climate Conference in November (commonly referred to as COP 26).
Yes, the US is a current signatory of the Paris Agreement.
The US was an original signatory of the Paris Agreement in 2015, exiting briefly under the Trump Administration. The US officially reentered the Paris Agreement on February 19th, 2021, the result of actions taken by the Biden Administration on Day 1 of its incumbency. During the period for which the US federal government was not an official Agreement signatory, American leaders and companies at state and city levels across the country publicly committed to continued adherence with the Paris Goals through pledges such as We Are Still In (now relaunched as America is All In).
While banks have made strides in the right direction in their climate commitments, they are still highly insufficient from being Paris-aligned.
Several banks tout their sustainable finance commitments; however, most commitments are widely viewed as greenwashing as the core of these commitments lack concrete actions to minimize climate change on a Paris-aligned timeline, which science requires.
To be a Paris-aligned bank, as outlined in the Banking on Climate Change report:
The bank must align its own overall climate impact with, at minimum, the Intergovernmental Panel on Climate Change (IPCC) P1 1.5°C pathway. This should encompass lending, underwriting, asset management, and other services. To do so requires measuring and disclosing climate impacts and setting targets based on that assessment.
The bank must ensure that the projects and companies it supports are themselves aligned with 1.5°C:
- No project that expands extraction of fossil fuels, or expands infrastructure that drives expanded extraction, is compatible with 1.5°C. It follows that exploration for new reserves is also incompatible with the 1.5°C pathway. Any existing fossil fuel project must plan to wind down operations on a timeline aligned with, at a minimum, the IPCC P1 1.5°C pathway.
- No company that expands fossil fuel extraction or infrastructure, or conducts exploration for new reserves, is compatible with 1.5°C. Any fossil fuel company must plan to wind down fossil fuel operations on a timeline aligned with, at a minimum, the IPCC P1 1.5°C pathway.
Greenwashing is the process of conveying a false impression or providing misleading information about how a company’s products, investments, and overall footprint are more environmentally sound than they are. Activists refer to business initiatives that reduce reputational risks more than climate change as “greenwashing”.
“Many of those banks are making 2050 commitments to align with the Paris Agreement when they need to act now on fossil fuels. Any bank that makes a ‘net zero by 2050’ policy commitment and then treats it as a license to continue with business as usual is guilty of greenwashing.” – Ginger Cassady, the executive director of Rainforest Action Network
An example of greenwashing is that JPMorgan Chase points to the size of its sustainable finance commitment as an indicator of their improved sustainability. However, in 2020 their fossil fuel financing undermined and nearly cancelled out its total green financing dollar for dollar with $51B in fossil fuel financing vs $55B in green finance.
In the absence of federal climate policy to regulate carbon emissions, limiting the availability of financing for new and existing fossil fuel projects is the most impactful way to move the world towards a trajectory aligned with the Paris Agreement’s 1.5° target.
A significant reduction in funding for fossil fuels would:
- Increase the cost of capital and project development timelines for fossil fuel projects. Over time, these projects become too expensive, too complicated and are subsequently abandoned. A recent, highly-visible example is the cancellation of the Teck Resources oil tar sands project in Canada.
- Send price signals that incentivize the growth of the clean energy economy.
- Remove the social and political license of banks and other corporations to ignore the financial and humanitarian urgency of climate change.
- Normalize the Paris-alignment of corporate policies.
- Encourage international, federal and state policymakers to commit to similar alignments.
Financing for fossil fuels today locks in carbon emissions years and decades in the future that put the world out of range of reaching the global emissions targets that would avoid the most catastrophic effects of climate change.
Since the Paris Agreement, Major U.S. banks have increased financing for fossil fuel projects – the greatest source of human-caused carbon emissions – by $3.8 trillion dollars. Absent coherent federal policy, banks will not shift these policies without significant pressure. In the absence of decisive regulation or vocal account-holder dissatisfaction, banks will continue to fund the fossil fuel industry at record levels.
Between 2020 and 2021, five out of the six major US banks announced commitments to reduce their financed emissions to “net zero by 2050,” as well as related policies to measure and disclose financed emissions. These announcements are welcome steps, but none have yet been substantiated with detailed plans for implementation or interim 2030 targets that are sufficiently aligned with the Paris Agreement. Without specifics, the “net” in “net zero” commitments leaves room for banks to set emissions targets that fall short of what the science demands by relying on high levels of carbon offsetting or unrealistic assumptions about future carbon-capture schemes. In order to align net zero commitments with the Paris Agreement’s 1.5 degree pathway, banks must also include commitments to phasing out fossil fuel financing.
Since the signing of the Paris Agreement, fossil fuel financing has been greater every year than 2016 levels. It is even more shocking that 2020 financing levels were higher than 2016, even though the COVID-19 pandemic resulted in one of the largest drops in global fossil fuel consumption.
Banks contribute to climate change by facilitating carbon emissions in one of three ways.
Scope 1, 2, and 3 emissions:
- Scope 1 covers direct emissions from owned or controlled sources
- Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company
- Scope 3 includes all other indirect emissions that occur in a company’s value chain, namely the emissions banks enable by financing fossil fuel industry companies and projects that directly release carbon emissions.
Operational vs financed emissions:
Scope 1 and 2 emissions are often referred to as bank’s “operational” emissions. Scope 3 emissions are often referred to as bank’s “financed emissions” through lending and investing.
According to a report published by CDP, Banks Produce 700 Times More Emissions From Loans Than Offices and direct emissions through investing, lending, and underwriting activities. Bank’s operational emissions (the sum of their Scope 1 and 2 emissions) amount to only a fraction of their Scope 3, or financed emissions, yet many banks tout their “operational sustainability” as a way of greenwashing their environmental and climate profiles and obscuring the total emissions for which they bear responsibility.
Why do they matter?
Differentiating between banks’ direct and indirect/operational vs financed emissions is critical for accurately measuring, reporting and tracking banks’ progress towards global net-zero goals. This progress is monitored via key global reporting frameworks (e.g. PCAF and PACTA) that banks must voluntarily opt into.
Some banks, such as the world’s largest fossil-fuel financier, JPMorgan Chase, have opted to create their own measurement and reporting metrics which obscure their total emissions responsibility and greenwash their climate impacts.
Bank clients are uniquely positioned to influence the policies of major banking and financial institutions. Banks have a vested interest in maintaining long-term relationships with their client base, particularly their high-profile and high-net-worth clients, whose aggregate networks and accounts represent a sizable portion of their overall business. Additionally, the visible support or rejection of banking policies by a significant client constituency represents a powerful lever for influencing banks towards adopting Paris Agreement-aligned policies. BankFWD helps bank clients exert financial and reputational pressure on major banking institutions to urge climate progress.
BankFwd will support bank clients and their affiliated, privately-held companies and foundations to:
- Ask their banks’ executives – in letters and/or in-person meetings – to phase out financing of fossil fuels, align with the 1.5° target of the Paris Agreement, and lead the transition to a just, zero-carbon economy.
- Author or co-sign open letters or op-eds addressed to bank CEOs that amplify this core ask.
- Advocate for policies and initiatives to combat climate change, and spread the word about BankFWD.
- Engage networks to identify other aligned bank clients and partners.
- Actively support climate-leader banks, and transfer assets away from banks that fail to show sufficient progress.
The growing movement across the US and around the world to accelerate large banks’ action to align with the Paris Agreement has already begun to move Wall Street’s largest banks. Within the space of just one year between Spring 2020 and 2021, every major U.S. bank ruled out funding for coal projects and Arctic drilling projects, and committed to a long-term goal to zero-out the emissions caused by its financing by 2050. These announcements fall far short of the commitments needed to guarantee sufficient, timely climate action, but they demonstrate Banks’ responsiveness to growing public and policy pressures.
Additional examples of big banks’ responsiveness to public pressure on climate policy include:
In May 2021, HSBC shareholders backed a management-proposed resolution committing the company to phase out financing for the coal industry by 2030 in the OECD and by 2040 worldwide. It received a 99% vote in favor of the resolution. This means HSBC is now legally bound to deliver on these as resolutions are binding in the UK.
In April 2021, the Glasgow Finance Alliance for Net Zero (GFANZ) was launched as a global alliance that brings together existing and new net zero financing initiatives into one-sector wide strategic forum. The alliance, chaired by Mark Carney, brings together over 160 firms (of which 43 are banks) exceeding $70 trillion in assets with a focus on the transition to net zero emissions by requiring members to set science aligned short and long term goals to reach net zero no later than 2050. Of the 6 major Wall Street banks, Bank of America, Citi, and Morgan Stanley joined the alliance.
In 2020, JPMorgan Chase replaced Lee Raymond, the former chief executive and chairman of ExxonMobile, as the lead independent director on its board following protests by both shareholders and climate activists.
Beyond the banking industry, in 2019 Liberty Mutual became the first major U.S. insurance company to announce it would limit its underwriting of coal companies. The announcement came after sustained pressure from a coalition of environmental groups called Insure Our Future.
Bank clients, particularly high-profile and high-net-worth bank clients, are uniquely positioned to influence the direction of banking policy, not only as significant account holders, but as influential individuals with the capacity to contribute meaningfully to public pressure campaigns. This capacity only expands as the number of bank clients publicly committed to the BankFWD initiative increases. Last year, the primary risk banks faced was reputational; however, the new administration has changed the landscape drastically as banks now face increased pressure from a political and financial standpoint.
Major banks and financial institutions are the lifeblood of the fossil fuel industry, facilitating the continued growth and expansion of fossil fuel projects and operations that will make achieving the Paris Agreement’s targets impossible. Since the adoption of the Paris Agreement (2016-2020), 60 private-sector banks to the fossil fuel industry, have provided a collective USD $3.8 trillion to fossil fuels.
Among these banks, BankFWD is primarily focused on changing climate-relevant policies at JPMorgan Chase (JPMC). JPMC is the world’s top financier of the fossil fuel industry by a wide margin, accounting for 33% more financing over the past four years than the second-highest fossil fuel funder, Citi. JPMC became the first bank to pass the quarter-trillion dollar mark in post-Paris Agreement fossil fuel financing, allocating $317 billion between 2016-2020.
JPMC is the leading Wall Street bank in performance terms and its peers look to it as a standard-setter across a number of issues, including climate. U.S. banks are likely to take action on climate in clusters, and changes by JPMC will be a crucial catalyst for action across the whole sector. For these reasons, the wider climate movement has identified JPMC as the primary focus of climate efforts. JPMC also has a long-standing personal history and ongoing client relationship with the Rockefeller family, of which BankFWD’s co-founders and co-chairs are all members.
BankFWD is asking banks to commit to phasing out the financing of, and investment in, those fossil fuel companies which do not have a credible strategy to do business in a world where global warming is limited to 1.5°. Note that this is not all fossil fuel companies, but rather those which are not appropriately planning for a warming future.
This is an ambitious ask, but it is a reasonable one, with early momentum and policy announcements among European banks and major banking systems globally. U.S. banks must follow suit in order to achieve the aims of the Paris Agreement within an acceptable timeline.
Curtailing bank funding of fossil fuel banks will significantly impact the ability of fossil fuel companies to raise capital. Similar strategies have proved overwhelmingly successful in recent years, including a campaign to shift banking policy on coal companies. According to the International Energy Agency “the cumulative impact of multiple decisions can also be very significant: one bank moving away from coal has little impact, but when one hundred banks decide not to finance coal, it is far from irrelevant…”.
One hundred banks have not yet committed to “moving away” from fossil fuels, but momentum is building quickly. Regular climate announcements by European companies and banks continued through 2019 and into 2020. If a major U.S. bank were to make a significant move, this would accelerate change among other financial institutions.
Even incremental moves – such as those of Goldman Sachs and BlackRock – will, in turn, send signals to fossil fuel companies deciding on a multi-year strategy.
BankFWD recognizes that it is not feasible to immediately stop extracting and using fossil fuels and that global demand for fossil fuels persists and will not change overnight. That said, current demand doesn’t dictate future demand. Fossil fuel expansion financing locks in fossil fuel supplies 10+ years in the future, at which point alternative energy options, public opinion, regulatory and scientific environments will be very different, all of which drive demand and are hard to predict.
The level of global demand for fossil fuels does not automatically mitigate the regulatory and financial risk to banks that inevitable limits on their use will pose. Some fossil fuel demand scenarios overestimate future demand by extrapolating current trends into the future without factoring in large-scale regulatory shifts (e.g. the EU’s mandate to have 30 million zero-emission vehicles on its roads by 2030)
Key facts on energy demand:
- Despite the pandemic, the growth rate in the world’s renewable energy capacity jumped 45% in 2020
- Renewable energy was the only energy source where demand increased, while consumption of all other fuels decline in 2020, according to the IEA
- Renewable energy use increased 3% in 2020
- Oil demand dropped 8.8% in 2020
- Coal demand declined 4% in 2020 – the biggest drop since World War II
- Natural gas consumption declined 1.9% in 2020 – the largest drop in gas demand in absolute terms
- US Coal consumption fell by more than 40% in the past decade, according to the 2020 BP Statistical Review of World Energy
The value of oil, gas, and coal reserves will be slashed by nearly two-thirds over the next three decades due to cheap renewable energy, climate policies, and the Covid-triggered slowdown, according to a study done by Carbon Tracker
Starting with a carbon budget of 1.5°, analysis shows that the world’s current reserves of fossil fuels take us beyond safe climate limits. No more fossil fuels can be added to the global reserves.
Yet, many fossil fuels – including oil – are geopolitically vulnerable commodities, making immediate divestment complicated. Oil and gas companies will be needed, to a degree, as the world moves more fully to a stable, scalable, green economy. Finally, many fossil fuel contracts have multi-year terms, making an immediate end to financing impractical for major lenders.
Thus, BankFWD is asking major banks to commit to phasing out financing of, and investment in, those fossil fuel companies which do not have a credible strategy to transition in line with limiting global warming to 1.5°. The immediate action required is a commitment to this alignment followed by a gradual, but total, phase-out.
Banks generate revenue from the interest rate margin and management fees on loans, as well as significant underwriting and advisory service fees from equity and bond issues. In simplified terms, this makes loan repayment and fee accrual more important for the lending bank’s bottom line than the loan recipient company’s overall performance or S&P 500 placement.
Mark Carney, the former Governor of the Bank of England, stated to Parliament that the average loan book horizon of a UK bank is four years. This has broad implications for the assessment of fossil fuel companies as sound sources of revenue in the short term versus high-risk in the longer term.”
Within the last year, big banks – even those in the U.S. – have acknowledged a “new normal” with regard to banks’ increased accountability, exposure and responsibility to help meet global climate targets. There are 5 main industry standard frameworks that banks can commit to – GFANZ, PCAF, PACTA, TCFD, and UN PRB.
Glasgow Finance Alliance for Net Zero (GFANZ)
- GFANZ was launched in April 2021 as a global alliance that brings together existing and new net zero financing initiatives into one-sector wide strategic forum. The alliance, chaired by Mark Carney, brings together over 160 firms (of which 43 are banks) exceeding $70 trillion in assets with a focus on the transition to net zero emissions by requiring members to set science aligned short and long term goals to reach net zero no later than 2050.
Partnership for Carbon Accounting Financials (PCAF)
- PCAF is a global partnership of financial institutions that work together to implement an approach to assess and disclose the greenhouse gas emissions associated with their loans and investments.
Paris Agreement Capital Transition Assessment (PACTA)
- PACTA allows users to get a granular view of the alignment of a bank’s corporate loan book by sector and related technologies. Banks can use this information to help steer their lending in line with climate scenarios, to inform their decisions around climate target-setting, and to gain insights into their engagement with clients on their respective climate actions. The tool produces a customized, confidential output report, which allows investors to assess the overall alignment of their portfolios with various climate scenarios and with the Paris Agreement.
Task Force on Climate-related Financial Disclosures (TCFD)
- The TCFD was created in 2015 by the Financial Stability Board to develop consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders. The TCFD is committed to market transparency and stability.
UN Principles for Responsible Banking (PRB)
- The PRB are a framework for ensuring that signatory banks’ strategy and practice align with the vision society has set out for its future in the Sustainable Development Goals and the Paris Climate Agreement.
While making commitments to GFANZ, PCAF, TCFD, and UN PRB are important for consistency and accountability across banks, they are still highly insufficient in aligning with the Paris Agreement’s 1.5-degree pathway and are often a way for banks to check the box and tout their “commitment” to sustainability while continuing to fund new and existing fossil fuel projects.
No. BankFWD is a not-for-profit initiative by families, businesses, and foundations using our collective wealth and public standing to persuade major banks to lead on climate change.
BankFWD provides educational resources and templates for individuals and organizations who wish to engage their banks to ask for progress on climate, as well as to identify banks which are leading the movement away from fossil fuel financing. However, BankFWD cannot provide financial or investment advice, and nothing on this website or in our resources should be construed to the contrary.