The world’s largest banks are showing little or no progress when it comes to their promise to help the world avoid the worst consequences of global warming.
According to researchers at BloombergNEF, the ratio of spending on low-carbon infrastructure relative to fossil fuels needs to reach 4 to 1 by 2030. At the end of last year, the so-called energy-supply banking ratio, which includes debt and equity underwriting, was 0.73 to 1—slightly worse than the 0.75-to-1 ratio reported in 2021.
“We didn’t see significant growth in the ratio of low-carbon financing to fossil fuels,” said Trina White, sustainable-finance analyst at BNEF. “Neither real-economy investment nor bank financing are anywhere close to the immediate and rapid scale-up in low-carbon capital flows and phase-down of fossil fuels that we need to see.”
The latest BNEF data show that last year’s investment in energy-supply sources, including low-carbon projects, increased to $2 trillion from $1.8 trillion in the prior year, while bank financing for both fossil fuels and low-carbon energy actually declined. Interest rates are seen as the reason.
“The divergence between real-economy spending and bank financing can in large part be explained by the interest-rate environment,” White said. “In regions where borrowing costs went up, companies’ demand for bank-facilitated capital plummeted. Meanwhile, those companies—both low-carbon and fossil fuels—had lots of their own cash flows available to spend while they borrowed less.”
The BNEF report comes a day after the announcement at COP28 in Dubai that delegates pledged to move away from fossil fuels—though with no binding requirements and vague language aimed at appeasing petrostates. The summit’s final text also indicated that natural gas, a fossil fuel that’s somewhat less carbon-intensive than oil and coal, will continue to be a big part of the global energy economy. It also placed CO2 capture and storage alongside renewables and nuclear as key technologies that would drive the transition, though technology to make carbon capture work at scale has yet to be perfected.
BNEF’s research shows that any headway made to date by banks isn’t nearly enough for the planet to reach the crucial goal of net-zero emissions by midcentury. Since the clinching of the Paris Agreement at the end of 2015, about $5.1 trillion of bonds and loans have been committed to businesses focused on hydrocarbons, compared with the $2.9 trillion arranged for renewable projects and other climate-friendly ventures, according to data compiled by Bloomberg.
JPMorgan Chase & Co., the world’s largest underwriter of energy deals, had an energy-supply banking ratio (ESBR) of 0.83 in 2022. That’s worse than BNP Paribas SA and Bank of America Corp., but better than Wells Fargo & Co.’s 0.4 and Citigroup Inc.’s 0.58. BNP Paribas had the highest ESBR of the 10 largest banks, at 1.37.
Banks have faced considerable criticism for continuing to profit handsomely from their partnership with Big Oil in the face of a planetary climate crisis. Industry executives have sought to defend themselves by saying they want to assist in the transition to a low-carbon economy by staying engaged with their oil, gas and coal clients.
However, any such efforts appear to be happening at a dangerously slow pace—even in an environment where investment in energy supply, including low-carbon sources, has been increasing.