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Banks curb fossil fuel lending but 'still heading in wrong direction'

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·6-min read
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Smoke and steam rises from the Bayswater coal-powered thermal power station located near Muswellbrook, New South Wales, in Australia. Photo: David Gray/Getty Images
Smoke and steam rises from the Bayswater coal-powered thermal power station located near Muswellbrook, New South Wales, in Australia. Photo: David Gray/Getty Images

Global banks cut back on fossil fuel funding last year for the first time since the 2016 Paris Agreement was signed, according to a new report.

The 12th edition of the 'Banking on Climate Chaos' report, produced by campaign groups Reclaim Finance and the Rainforest Action Network, found the world's 60 biggest banks helped fossil fuel companies raise just over $750bn (£547bn) in 2020. The financing came through a combination of lending and underwriting debt and equity deals.

The annual total was down 9% on 2019 — the first drop since world leaders signed the 2016 Paris Agreement on climate change. Leaders pledged to curb global emissions in order to limit global warming to 1.5C degrees this century.

READ MORE: BlackRock vows to address climate change: 'Climate risk is investment risk'

Fossil fuel financing in 2020 was still $40bn above the level it was at when the Paris Agreement was signed and the report found a total of $3.8tn has been funnelled to polluting companies since 2016.

"The overall fossil fuel financing trend of the last five years is still heading definitively in the wrong direction, reinforcing the need for banks to establish policies that lock in the fossil fuel financing declines of 2020, lest they snap back to business-as-usual in 2021," the report said.

MANHATTAN, NEW YORK, UNITED STATES - 2021/03/03: Participant seen holding a sign at the protest. Climate activists with Stop the Money Pipeline held a rally in midtown Manhattan first at BlackRocks HQ and then march to JP Morgan Chase HQ, -two of the worlds biggest funders of climate destruction in their opinion- to urge the two companies to end their support for the dangerous proposed Line 3 pipeline project, and stop funding fossil fuels and forest destruction. (Photo by Erik McGregor/LightRocket via Getty Images)
A participant at the Stop the Money Pipeline held a rally in midtown Manhattan first at BlackRocks HQ and then march to JP Morgan Chase HQ earlier this month. Photo: Erik McGregor/LightRocket via Getty Images

"Many of the world’s largest banks, including all six major US banks, have made splashy commitments in recent months to zero-out the climate impact of their financing over the next 30 years," said Ben Cushing, a financial advocacy campaign manager at the Sierra Club. "But what matters most is what they’re doing now, and the numbers don’t lie."

North American and Asian banks dominated the top ten providers of fossil fuel finance globally. JP Morgan (JPM) retained its position as the world's biggest fossil fuel financier, arranging $50bn for companies involved in oil and gas last year. A spokesperson for the bank declined to comment.

READ MORE: $1tn still invested in 'dirty' coal despite Paris pledge

Last October, JP Morgan launched a new finance strategy meant to bring its financing activities in line with the Paris Agreement. The bank said it facilitated $200bn of investment in green energy and sustainability last year.

France's BNP Paribas placed fourth in the world for fossil fuel financing and first it Europe. BNP rose up the rankings after a 40% jump in fossil fuel financing linked to deals with oil majors like BP, Total, and Shell.

"While BNP Paribas has strong restrictions on unconventional oil and gas financing, its support for the majors continues unabated," the report said.

In a letter, BNP said it had significantly reduced its exposure to coal and said work with the energy sector grew at a slower pace to other sectors last year. The bank said it was "actively working" to measure climate footprint of its credit portfolio.

"As mentioned in the report, the major part of BNP Paribas’ support to the Oil and Gas sector concerned large companies that made a critical shift in 2020," Antoine Sire, global head of company engagement, and Laurence Pessez, global head of corporate social responsibility at BNP, said in a letter sent to the report's authors.

"The net zero 2050 commitments made last year by these groups may still be considered insufficient, but they are an unprecedented step in the right direction."

Barclays (BARC.L) and HSBC (HSBA.L) were the only two other European lenders to place in the global top ten. Both helped fossil fuel companies raise over $20bn last year. Both banks have made commitments to reach net zero carbon emissions across their activities by 2050.

READ MORE: Barclays caves to investor pressure and pledges to go carbon neutral

"We have made a commitment to align our entire financing portfolio to the goals of the Paris Agreement, with specific targets and transparent reporting, on the way to achieving our ambition to be a net zero bank by 2050," a spokesperson for Barclays said.

"We believe that Barclays can make a real contribution to tackling climate change and help accelerate the transition to a low-carbon economy.”

WATCH: Fed Chair Jerome Powell on how financial regulators will deal with climate crisis

A spokesperson for HSBC said: "HSBC has announced it will propose a special resolution on climate change at its AGM in May. The resolution will set out the next phase of HSBC’s strategy to support its customers on the transition to net zero carbon emissions."

The banking industry and finance more broadly has woken up the risks posed by fossil fuel lending in recent years. The majority of banks have now made climate commitments, most of which involve gradually reducing involvement with fossil fuel companies over a number of years.

Lucie Pinson, founder and executive director of Reclaim Finance, said the report "exposes the hollowness of banks’ ever-multiplying commitments to be net-zero or align with the Paris Agreement climate targets."

READ MORE: Investors pressure HSBC to ditch coal

“This report serves as a reality check for banks that think that vague ‘net-zero’ goals are enough to stop the climate crisis," said Lorne Stockman, a senior research analyst at Oil Change International.

"Our future goes where the money flows, and in 2020 these banks have ploughed billions into locking us into further climate chaos. The time for half-measures is over.”

Banks argue that fossil fuel companies need money to help fund the shif to greener business models. A spokesperson for HSBC said the next phase of its climate plan would focus on "how it will support its customers on their own transition journeys."

"The bank expects to provide between $750bn and $1tn in financing and investment to support its customers to progressively decarbonise," a spokesperson said.

Campaigners say the banking industry is still funnelling far too much money towards polluting businesses whose emissions are putting the planet further away from meeting the climate goals set out in the 2016 Paris Agreement.

Researchers found global banks were still putting money into "dirty" projects such as tar sands oil and coal, as well as controversial projects such as fossil fuel exploration in the arctic.