Never Believe a Bank’s Net-Zero Pledge

As world leaders settled into their digs in Glasgow, Scotland, last October for the climate conference known as COP26, Bank of England head turned sustainable investment guru Mark Carney had a stern warning for his friends in the financial sector. “In the months and years ahead,” he wrote, “judge all financial institutions not by what they say but by their numbers: the total dollars of transition financing, the amount of polluting, the stranded assets retired, the emissions eliminated, and the timelines to get to net zero.” In April, Carney and State Department climate envoy John Kerry had launched the Net-Zero Banking Alliance, or NZBA, an “industry-led, U.N.-convened” group of 43 banks from 23 countries committed to achieving net-zero greenhouse gas emissions by 2050. By the time of COP26, the NZBA had more than doubled its membership, which is now said to represent $68 trillion in banking assets—44 percent of the world total. These members claim they are “using robust, ambitious, science-based targets to decarbonise their lending and investment portfolios on a 1.5 degree climate trajectory.”

A new report from the U.K.-based charity ShareAction, however, now finds that 25 European NZBA members have provided at least $38 billion in financing to 50 of the most expansionary upstream oil and gas companies on earth. Half of that financing was provided by four of the founding signatories of the Alliance: Barclays, BNP Paribas, Deutsche Bank, and HSBC. Since the Paris Agreement was brokered in 2016, the European banks analyzed have furnished upstream oil and gas expanders with $400 billion, and they “show no signs of stopping,” the report writes. The global banking sector has provided $3.6 trillion in bonds and loans to the fossil fuel industry over the same time period. The International Energy Agency, by contrast, reported last year that capping warming at 1.5 degrees Celsius (2.7 degrees Fahrenheit) would mean no new oil and gas development beyond what had already been committed to in 2021.

“I don’t think the people at NZBA are in favor of fossil fuel expansion or delaying climate action,” report co-author Kelly Shields, ShareAction’s senior officer for banking standards, told me over Zoom, “but when people see the contrast, it gives the impression that membership in the alliance is being used to greenwash.” The group hopes to push bank shareholders to back shareholder resolutions in the upcoming Annual General Meeting season to implement more stringent phaseout timelines that treat the IEA’s net-zero scenario, or NZE, as a floor rather than a ceiling for ambition.

In an emailed statement on Monday, Adrienne Cleverly, a spokesperson for the NZBA, told me the group “had not had sufficient time to review the claims of the ShareAction report, and so cannot comment directly on any details it might contain.” Neither the NBZA’s commitment statement nor its target-setting guidelines contain language about phasing out fossil fuel investments, although the spokesperson clarified that the requirement that members set sector-specific targets in line with the 1.5 degree goal “invariably means a restriction in investment and financing of fossil fuels over time.” The guidelines, she wrote, “require the use of a robust, science-based 1.5°C low/no overshoot scenario to be used for target setting. However, we do not prescribe which scenarios must be used.” (As with many of the emissions-reductions scenarios banks are using to formulate their net-zero plans, the IEA’s net-zero report released last year is massively optimistic about the role carbon capture will play to draw down excess emissions after 2050.)

Cleverly noted that these documents were drafted before the IEA released its 1.5 degree scenario. “The Guidelines will continue to evolve over time as methodological and data approaches develop,” she said. NZBA members that joined in April 2021 are due to present their first set of “intermediate 2030 targets” this fall. Their complete targets aren’t due until in 2024, three years after joining.

ShareAction found that 92 percent of the funds NZBA members devoted toward the 50 most expansionary fossil fuel firms were for general corporate purpose—meaning few if any restrictions on how they could be spent—while just 8 percent was for dedicated, project-specific financing. Fifty-seven percent was spent on underwriting to help fossil fuel companies raise additional financing from capital markets, a service for which companies pay banks sizable fees. Overall, including and beyond just NZBA members, bank financing for coal, oil, and gas projects has been more than double the green debt issued since the Paris Agreement was brokered.

Much of the drive behind the NZBA and the Glasgow Financial Alliance for Net-Zero—a broader climate finance coalition, including major investment and asset managers, with the same goals—has been to leverage private capital for clean energy technologies and other climate solutions. As John Kerry put it last year, “No government is going to solve this problem.… The solution is going to come from the private sector, and what government needs to do is create the framework within which the private sector can do what it does best, which is allocate capital and innovate and begin to take the framework that’s been created.”

Politicians in Europe and the United States are far less keen to discuss the role financial institutions continue to play in financing fossil fuel projects that could sabotage these climate targets. Just as European oil companies have been quicker to announce net-zero pledges than U.S. companies, European banks have generally been more forthcoming with climate commitments. But talk doesn’t always translate to action: Just five of the European banks analyzed have begun to restrict financing for oil and gas projects, while only one—La Banque Postale—has a defined phaseout plan, to exit the oil and gas sector by 2030. Others have been more canny: Barclays, for instance, pledged to cut off financing for shale drilling in Europe and the U.K. but not the U.S. “It’s a trend with a lot of bank policies,” Shields said of the Barclays pledge. “They have great headlines to go out with, but once you drill down into the policies, you see these big exceptions. A huge number of those exceptions allow them to continue business as usual.”

Since COP26, rising energy prices and the prospect of Russia cutting off gas to Europe in a war with Ukraine have overshadowed talk of an energy transition. High prices make new drilling a more attractive pitch to investors. Oil prices nearing $100 per barrel, combined with constrained supply in Europe, especially, have led to calls for new oil and gas investments in everything from infrastructure to exploration. In another recent report, the U.K.-based think tank Carbontracker found that a rush to greenlight more fossil fuel projects in the next several years threatens to trap investors with even more stranded assets—worthless fossil fuel projects—than are already in the pipeline, and undermine climate targets. “Companies could waste some $530bn of capex [capital expenditure] this decade,” Carbontracker found, “as demand starts to decline and the oil price falls back to” to $40 per barrel. “This amount would double at $30/bbl.”

At an oil and gas conference in Cairo on Tuesday, the companies to which European banks have been lending hearty support seemed to be making two contradictory things clear: They believe climate change is real, and they want to develop a lot more oil and gas. “We won’t run out of oil and gas resources,” Quartz’s Tim McDonnell reported Exxon vice president of exploration John Ardill as saying, “but we could run out of funding to develop them.” At least for now, the most allegedly climate-friendly banks are happy to keep Ardill and his ilk satisfied. COP27 convenes in Egypt in November.