Banks providing just 7% of energy finance to renewables

$2.3trn went to fossil fuel production and just $178bn went to renewables

Data produced for Sierra Club, Fair Finance International, BankTrack and Rainforest Action Network has been published this week, warning that financial institutions are failing to support efforts to reach net-zero emissions by 2050.

The data found that just 7% of financing from global banks for energy companies went to renewables between 2016 and 2022.

Across the 60 banks analysed, more than $2.5trn in loans and bonds to the energy sector was recorded between January 2016 and July 2022. Of that, $2.3trn went to fossil fuel production and just $178bn went to renewables.

In total, Citi and JP Morgan Chase each funnelled $181bn into the energy companies examined between 2016 and 2022 but just 2% went to renewables. Additionally, only 2% of financing from Barclays to energy firms went to renewables. Other notable figures include Royal Bank of Canada at just 1%, Mizuho 4%, HSBC 5% and 7% for French bank BNP Paribas.

The NGOs claim this is in direct contrast to the pledges from the banks as part of the industry-led Glasgow Financial Alliance for Net Zero (GFANZ). The Alliance’s own research shows that low-carbon energy investments need to account for at least 80% of energy investments compared to fossil fuels by 2030 to reach climate goals.

The research found that the share of overall financing for energy companies that went to renewables projects hit a high of 10% in 2021, but has since “stagnated” rather than increasing. Overall, the total amount of clean energy financing was $34.5bn in 2021.

Responding to the findings a GFANZ spokesperson said: “This report does not provide a comprehensive view of clean energy investment. For example, the report excludes 70% of power generation companies, the bulk of which accounts for most of the world’s wind and solar power. Analysis by the IEA suggests that between 2021 and 2022 around 48% of total energy investment went to low carbon energy supply. That would be impossible if GFANZ members weren’t financing the transition.

“Further, the comparison between GFANZ and non-GFANZ members really just compares global financial institutions with those in China – where renewable buildout in recent years has been extremely strong. Momentum is building. Low carbon energy investment rose 13.5% in 2022 alone to $815 billion according to the IEA. This year GFANZ members will detail how they are financing the transition of the energy sector when they publish their interim targets and transition plans. This will allow government, investors and civil society organizations to track progress towards our shared goals.

“At GFANZ, we are advocating for governments to put in place the public policies that accelerate the conditions needed for private finance to ramp up investment in low carbon energy in countries that need it most. We call on financial institutions not in them to join the alliances that comprise GFANZ to demonstrate commitment and become part of the solution.”

The data comes just days after a collection of banks signed the World Benchmarking Alliance’s (WBA) statement, calling on high-emitting companies to deliver a “just” low-carbon transition that accounts for the societal impacts of decarbonisation across industrial sectors.

The WBA Just Transition Assessment examined the performance of the world’s most influential high emitting companies and found that they are failing to prepare for social impacts in their low-carbon strategies. The WBA warns that this could put millions of workers at risk from unemployment if companies fail to upskill them.

Specifically, the statement suggests that “companies must engage in dialogue with local authorities, workers, unions and other stakeholders, with particular attention to vulnerable groups. Companies must anticipate how decarbonisation will affect people and communities, and plan accordingly to ensure their fundamental rights are respected- as a part of and while undertaking low-carbon strategies”.

The statement was signed by the likes of Phoenix Group, Scottish Widows, Aviva and M&G Investments.

ESG trends

Investment levels are worrying, but a new survey of financial firms suggests the environmental, social and governance (ESG) is the key trend that will drive investment this year.

Global financial service firms view ESG as the priority area of investment in 2023, with a new survey finding that investors believe that expanding across this areas will boost market competitiveness.

The research comes from FIS, a financial services technology firm, which published its inaugural 2023 Global Innovation Report on Tuesday (24 January). The report surveyed 2,000 executives from financial service firms across the globe to find out what the key areas of financial investment are in 2023.

Respondents cited ESG as the top priority for the year ahead, as listed by 84% of respondents. This was level with “embedded finance” (84%) and clear of decentralised finance at 82%. ESG was also viewed as a priority compared to other burgeoning trends including the “metaverse” and cryptocurrencies – cited by 80% and 77% respectively.

In the UK, 60% of financial service firms respondents stated that ESG can boost competitiveness in the market, while 41% claimed that they are currently developing new ESG products and services.

ESG finance is growing rapidly, but is not without its challenges. There are constant accusations that some firms are using ESG terminology as greenwashing or purpose-washing. The fact that there are a huge array of ESG-related standards, metrics and rankings makes performance difficult to compare, for example. Moreover, a narrow focus on too few parts of the ESG agenda could cause negative impacts elsewhere.

As such, 56% of firms surveyed by FIS stated that they are investing in technology to improve reporting and disclosures to help improve the quality of ESG data that can be received.