Banks Face Growing Pressure to Phase Out Fossil-Fuel Lending

Bookmark

Investors managing $11 trillion have called on the world’s biggest banks to phase out financing of fossil-fuel companies and throw their weight behind the goals of the Paris climate agreement.

Asset managers, including Federated Hermes Inc.’s EOS division and Pacific Investment Management Co., have asked 27 banks to commit to eliminating emissions across their operations by 2050, including those generated from lending, trading and underwriting, and set interim reduction targets. The group of 35 investors, which was convened by the Institutional Investors Group on Climate Change, also said the banks should expand their green finance activities and withdraw from any projects that are at odds with the Paris accord.

As the primary gatekeepers of capital for much of the world economy, banks have a critical role to play in efforts to limit global warming and growing numbers of activists, policy makers and investors are now calling on the industry to use its vast resources to facilitate the transition to a net-zero world.

“There is an urgent need for banks to take and accelerate action to support the goals of the Paris Agreement,” said Stephanie Pfeifer, chief executive officer of IIGCC. “Net-zero commitments must drive real change. With five years already elapsed since the Paris Agreement, talking the talk must be replaced with walking the walk.”

JPMorgan to UBS

The investors sent the letter to lenders including JPMorgan Chase & Co., HSBC Holdings Plc and UBS Group AG. While many of the banks have announced net-zero plans, critics question the substance of these commitments since many fail to mention fossil- fuel lending and don’t include interim milestones. London-based HSBC said last month that it plans to adopt extra goals along the way to its 2050 target after pressure from a group of shareholders

The investor group, which also includes Fidelity International and Legal & General Investment Management, requested that banks assess and disclose the greenhouse-gas emissions associated with their financing activities.

The asset-management firms said banks should “align their provision of finance with the delivery of the goals of the Paris Agreement.” In practice, this means they “should steadily eliminate their financing of fossil fuel and other misaligned activities not consistent with a 2050 emissions target, while increasing finance to zero and low-carbon solutions that are vital to its achievement.”

Other requests from the investors include banks setting explicit conditions when providing financing tied to net-zero pledges; not relying too much on unproven negative emissions technologies and offsets; and for banks’ remuneration committees to ensure variable compensation is aligned with the delivery of net-zero and interim climate targets.

“The problem we face today is that too many banks fail to consider climate harm when they make financing decisions, and too much money is being plowed into carbon-intensive activities that we so desperately need to move away from,” said Natasha Landell-Mills, head of stewardship at Sarasin & Partners.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.