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Why Banks are Refusing to Fund Fossil Fuels

With global trends experiencing a paradigm shift and transitioning to cleaner sources of energy, there is also greater accountability to be given to those engaging directly or indirectly in fossil fuel activities and business. The focus is now on financial institutions, indirectly contributing to environmental degradation and climate change by funding, financing, or loaning companies with stakes in fossil fuel development. This is in part due to the Paris Climate Agreement, signed at COP 21 in Paris, on 12 December 2015, by strengthening the call to the financial community, especially Development Finance Institutions (DFIs), regarding their contributions to climate action. The Agreement provides for strong expectations regarding financing for climate action, and in turn, the financial sector, with one of its core objectives being to “make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development” (IDFC, 2018). 

In addition, to keep up with the goal of keeping global temperature levels within 1.5 degrees, it is necessary that all actors are considered, and banks and financial institutions play a major role when looking to achieve this target. The fossil fuel reserves that exist across the world already far exceed what we can burn to limit average global temperature rise to well below 2 degrees, aiming for 1.5 degrees, as was deliberated and agreed upon at the 2015 UN Climate Summit in Paris. However, while many things have been done to reduce reliance on fossil fuels, it would seem that financing for fossil fuels is on the rise.

Bank financing for fossil fuels has increased each year since the Paris Agreement. In 2016, banks contributed 612 billion dollars to the fossil fuel industry; in 2017, 646 billion; and in 2018, 654 billion. Thus, since the Agreement, despite commitments towards engaging in activities that look to reduce climate change, in reality, in terms of actions, a contrary standpoint is undertaken by these banks, to the detriment of the environment. It may be argued that banks equally finance ventures into cleaner energy sources, but this is ultimately canceled out by financing fossil fuels. Thus, there are calls for a complete phasing out of fossil fuel financing  (Rainforest Action Network, 2019).


The Current Situation

Words have power; it may be true, but actions speak louder. Banks all over the world have made promises to address climate change by altering the way they do business, but meeting up to these promises seems to be difficult. This is despite many signing up to influential initiatives promoting transparency and green finance. Banks such as HSBC, JPMorgan Chase, and Goldman Sachs have even signaled their support for projects such as the Task Force on Climate-related Financial Disclosures (TCFD), which encourages companies to spell out the risks of global warming to their business (TG , 2019).

However, according to a report from Boston Common Asset Management, the industry as a whole is failing to cut the funding available to the fossil fuel industry. The report said there has been “some gradual progress” in terms of TCFD adoption and other risk assessment and scenario tools. It, however noted that the actions have not accelerated the rate of decarbonizing lending and investment portfolios, nor had it broadened the strategic adoption of low-carbon and green products and services.

The report also noted that risk assessment is not effective in leading banks to restrict or end financing or investing. Highlighting some positive developments, the report noted that 40 of the 58 banks analyzed have signed up to the TCFD, an increase from 32 in 2018. It also noted about four in five carry out climate risk assessments, compared to less than half in 2018. But it added that there has been no decrease in global financing for the fossil fuel industry relying on research from Rainforest Action Network, an environmental pressure group. Their research discovered that banks have provided 1.9 trillion dollars to the sector between 2016 and 2018 in an analysis of 33 banks. This surpasses the one trillion dollars in green bonds that have been cumulatively issued since 2007 (Thompson, 2019).

With respect to the companies most aggressively expanding in new fossil fuel projects since the Paris climate change agreement, investment banks have provided more than $700bn of financing to their activities. Amongst the top financiers, JPMorgan Chase leads the way, providing 75 billion dollars (£61bn) to companies expanding in sectors such as fracking and Arctic oil and gas exploration. Data shows the most aggressively expanding coal-mining operations, oil and gas companies, fracking firms, and pipeline companies have received $713.3bn in loans, equity issuances, and debt underwriting services from 2016 to mid-2019. Aside JP Morgan Chase, other top financers include Citi, giving 52.8 billion dollars, Bank of America – 48.6bn, Scotiabank – 42.6bn, Wells Fargo – 42.8bn, TD – 32.9bn, RBC – 29.2bn, MUFG – 30.8bn, Barclays – 26.3bn, Mizuho – 26.5bn; while the other 23 companies have given 305.3 billion (TG, 2019).

One thing that is conspicuous in the report is that JPMorgan Chase is very clearly the world’s worst banker of climate change. The 196 billion dollars the bank poured into fossil fuels between 2016 and 2018 is nearly a third higher than the second-worst bank, Wells Fargo. The report is illustrative of just how much the US oil and gas industry contributes to financing fossil fuel, as seen in the fact that the top four bankers of climate change are all headquartered in the United States — JPMorgan Chase, Wells Fargo, Citi, and Bank of America. With Morgan Stanley in 11th place and Goldman Sachs in 12th, all six of the U.S. banking giants are in the top dirty dozen fossil banks, accounting for a whopping 37 percent of global fossil fuel financing since the Paris Agreement was adopted.

This does not come as much of a surprise, especially given that the US president, Donald Trump, has expressed his opposition towards the Paris Agreement and his intention for the United States to pull out. Essentially, this means that the US will limit regulatory policies against these banks, further facilitating fossil fuel financing. Even though the CEO of JPMorgan Chase, Jamie Dimon, has declared his support for the Paris Agreement and his opposition to President Trump’s attempt to withdraw from the accord, an irony is presented in the fact that his bank is financing climate change substantially more than any other in the world (Rainforest Action Network, 2019).

Just as with the US, China contributes largely to greenhouse gas emissions. While the government seems to be looking into renewable energy development, with China contributing almost half of global renewable energy investment totaling $125.9 billion in 2017, the situation with banks still seems to be an overall reflection of what the government’s current stance is, with some banks, supporting coal projects, often as an integral part of their foreign development funding. For instance, China’s Construction Bank has lent $12.61 billion, the Bank of China has lent $9.46 billion, and the Industrial and Commercial Bank of China has lent $8.22 billion to coal projects.


Steps Towards Improvement

These days, banks have to choose between financing business from clients in high-carbon sectors and the risk of losing public approval for deviating from environmentally friendly principles if they continue to finance such firms. One thing that must be noted is that banks are driven by profit. So the major reason why banks will want to transition to financing renewable sources is because the industry is beaming with profit. Of course, branding is also important, so banks also want to maintain a positive image. Banks therefore try to find a balance in financing both fossil fuel and green energy industries. In essence, the major reasons why banks are refusing to fund fossil fuels, or at least equally fund clean energy, is to protect their public image and because the green energy industry is fast gaining momentum and is starting to look profitable. Because of this, some improvements have occurred.

Banks with more than $47 trillion in assets recently adopted new U.N.-backed “responsible banking” principles that would encourage shifting their loan books away from fossil fuels. Citigroup (C.N) and Barclays (BARC.L) were among 130 banks to join the new framework aimed at pushing companies and governments to act quickly to avert catastrophic global warming (Green, 2019).

The Rainforest report also noted that 21 banks have restricted some coal financing, 10 have restricted some tar sands oil financing (all are European banks), 1 has restricted some fracking and LNG financing (BNP Paribas), and 9 have issued improved policies on coal finance since last year’s report card (Rainforest Action Network, 2019).

JPMorgan, has also stopped financing new coal mines and imposed restrictions on funding new coal-fired plants, stating that it will “work to advance environmental sustainability within our business activities and facilities” and that it will “facilitate $200bn in clean financing” by 2025 (Thompson, 2019).

Barclays is also one bank showing signs of change. While it remains a significant banker for the fossil fuel industry, its business with the companies most aggressively expanding in the sector has fallen drastically, from $13.1bn in 2016 to $5.2bn in 2018 (TG , 2019).

Also, in July 2019, in recognition of the urgent need for the EU to cut its carbon emissions, the European Investment Bank (EIB) put forward a ground-breaking draft policy to stop funding fossil fuel projects. The Bank’s Board voted set cut-off date of 2021 for new gas projects, clearly signaling that oil, gas, and coal lending is inconsistent with the Paris Agreement. As the world’s largest multilateral development bank, funding from the EIB is substantial. Between 2013 and 2017, the Bank gave around $10bn in loans to gas projects. Therefore, cutting such financing and diverting the funds to cleaner energy will go a long way (CE, 2019).

Several banks have equally expressed their intention to phase out or stop investing in coal power generation, including the World Bank and the European Bank for Reconstruction and Development, commercial banks such as ING, HSBC and Royal Bank of Scotland, along with investors such as BMO Global Asset Management. Notably, in April 2018, HSBC announced the ending of project finance for new tar-sands projects by Canada, including the proposed Keystone XL and Line 3 Expansion pipelines. HSBC also released new commitments and said it will make up to $100 billion available for financing low-carbon projects, in addition to stopping the financing of mines that produce coal for power generation. It also promised to get all of its power from renewable sources by 2030 (Bach, 2017). Prior to this, Westpac, Australia’s second-largest bank, announced that it would not lend to coal projects in new coal-producing basins (Newman, 2019). 

What Can Be Done to Reduce Fossil Fuel Financing?

A report, Small Steps Are Not Enough, shows that multilateral lenders, which are among the entities pushing hardest for worldwide action to keep worldwide temperature change to within 1.5 degrees Celsius, are not living up to the expectations they expect of others. The report noted that none of the world’s seven largest multilateral development banks—the World Bank, the European Investment Bank, the Inter-American Development Bank, and others—are not lending money at a substantial enough rate that would limit global warming to that 1.5 degree target. The best, the African Development Bank, earned a grade of C in the report (Lyman, 2019). Essentially, these banks need to do more given the financial and regulatory might they possess. 

Additionally, fossil fuel divestment is another development that is gaining momentum. Divestment means removing money and investments from banks that are financing fossil fuels. More than 1000 institutions have publicly committed to divest to a tune of over 9 trillion dollars, notably including amongst them, the Republic of Ireland, New York City, and the World Council of Churches. Seeing as banks take branding seriously, divestment will make them understand how important it is to reduce fossil fuel financing. 


Bach, N. (2017). “HSBC Commits $100 Billion to Combat Climate Change”. Fortune. Retrieved from:

(2019). “Major step forward: European Investment Bank to stop funding fossil fuel projects”. ClientEarth. Retrieved from:

Green, M. (2019). “Banks worth $47 trillion adopt new U.N.-backed climate principles”. Reuters. Retrieved from:

IDFC. (2018). “Paris Agreement”. International Development Finance Club. Retrieved from:

Lyman, E. (2019). “The World Bank and Its Peers Get Poor Marks for Funding Renewable Energy Projects”. Fortune. Retrieved from:

Newman, N. (2019).  “Banks ending funding in fossil fuels”. Eniday. Retrieved from:

Rainforest Action Network. (2019). “Banking on Climate Change: FOSSIL FUEL FINANCE REPORT CARD 2019.

TG . (2019). “Top investment banks provide billions to expand fossil fuel industry”. The Guardian. Retrieved from:

Thompson, J. (2019). “Banks fail to stop financing fossil fuel industry”. The Guardian. Retrieved from:

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