Black Gold: Finance and the Fossil Fuel Industry
Despite innumerable green pledges, the finance industry is still deeply in bed with fossil fuels and worsening climate change. Isaac Bettridge investigates the state of fossil financing and what is being done about it.
In May of last year, a joint assessment conducted by Greenpeace and the WWF of the UK finance industry’s link to climate change produced an extraordinary statistic: if the UK’s biggest banks and investors were a country, they would have the 9th highest emissions of any nation in the world, nearly double that of the UK itself and even more than those of coal-dependent Germany. With climate disasters intensifying and COP26 revealing the stark gap between government actions and what’s truly needed, the stakes have never been higher for institutions such as these to make serious emissions reductions and get on board with the radical changes needed to avert widespread climate disaster. However, the banking and finance industry continues to shovel money into fossil fuels: the world’s 60 largest banks have given the fossil fuel industry an estimated $3.8trn in the five years since the signature of the Paris agreement, and the five biggest UK banks (Barclays, Lloyds, Natwest, HSBC and Standard Chartered) poured over £40bn into coal alone between 2018 and 2020.
Banks and investment firms have effectively already financed over 1.5C of warming
When talking about which businesses are to blame for the climate crisis, focus usually rests on obvious targets like fossil fuel producing and extracting companies (such as Shell and BP) or those directly involved in polluting practices such as chemical companies (eg. Monsanto), logging companies, agribusinesses and more. Banking and finance however play as much of a part in environmental destruction as any of these more obvious culprits, providing the resources necessary for companies to engage in destructive practices. Banks often directly finance fossil fuel expansion- Barclays for example this year provided $200mn to MEG Energy, a company that extracts Canadian tar sands oil, one of the most polluting fuels on the planet- and other polluting enterprises such as the plastics industry, with a report from the non-profit portfolio.earth revealing that major banks such as Bank of America and Citigroup had provided over $1.7trn to major plastic producers and users such as Coca Cola and Nestle. Other avenues are more indirect, such as asset management titan Blackrock’s financing of Amazon deforestation through investments in beef and soy production firms.
Whilst it is true that investments in renewables have steadily increased over the years, those investments pale in comparison to the gargantuan amounts of money that continue to be fed into environmentally ruinous industries. Take the aforementioned Blackrock: despite CEO Larry Fink’s efforts to position himself as a climate leader, his company still holds over $85bn in coal stocks, with fossil fuels still being too profitable for these institutions to want to let go of. New ventures are being proposed to tackle this problem. Mark Carney, former governor of the Bank of England, has recently launched the Glasgow Financial Alliance for Net Zero (GFANZ), an alliance of hundreds of financial institutions who have pledged to bring their assets and investments, representing over $100trn, in line with keeping global warming under 1.5C, which means not just funding renewable projects but also supporting businesses’ decarbonisation efforts and withdrawing capital from polluters. Carney’s project sounds promising, but reactions have been sceptical: financial analyst Michael Northrop pointed out that banks and investment firms have effectively already financed over 1.5C of warming through existing and developing projects, cancellation of which has yet to be properly discussed, and Reclaim Finance’s analysis notes that it fails to place burdens on members to restrict the production of fossil fuels. More concrete commitments and actions need to be seen before we can allow Carney and his partners’ lofty rhetoric to go unchallenged.
The significance of this sector to both climate change and the fight against it has been exacerbated by ‘financialization’- the significant growth in the wealth and importance of financial markets and institutions since the 70s and 80s. This is a global trend but has been particularly evident in Britain, which under Thatcher led the world in reckless financial liberalization: Adam Tooze’s analysis noted that ‘the UK’s liberalization… acted as a crowbar to dislodge regulation worldwide’ by driving a massive credit boom that convinced other countries of the need to deregulate so as to catch up to the City, which kicked off the chain of events that would lead to the 2008 crisis. As a result, financial institutions became both ridiculously wealthy and significantly powerful politically, able to extract concessions from governments and force government policy to fit their interests- The Guardian’s Aditya Chakrobortty has characterised Britain in particular as a ‘bankocracy’, citing government failure to rein in poor decision making at the now-defunct RBS before it collapsed as a result of ‘a sustained political emphasis on the need for the FSA to be “light touch” in its approach and mindful of London’s competitive position’. With regards to climate policy, this means that continual financial interest in fossil fuel production has stalled the energy tradition, and when government do push for climate policy financial institutions have gobbled up vast sums of public money intended for public efforts, undermining both climate efforts themselves and public trust in such. When such things occur, it is therefore no surprise that right-wing populists have found much success portraying climate action as an elite conspiracy against ordinary people.
It is long past time we recognise how these institutions profit from climate breakdown
So what exactly can be or is being done to combat fossil financing? In recent years a campaign to get institutions (such as universities, pensions funds, municipal governments and more) to divest from fossil fuels has gained traction, with the most recent report from the campaign claiming to have convinced institutions representing nearly $40trn to either begin divesting or fully divest from fossil fuels. It is important to note that this does not mean $40trn that were previously invested in fossil fuels have now been taken out, but rather than the cumulative wealth of all the signatory institutions reaches that number, and the amounts of money that has actually stopped funding pollution is likely significantly lower. This is still a promising step however, and university-specific divestment campaigns have also arisen: Students Organising for Sustainability (SOS)’s ‘Invest for Change’ campaign has targeted university administrations and funds specifically, encouraging students to investigate their uni’s investments and ensure they’re not supporting the fosiil fuel industry.
Nevertheless, this represents a significant step that is being driven by activists and campaigners rather than central bankers and hedge fund managers, who are increasingly recognising that the public have no appetite for fossil fuel expansion: Shell’s recent decision to pull its funding for the controversial Cambo oil field was blamed in part on a ‘toxic’ investment climate for British oil and gas as a result of growing awareness about the environmental cost. Fossil financing is being challenged legally- the Paid to Pollute case currently before the High Court is challenging the legality of the UK government subsidising fossil fuel production- and a number of newer investment firms and financial institutions are working to hasten the green transition, with green bonds having massively grown in number and value in recent years.
It is heartening to see changes taking place on a global and industrial scale (even if they’re not moving fast enough) but what does this mean for the average person? Most of us do not have investment portfolios or stock options that we can redirect towards good causes, but many experts argue that changing your personal bank account is the most significant individual contribution we can make to combatting climate breakdown, and there are many alternatives to the big polluting banks for people to choose from. Triodos Bank, a Dutch-born smaller bank with a specific focus on lending to environmental orgs, are your best bet if you’re deciding purely based on environmental impact- they are the only bank to be awarded Ethical Consumer’s ‘best’ rating for climate change impact and are the bank I personally use, providing current and savings accounts as well as ethical ISAs and investment opportunities for the more financially savvy among you. Of the more familiar high-street banks, Co-op Bank and Nationwide are your best bets, having scored relatively highly on environmental and humanitarian rankings, and the app-based banks Starling and Monzo are making strides towards becoming more green and ethical, as well as being very convenient and more accessible than your average big bank. The ones to avoid are the big high-street names: Lloyds, Natwest, HSBC and the biggest offender Barclays, which has financed nearly $6bn worth of fossil fuel projects this year alone. Switching banks may be a complicated and dull process, but it’s one of the most important things individuals can do to make a difference in the fight against climate change. It is long past time we recognise how these institutions profit from climate breakdown, and stopped letting them use our money to do so.