Banks’ finance for clean energy still lags behind fossil fuels, report says

Several climate scenarios suggest that to limit global temperature rises to 1.5°C above the pre-industrial average, the world needs to be investing $4 in renewable energy for every $1 invested in fossil fuels by 2030.

Energy analysts BloombergNEF compiled data from 1,142 banks for what it calls an ‘Energy Supply Banking Ratio’ to assess whether banks are aligning their financing to the real economy and the 1.5°C target.

In 2021, bank financing for energy supply totalled $1.9tn, just over $1tn of which went to fossil fuels and $842bn to low-carbon energy projects and companies, according to the report.

The bank financing ratio, of 81 cents to $1, was below the global energy supply investment ratio of 90 cents to $1. The latter ratio has been climbing in recent years from around 0.45:1 between 2011 and 2015.

“While a bounce in fossil fuel investment is expected to counter the disruption caused by Russia’s invasion of Ukraine, the underlying economics of low-carbon energy supply mean its growth will be sustained,” said BloombergNEF CEO Jon Moore, noting 2022’s 15 per cent rise in low-carbon energy supply investment.

Individual banks’ financing ratios varied. The Royal Bank of Canada had a 0.4 ratio and JP Morgan 0.7, against BNP Paribas’ 1.7 and Deutsche Bank’s 2.2, according to BloombergNEF, which said differences reflect geographic focus, client bases and strategies.

A spokesperson for JP Morgan said the bank provides financing across the energy sector and has a target to extend $1tn for green initiatives by 2030. RBC did not respond to requests for comment.

The report’s findings differ from another study published by environmental groups last month which said the share of bank financing going to renewables had stagnated. BloombergNEF said its research covered financing from far more banks than other studies.

The full report from BloombergNEF – ‘Financing the Transition: Energy Supply Investment and Bank Financing Activity‘ – is available online.

Last month, a group of 30 investors representing over $1.5tn (£1.24tn) in assets wrote to major banks urging them to stop directly financing new oil and gas fields by the end of this year.

The investors, who include Candriam, La Française Asset Management and Brunel Pension Partnership, expressed concern that new oil and gas fields may jeopardise the global path to net zero.

Coordinated by ShareAction, the letters were written to banks including Barclays, BNP Paribas, Crédit Agricole, Deutsche Bank and Societe Generale.

In December last year, a report warned that European banks were continuing to fund fossil fuel projects despite their stated climate pledges. Campaigners urged the banks to take more action on tackling climate change, such as efforts to reduce emissions and safeguarding nature.