Is the financial sector doing enough to avert the impacts of climate change?
The world’s largest banks are making slow progress in aligning their financing with global climate goals, according to new research from BloombergNEF (BNEF). While investment in low-carbon energy surpassed fossil fuel financing for the first time in 2023, the pace of transition remains insufficient to limit global warming.
BNEF’s latest analysis reveals that the energy-supply banking ratio, which measures the financing of low-carbon infrastructure relative to fossil fuels, stood at 0.89 to 1 at the end of 2023. This marks a modest improvement from 0.74 in 2022 and 0.78 in 2021. Experts emphasize that the ratio must reach 4 to 1 by 2030 to effectively combat climate change.
“It is promising to see this metric move in the right direction,” said Trina White, a sustainable-finance analyst at BNEF. “However, we didn’t see either the absolute low-carbon financing volume or the ratio itself increase in line with what would be required to limit warming to 1.5C.”
The report highlights a decline in fossil fuel financing in 2023, partly driven by shifts in China, where companies opted for loans over bonds - data that is harder to track. Despite this decrease, the gap between financial support for fossil fuels and low-carbon projects remains significant.
Banks and climate commitments
The findings come as banks withdraw from major climate-finance alliances, raising concerns about their long-term commitment to addressing climate change. While institutions like JPMorgan Chase & Co. and Citigroup Inc. affirm their support for clients transitioning to a lower-carbon economy, the numbers suggest a continued reliance on fossil fuel financing.
Since the 2015 Paris Agreement, banks have facilitated nearly $6 trillion in bonds and loans for hydrocarbon businesses, compared with $3.8 trillion for renewable energy and other climate-friendly projects.
Among the top global banks, BNP Paribas led with an energy-supply banking ratio of 3.18 in 2023, while JPMorgan’s stood at 0.80. Wells Fargo & Co. and Citigroup had lower ratios at 0.52 and 0.75, respectively.
Regional disparities and future challenges
North American banks accounted for the largest share of energy-supply financing in 2023, with an average ratio of 0.7, compared with 1.5 for European-based banks. Chinese banks dominated coal financing, underwriting 66% of the $94 billion allocated to the sector.
While banks continue to face criticism for their financial ties to fossil fuels, industry leaders argue that engagement with oil, gas, and coal companies is necessary for a smooth energy transition.
“Bank financing reflects underlying real economy and wider market conditions,” White said. “If low-carbon solutions continue improving profitability, this will be the primary factor to unlock financing and investment.”
As global warming surpasses 1.5C on an annual basis for the first time, the pressure on financial institutions to accelerate climate-friendly investment is expected to grow.
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