Banks Rush To Embrace Fossil Fuel Financing

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Last Updated on: 2nd April 2025, 10:33 am

Humanity is rushing headlong into a climate catastrophe. Scientists are now talking about 3º C as the new normal. At 3º C, most humans will die and those who survive will do so only because they live in underground homes. If they move about on the surface of the Earth, they will need portable life support systems to keep them cool and to clean the air of pollutants that could kill them. Some will move to Mars to live in a world ruled by Elon Musk and his endless supply of progeny. These are not the shadows of things that might happen. They are the shape of things that will happen if humans do not find a substitute for their fossil fuel dependency.

In Bloomberg Green, Alistair Marsh writes that “Wall Street’s unanimity on the need to limit climate change is collapsing, sparking a reset in the $1.4 trillion global market for energy finance. As the White House makes supporting oil, gas, and coal a priority, US banks that just a few years ago were vocal in their embrace of net zero targets are now following a very different playbook. That includes discussing removing long-standing restrictions on some of the most controversial fossil fuel projects.”

Banks that do not respond to the current political moment may face “a fast shrinking balance sheet,” Larissa de Barros Fritz, a senior strategist at ABN Amro Bank based in the Netherlands told Marsh. In the longer term, that policy could lead to massive losses, she said. Executives at Morgan Stanley and JPMorgan Chase are discussing changes to existing policies that define what energy projects they are willing to loan money to. At Wells Fargo, energy bankers in its capital markets unit have had internal talks about lending to oil and gas projects in the Arctic National Wildlife Refuge, an idea that has been taboo since 2020.

Fossil Fuel Funding

During the past 12 months, banks globally have provided about $1.4 trillion of energy finance. Of that total, $690 billion of bonds and loans were allocated for green projects while $730 billion went to carbon intensive businesses, according to Bloomberg. In order for the world to have a sliver of a chance of limiting global warming to 1.5º C, the ratio of bank funding for low carbon infrastructure relative to fossil fuel projects needs to be 4 to 1, according to BloombergNEF. At the end of 2023, the latest year for which the data is available, the ratio was 0.89 to 1.

Under the current US administration, which is a willing captive of the fossil fuel industry, the political climate is now all in favor of expanding lending to oil and methane exploration. Even coal is back on the table as new energy secretary Chris Wright is haranguing African leaders to embrace more thermal generation from coal-fired facilities. Congress is set to consider proposed legislation known as the Fair Access To Banking Act that would prohibit banks from considering the environment impact of their lending

US bankers Bloomberg spoke with say the proposed law will force them to lift their restrictions on financing activities like coal mining and oil sands production. As one Wall Street banker put it, even if the Fair Access requirement does not change the appetite of banks for risk, it will force them to update their lending and underwriting policies. Wall Street has already shown its willingness to bend the knee to the latest tyrant.  One month after the recent US election, Goldman Sachs Group withdrew from the Net Zero Banking Alliance (NZBA), the world’s biggest climate finance coalition for banks. Wells Fargo, Citigroup, Bank of America, Morgan Stanley,  and JPMorgan all quickly followed. Shortly afterwards, Canada’s largest lenders all walked out followed by the biggest banks in Japan and Australia’s Macquarie Group.

NZBA was founded by Mark Carney, a former governor of the Bank of England who is now the new prime minister of Canada. NZBA members were supposed to align their businesses to support the goal of limiting global overheating to  1.5º C. Achieving that goal would require a much higher ratio of clean energy financing relative to fossil fuel financing than banks have ever before. Finance industry “slippage” on 1.5º C “will make a material difference” to how hot and unlivable the planet gets, according to Tim Lenton, who heads the department of Earth system science at the University of Exeter. He added that it is becoming “borderline impossible to hold the line at 1.5º C.” But if banks take the position that “it’s not our job” to drive the economy toward net zero, then that job “never gets done,” he said.

The financial perils are real. For every 1º C of warming, research shows that the world’s gross domestic product — currently about $110 trillion — will fall by 12%. According to the latest forecast from the United Nations Environment Program, the planet is currently on track for warming of about 3º C. Readers know I am math challenged, but if I remember my times tables correctly, 3 times 12 equals a 36% reduction in world GDP or a reduction of some $40 trillion. People’s lives may have no value in the wonderful world of capitalism, but $40 trillion is a number that should make people — even Republicans — sit up and take notice.

Climate experts say this moment will go down in history as a case of collective madness. “All of this belies thinking that’s completely bonkers,” said Catherine McKenna, Canada’s former minister of the environment  and chair of the UN Secretary General’s expert group on private sector net zero targets. “Just because you have a President that’s trying to ignore the science and economics of climate change, it’s bizarre to think you can avoid the massive climate related or climate accelerated physical disasters that we’re seeing.”

Profits Over People

At COP 28 in Dubai, hedge fund hero Ray Dalio announced that private finance would only invest in the clean energy transition if the returns were worthwhile. “You have to make it profitable,” he said. US banks are unconvinced preventing the Earth from becoming a toasted cinder will bring the rates of return they and their clients expect. “Wall Street is basically saying to the sustainability community, ‘You promised us higher returns as well as positive impacts. You’ve had five years, it hasn’t worked, let’s move on,’” said Karl Pettersen, the former chief sustainability officer at Societe Generale. He says what is happening today is a “reckoning.” US bankers have decided that many of the financial assumptions around the green transition “were in fact wishful thinking,” he said.

US banks that publicly kowtow to Republican policies on energy finance are reaping big rewards. Shortly after quitting NZBA, Wells Fargo, Bank of America, Morgan Stanley, and JPMorgan were back on the list of lenders eligible to arrange municipal-bond deals for Texas, which is one of the biggest municipal bond markets. An investigation into Wells Fargo climate efforts led by Tennessee was dropped shortly after the bank said it would abandon its goal to curb greenhouse gas emissions through its lending practices.

Oddly, no one in the financial community wants to talk about the environmental harm that the fossil fuel industry causes, because the industry is exempt from paying for the damage it does. In the Permian Basin in Texas, fracking companies produce a billion gallons a day of highly toxic wastewater. Cleaning it up will cost trillions, but nowhere is that cost figured into fossil fuel financing packages. That glaring oversight gives the lie to the blandishments from fossil fuel interests about how they are making life on Earth better for all. They are slowly killing us and Republicans are cheering. Talk about having a collective mind virus!

Rhian-Mari Thomas, a former Barclays banker who now runs the Green Finance Institute, told Alistair Marsh this week that financial actors have a long term business interest in acknowledging the risks posed by a warming planet. “The need for financial institutions to meet their fiduciary duties is often cited as a reason not to pursue opportunities that are aligned with net-zero pathways. Surely another consideration, based on science, is to ensure market integrity. Deals that may seem rational in the short term could ultimately threaten the resilience of the markets,” she said. [Not to mention the survival of humanity.] Karl Pettersen summed up the situation succinctly. “Morality doesn’t move markets. Only price does.” What a fitting epitaph for the human race.