Why Banks’ Green Plans Include Lots of Oil and Gas
Just
after global talks organized by the United Nations to rein in greenhouse gas
emissions stalled this month, Goldman Sachs Group Inc. seized the opportunity
to announce a tougher stance on fossil fuel financing. Environmental groups
such as the Rainforest Action Network and the Sierra Club lauded the move. But
the steps Goldman and other big banks are taking can also be seen as minuscule
compared with the $1.9 trillion in financing they’re estimated to have extended
to the fossil-fuel industry in the three years following the 2015 signing of
the Paris climate accords.
1. What did Goldman Sachs announce?
The
company said it would do less to finance some kinds of pollution, and would
harness money to support more environmentally friendly businesses. It pledged
to stop direct financing of new mines producing thermal coal, the kind burned
to generate electricity, and Arctic oil exploration and development, including
in the Arctic National Wildlife Refuge in Alaska. They also said they would end
financing projects of new coal-fired power plants -- an expansion of an earlier
pledge that applied only to the U.S. and other developed countries. The company
did say that it will make exceptions for projects that include carbon capture
and storage or equivalent emissions reduction technology, though those are seen
as years away from being economically viable. It also said it would engage with
thermal-coal miners on their plans to diversify away from the fossil fuel, and
would phase out financing for companies that don’t have such strategies “within
a reasonable time frame.” Most other banks have just reduced coal financing
instead of phasing it out.
2.
What did Goldman say it would do more of?
It
said it was targeting $750 billion for “climate transition and inclusive growth
finance” over the next decade. As of July, 23 of the world’s 50 largest
private-sector banks had made sustainable finance commitments, according to the
World Resources Institute. Goldman’s pledge is among the largest. But it’s far
from clear what these figures mean. Ever-shifting definitions and
difficult-to-pin-down data is a constant theme throughout sustainable finance.
And many banks are keen to tout such headline-grabbing numbers on green
financing without detailing their fossil-fuel funding.
3. How does Goldman’s policy compare with other banks?
Environmentalists
said its new policy is now the most aggressive among the six largest U.S.
banks. But the Wall Street firm still trails European rivals who have taken
similar steps years before. Here are some examples:
France’s
Credit Agricole SA and BNP Paribas SA are among the banks that have led the
charge in restricting fossil fuel financing. In June, Credit Agricole said it
would stop all financing of coal expansion and set timelines to end funding of
existing coal projects -- some as early as 2030. Goldman didn’t provide a
timeline on its phaseout.
Two
days after Goldman’s announcement, Standard Chartered Plc updated its coal
policy, saying that it will only support clients who “actively transition”
their business to generate less than 10% of earnings from thermal coal by 2030.
The bank has withdrawn financing from three new coal-fired power plants that it
had earlier agreed to finance.
Royal
Bank of Scotland Group Plc, ABN Amro NV and Societe Generale SA have restricted
financing of Arctic oil projects since at least 2016.
In
the U.S., Bank of America Corp. in April said it would commit $300 billion in
investments to low-carbon and sustainable business activities by 2030, adding
to the more than $126 billion it has deployed since 2007.
4.
Are there banks that have gone further?
Yes,
in the public sector. The undisputed leaders in the field are the world’s
development banks. The World Bank laid much of the groundwork that made green
bonds possible. In November, the European Investment Bank took an unprecedented
step to end all its funding for any fossil fuel projects, meaning oil and
natural gas as well as coal, except for those that capture or offset their
emissions. Granted, the EIB is far smaller than its private-sector peers, but
its example was widely noted. In addition, a number of central banks have made
clear they will begin pressuring banks to increase green lending. The Bank of
England in December said it’s moving to have banks and insurers assess the
exposure of the companies they lend to from climate-related damages or a switch
to a lower-carbon economy.
5.
How much of an impact would policies like Goldman’s have?
Environmentalists
see banks’ withdrawal from the coal industry as important, but also as one of
the easiest things for them to do -- American coal firms have been suffering
for years from falling prices, sending several into bankruptcy. And Arctic
drilling has been a source of controversy for decades. What the new guidelines
don’t do is set out a path for reshaping the role banks play in the more
mainstream parts of the energy markets.
6.
How involved are banks in fossil fuel companies?
Financing
fossil fuel producers remains big business for the big banks. JPMorgan Chase
& Co. topped Rainforest Action Network’s global ranking by providing $196
billion in fossil-fuel financing from 2016 to 2018. Goldman came twelfth with
$59 billion. The top 12 global firms earned about $2.9 billion in fees, or
about 7% of their investment banking revenue, in 2018 from their relationships
with oil, gas, coal and power clients, according to Coalition Development Ltd.,
a consulting firm that tracks the finance industry. Banks are reluctant to turn
away that money after enduring years of stagnant revenue. Goldman Sachs Chief
David Solomon said in an op-ed in the Financial Times that the bank won’t be
turning its back on its fossil fuel clients: “The world will continue to produce
and use fossil-based fuels, aeroplanes, cars and industrial goods, and Goldman
Sachs will continue to support clients in transactions that are important to
economic activity.”
7.
What are they doing for renewables?
Bank issuance of green bonds and loans -- those that are specified for projects or activities focused on environmental benefits -- was $581 billion from 2016 to 2018. That means that green bond issuance would need to more than triple to equal banks’ fossil-fuel financing in the same period.