Can we still bank on big banks to tackle the climate crisis?

Almost a decade has passed since the historic Paris Agreement in 2015, and three years since the ambitious promises made at COP26, where the world’s most influential financial institutions pledged to spend a collective $130 trillion to tackle climate change. The Glasgow Financial Alliance for Net Zero (GFANZ), comprised of 675 financial institutions across 50 countries, was formed to put the might of the financial sector to work to reduce emissions and finance the energy transition.

Fast forward to today, and the questions being asked are: are banks still honouring their promises to slash carbon emissions and channel funds to facilitate the energy transition? Are we any closer to achieving the net zero goals they’d set years before?

A new authoritative study just published by the European Central Bank, Massachusetts Institute of Technology and Columbia Business School seems to suggest otherwise, indicating little sign of behavioural change among banks.

Only about 10% of the 300 banks the study analysed had joined the Net-Zero Banking Alliance (a group led by GFANZ and backed by the United Nations), but the researchers discovered that banks in the Alliance had neither increased interest rates on loans to firms with high emissions, nor were companies receiving loans more likely to set decarbonisation targets. Alarmingly, the decline was the same for all banks, regardless of their commitment to the cause.

So, what’s going wrong, and can we hold banks accountable for continuing to pour trillions into fossil fuels?

The sad reality is, even if banks in the Alliance were to halt financing for companies seeking to invest in new fossil fuel capacity – an activity that has surged since the Paris Agreement – there are banks in India and China, and sovereign wealth funds from the Middle East with entirely different agendas when it comes to oil and gas.

However, as much as banks and larger financial entities are big contributors to the climate crisis, they generally are also critical players in facilitating the fight to reduce emissions. Achieving our climate goals demands buy-in from the private sector. It will need to lead the financing of the transition because, let’s face it, governments simply don't have the deep pockets of these financial giants.

The prevailing stance among banks is not a total abandonment of the net zero objective, but financing the transition only if it aligns with their profits. Essentially, this boils down to: "If it's profitable, we'll do it." Afterall, they’ll argue that they’re just bankers, not philanthropists. Right?

In the UK, we have a plethora of different schemes such as the Transition Plan Taskforce (TPT), but are we any better off? I’d like to believe that while media coverage tends to highlight negative climate news, optimism remains crucial in this increasingly dire situation.

But hope alone is not enough. Hope alone is passive wishful thinking unless accompanied by action and engagement. If you hope something will happen, you need to do something about it. As UN Secretary-General António Guterres aptly stated, we need to do “everything, everywhere, all at once”.

Can we rely on the big banks to pull themselves together to fight climate change? The evidence appears to say no, at least not without creating sufficient incentives to make it a worthwhile effort. Organisations such as the Green Finance Institute offer hope by actively working to accelerate the transition toward an environmentally sustainable and resilient economy, by catalysing investment in net zero and nature positive outcomes.

Can we do more in that direction, or do we have to accept that there is simply a misalignment between the end-goal of these big banks and the commitment to solving climate change, and that more heavy-handed regulations are needed?

In closing, I'm reminded of a quote by the renowned conservationist Jane Goodall: "What you do makes a difference, and you have to decide what kind of difference you want to make." Perhaps we've been doing too little to safeguard our planet, but it's not too late to enact meaningful, long-term change.