World’s biggest banks made $4 billion on green debt in 2023, beating fossil fuel earnings

NEW YORK – For the second year in a row, global banks made more money underwriting bonds and providing loans for green projects than they earned from financing oil, gas and coal activities.

The world’s biggest lenders generated a total of about US$3 billion (S$4 billion) in fees in 2023 from lining up debt for deals marketed as environmentally friendly, according to data compiled by Bloomberg. By comparison, the sector brought in less than US$2.7 billion in aggregate earnings from fossil fuel transactions.

European banks led the transition, with BNP Paribas topping Bloomberg’s green debt league table. Meanwhile, Wall Street dominated fossil finance, with Wells Fargo and JPMorgan Chase generating the biggest earnings from oil and gas deals.

BNP, the European Union’s largest bank, got close to US$130 million in 2023 from its green finance business. Credit Agricole was next with US$96 million and then HSBC Holdings with US$94 million.

On the other side of the energy divide, Wells Fargo earned fees of US$107 million from arranging bonds and loans for the fossil fuel sector, followed closely by JPMorgan and Mitsubishi UFJ Financial Group (MUFG), both with US$106 million. To be sure, MUFG was also the top arranger of global green loans in 2023.

The development coincides with stricter regulations in Europe, where both the European Central Bank and the region’s top banking authority have made clear they want the finance industry to speed up its green transition. Lenders in Europe now face the threat of fines and higher capital requirements if they mismanage climate exposures. In response, many banks are imposing explicit restrictions on fossil finance.

In the United States, meanwhile, the regulatory outlook remains uncertain and fragmented as many Republican states place hurdles in the way of the green transition. Banks suspected of withholding financing from the oil and gas sector increasingly face retaliation, with Texas among states threatening to cut off Wall Street firms that embrace net-zero emission goals.

Against that backdrop, the global finance industry has fallen well short of where it needs to be if the goals of the Paris climate agreement are to be met. According to an analysis by BloombergNEF (BNEF), four times as much capital needs to be allocated to green projects as to fossil fuels by 2030 to align with net-zero emission targets. Yet at the end of 2022, that ratio was just 0.7 to 1, largely unchanged from the previous year, BNEF’s latest figures show.

Bank financing is not “anywhere close” to the transition levels needed, said Ms Trina White, a sustainable finance analyst at BNEF, when the December report was published. The perceived foot-dragging by global banks has environmentalists sounding the alarm.

“Banks still aren’t keeping pace with the rate of transition that is required to avoid catastrophic climate change,” said Mr Jason Schwartz, senior communications strategist at Sunrise Project, a non-profit that is focused on the financial sector’s contribution to global warming.

The shifting trends of 2023 are “more indicative of broader macroeconomic trends than any proactive efforts in the banking sector to reduce financing for carbon-intensive energy”, said Ms Adele Shraiman, senior campaign strategist at the Sierra Club, a grassroots environmental organisation in the United States. “The reality is that banks aren’t transitioning their energy financing quickly enough to meet their own climate goals.”

Last year

was the hottest on record,

according to the Global Carbon Project. The group, which represents an international collaboration of scientists, estimates that carbon dioxide emissions from burning fossil fuels rose 1.1 per cent to a new high in 2023, putting the planet on track to exceed its

carbon budget for 1.5 deg C of warming

by the end of the decade.

Overall, banks extended US$583 billion in green bonds and loans in 2023, compared with US$527 billion of fossil fuel debt. In 2022, banks channelled US$594 billion into environmental projects, and US$558 billion into oil, gas and coal, the Bloomberg data showed.

For several years now, the world’s biggest banks have published reports showing the vast sums of money they say they are allocating towards a greener, fairer planet. But some of those assertions are now being questioned amid an absence of regulatory guideposts to help stakeholders make sense of such claims. BLOOMBERG