Investment banks have funded over vast sums of money to the destruction of the environment, with the top 50 global investment banks, particularly JP Morgan Chase, Citigroup and Bank of America, driving this financing. These institutions are not able to accurately track and measure the impact their investments are having on the climate, due to a lack of policies protecting the environment when they provide loans or underwriting services. In the coming years, more needs to be disclosed by banks and firms they invest in on the potential damage caused to the natural world.
Investment banks across the globe funded over $2.6tn to the destruction of ecosystems and wildlife in 2019, according to the Bankrolling Extinction report. The major concern and threat is from indirect financing of other industries which actively damage the climate. Sectors such as fossil fuels, mining, forestry, agriculture, tourism, and transport and logistics all drive emissions increases. In March 2020, it was reported by an alliance of US based-environmental groups that the 35 leading investment banks invested $2.66tn into fossil fuels since the Paris agreement, signed in 2016. This financing was not just supporting existing fossil fuel infrastructure but contributing to further fossil fuel extraction, with a 40% increase since 2016. Chinese firms are also a huge concern with no policies in place restricting their investment leading to the big-four Chinese banks dominating coal investment in recent years. Another key sector having an effect on climate change is agriculture with $450bn annually given in agricultural subsidies which harm the environment.
Current weather crises such as wildfires, floods and droughts which now impact large areas of the world bring disruptions to economic growth, inflation and financial instability. The World Economic Forum (WEF) highlighted in its Global Risks Report that environmental factors are now more significant than business threats to the global economy. Financial risks to banks’ returns from investment due to climate change are numerous factors such as poor crop yields from drought limiting farm loan repayment.
Investment in renewable energy has risen and many firms have ended financing of Arctic coal or oil and gas projects. Although welcome, no giant private bank has pledged to stopping fossil fuel financing entirely. This is shown through leading Wall Street Bank, JP Morgan Chase, which seemingly looked to align with the Paris agreement by establishing “intermediate emission targets for 2030” yet refused to commit to a reduction in lending to the fossil fuel sector. The European Banking Authority’s Action plan on sustainable finance demonstrates a forward thinking approach. Under Donald Trump, the US is unlikely to follow a similar route due to his outspoken support for the fossil fuel industry and withdrawal from the Paris agreement.