Goldman Sachs, HSBC, BNP Paribas and 24 other global banks are coming under pressure from a coalition of large investors to stop financing carbon-intensive projects and to scale up their green lending.
The group of 35 big investors managing $11tn in assets, which include Amundi, Legal and General Investment Management, the Church Commissioners for England and Nordea Asset Management, have called on the banks to align their financing with a goal of net zero emissions and to ensure that executive pay is linked to this target.
The move is the latest sign that investors’ climate focus is shifting from big carbon emitters, such as oil and gas groups, to those providing the finance for carbon-intensive projects.
The investors, which also include M&G Investments, Northern Trust Asset Management and Aviva Investors, said that since the 2015 Paris agreement on climate change, the world’s biggest 60 banks had provided $3.8tn of financing for fossil fuel companies, with levels in 2020 than in 2016.
“The problem we face today is that too many banks are failing to consider climate harm when they make financing decisions, and too much money is being ploughed into carbon-intensive activities that we so desperately need to move away from,” said Natasha Landell-Mills, head of stewardship at UK asset manager Sarasin & Partners.
Many banks have set net zero targets. But the Institutional Investors Group on Climate Change, the group that brought the investors together, argues these ambitions often will not have the “impact needed”, because they typically do not include “Scope 3” emissions produced by customers and suppliers.
“With fossil fuel financing increasing since 2016, the time to act is now. Investors are calling on banks to make enhanced net zero commitments, with clear interim targets, focused on reducing their indirect emissions to zero,” said Stephanie Pfeifer, IIGCC chief executive.
The investors want the banks to withdraw finance from projects that fail to meet the goals of the Paris agreement much faster than under their current plans and to set firm interim targets. The Paris accord, agreed in 2015, introduced a commitment to limit global warming to well below 2C compared with pre-industrial levels.
Among other appeals, the investors are calling on banks to phase out lending to projects that led to emissions through deforestation and land-use change.
They also argue that lenders should not rely on “unproven negative emissions technologies” and that so-called “avoided emissions” — derived from backing green projects such as wind farms — should not be used to offset carbon-intensive activities.
Bruce Duguid, head of stewardship at Federated Hermes’ EOS division, said there was a need for “dramatic shifts” in bank financing in order to meet the Paris goals and “avoid the looming systemic risk of a ‘carbon crunch’ hitting their balance sheets”.
Goldman Sachs and HSBC declined to comment. BNP said it welcomed “dialogue with its stakeholders”, and that its asset management arm had “made climate action a key focus of its stewardship with the companies in which it invests”.