If money talks, what is the banking industry saying about climate change?

ABSTRACT

Major banks are facing increased public pressure to reduce financing for fossil fuel projects. In this decade of action for the UN Sustainable Development Goals (with a focus on SDG 13 – climate action), all sectors, including the financial sector, are urged to recognize the ways in which they impact these goals and how they can best contribute to their realization. But how are the top 10 most active banks in financing the fossil fuel industry responding to this pressure? Using qualitative textual analysis of these banks’ annual reports and a proposed categorization of how banks are talking about climate change, we highlight how these banks see their role in reducing climate impacts through their financing and whether their response has evolved since the Paris Agreement. We find that while these banks are stating an increasing number of climate change actions since the introduction of the Paris Agreement, there are few clear commitments in relation to their financing of fossil fuels. This absence of commitments in the annual reports may reflect an absence of critical reflection on their responsibility for financing climate change.

Key policy insights

• Climate-related financial disclosures should target banks’ climate impact regarding their client financing; most importantly this should be done in a clear, contextualized way so that regulators and the public can hold the banks accountable based on their disclosures.

• Effective policies need to explicitly consider how banks should measure and reduce climate impacts in a way that is comparable, aligned with the Paris Agreement, and in relation to banks’ credit financing operations to clients (not only from the direct operations of a bank, as has been the focus of banks’ commitments against climate change to date).

• Legislation mandating human rights and environmental due diligence with explicit considerations in relation to climate change is an example of a policy that would require banks to consider a broader scope of their impact assessment and disclosure reporting which could potentially establish clearer claims for remedies by impacted communities.

KEYWORDS:

• banking
• finance
• climate change
• fossil fuel
• responsibility

Acknowledgement

The authors acknowledge financial support from the University of Gothenburg via a grant to the UGOT Center for Collective Action Research (CeCAR) and the Mistra Carbon Exit research program (the Swedish Foundation for Strategic Environmental Research). We thank Sverker C. Jagers and participants at the CeCAR summer conference for valuable comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 See Supplementary Material for a thorough discussion on the use of annual reports as a basis for our analysis.

2 The word search included: Climate change, Carbon, Divestment (divest-), Fossil fuel(s), Global warming, Paris Agreement, Reduce, Scope 3, and SDG(s) (sustainable development goals).

3 All quotations are available from the authors upon request.

4 BERT stands for Bidirectional Encoder Representations from Transformers; see Bingler et al. (2021) and Devlin et al. (2019) for further reading about the model.

5 See Figure S.4 in SM for Spearman’s pairwise rank correlation coefficients.

6 These restrictions are further reviewed in the Banking on Climate Change report, along with restrictions that other banks have taken (Kirch et al., 2020).

Additional information

Funding

This work was supported by the Mistra Carbon Exit research program (the Swedish Foundation for Strategic Environmental Research); UGOT Centre for Collective Action Research (CeCAR).