By Tim Quinson
October 17, 2023

Green finance is growing — slowly

For a second straight year, banks are making more money providing loans and underwriting bond sales for green-related projects than they’re earning from fossil fuel companies.

Together, banks have generated about $2.5 billion of revenue from climate-focused financing so far this year, compared with $2.2 billion from their work with oil, gas and coal companies, according to data compiled by Bloomberg.

It’s a big change from as recently as 2020, when lenders pocketed almost double the fees from Big Oil than they did from backing green initiatives.

Still, such a narrow green-to-fossil fuel ratio is far from where we need to be, says Trina White, an analyst at BloombergNEF who focuses on sustainable finance.

“It is promising to see evidence of what we have long known—that the energy transition promises to be an enormous opportunity in addition to a climate necessity,” she says.

White explains that the challenge will be ensuring the private sector seizes on that opportunity in pursuit of 1.5C scenarios, which are more likely to prevent catastrophic warming. Doing that, however, will require an extraordinary ramp-up of investment.

“We need to see both real-economy investment and bank financing in low-carbon energy sources more than quadruple this decade relative to fossil fuels,” she says.

BNEF analysts use a metric that tracks investment in the energy-supply system across a range of industries. The analysts have determined that the ratio of clean energy investment to fossil fuels needs to hit 4 to 1 by the end of the decade if the planet is to avoid the worst ravages of climate change as laid out in the Paris Agreement of 2015. That ratio was 0.8 to 1 at the end of 2021, according to BNEF.

Banks have faced considerable criticism in recent years for their support of the fossil fuel industry, the primary source of planet-warming pollution. Financiers have sought to defend themselves by claiming they want to assist in the transition to a low-carbon economy by staying engaged with the industries most responsible for the accelerating climate crisis.

Additionally, growing numbers of banks have acknowledged the risks of the crisis by increasing their ambitions around green financing. For example, JPMorgan Chase & Co. announced emissions-reduction targets late last year for airlines, cement manufacturers and iron-ore and steel companies. That added to the bank’s first set of goals, which focused on the oil and gas, electric-power and auto-manufacturing sectors.

Bloomberg Intelligence analyst Grace Osborne says “net zero 2050” represents an estimated $50 trillion investment opportunity based on estimates from the World Economic Forum. The clean-energy transition has the potential to open “significant new revenue streams,” she says, including more fees from green-bond underwriting and lending, returns from investments in low-carbon technology and revenue from other types of sustainable financing.

Banks can capture “the climate upside” by attracting low-carbon clients and persuading heavy polluters to decarbonize their operations, Osborne says.

However, greenwashing among financial firms claiming sustainable investments remains a perpetual threat. Tracking progress is difficult because of the lack of standardization and market regulation, and overall doubts about the veracity of the “impactful data” that banks report related to sustainable finance, Osborne says.

That said, she says green-bond issuance is one area where it’s easier to gauge results from the banks funding of low-carbon projects. This year, BNP Paribas SA, Bank of America Corp. and Credit Agricole SA stand out as the leading green-bond underwriters, according to Bloomberg data. Overall, roughly $475 billion of green bonds and loans have been arranged so far in 2023, up from closer to $450 billion in the same year-earlier period.

By contrast, the opaque market for sustainability-linked loans—a big market measuring about $1.3 trillion—comes with reputational risks for the banks, Osborne warns. While the debt is designed to incentivize sustainable impact through environmental, social or governance key performance indicators (KPIs), a lack of disclosure around the targets, plus the absence of adequate monitoring, puts the integrity of the product in question, she says.

“The concern is the products are sometimes used as marketing tools, and as a result, they present unfortunate regulatory, reputational and greenwashing risks,” Osborne says.

Sustainable finance in brief
Despite it’s destructiveness to the atmosphere, ecosystems, wildlife and humanity, Wall Street still loves coal. And it very much wants to keep making money from it. With demand for coal still high, financiers are eager to bring back the dirtiest of fossil fuels. But how to do that defensibly amid accelerating climate disasters? The latest proposal is that, by saying they’re helping coal producers transition to a greener business model, it’s okay to profit off of it in the interim. It may surprise some to find out that climate activists are skeptical, saying it’s another ploy by the financial industry to make as much money as possible from coal while it still can.

• An executive at Goldman Sachs says there’s one kind of ESG asset that has what it takes to defy short-seller headwinds.
• Banks in Europe will need to adjust the risk assessments they conduct of their clients to reflect new ESG requirements enforced by their watchdog.
• Some wondered if activist Engine No. 1’s victory over Exxon signaled the beginning of the end for the oil giant’s fossil-fuel growth. It didn’t.

More from Green
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                                                                                          Tropical Storm Norma Photographer: NOAA

Further to the west, Tropical Storm Sanba is meandering around the Gulf of Tonkin, according to the US Joint Typhoon Warning Center. While it may briefly strengthen, Sanba will remain at tropical storm strength.

It will eventually make landfall in central Vietnam, which should cause it to dissipate, the center said. Thunderstorms and rain are forecast across the south, according to the Vietnam's National Centre for Hydro-Meteorological Forecasting.

In other weather news:

US: Heat advisories are up across parts of central and southern California. Temperatures of near 100F degrees are possible in the Santa Cruz Mountains and Santa Clara Valley, including San Jose about 45 miles south of San Francisco through Thursday, the National Weather Service said. The advisory also covers parts of the Bay Area and residents are advised to limit outdoor activity.

Europe: A cold snap over northern Germany and the Nordics will spread to the UK and parts of France by the weekend, according to forecaster Maxar.