Despite an explosion in green finance, banks have made only superficial changes to their lending practices, with fossil fuel funding going virtually unabated over the past years, according to a new report by Boston Common Asset Management released on Monday (11 November).

The report “Banking on a Low-Carbon Future: Finance in a Time of Climate Crisis” highlights the slow pace of change when it comes to greening the financial system.

Efforts to green the financial sector have been “largely superficial,” the report says, with banks “failing to change their lending or investment practices” as a result of sustainable finance initiatives.

Researchers who collected data for the report engaged 58 of the world’s largest banks, including the likes of HSBC, JP Morgan Chase, BNP Paribas and MUFG.

Their findings paint a stark picture. Although a great majority of banks (69%) have endorsed the guidelines by the Taskforce on Climate-related Financial Disclosures (TCFD), few have translated them into practice.

Just 50% of banks engage high-carbon clients on transition strategies ;

Only 12% ask high-carbon sector clients to adopt TCFD guidelines ;

And only 16% of them exclude clients involved in deforestation.

As a result, financing for fossil fuel projects continues to rise each year, totalling $1.9 trillion in 2016-2018 (€1.7 trillion), the report found.

“The time for incremental change is over,” the authors wrote in the report’s introduction. “The scale of the climate crisis demands a more radical transformation of the banking sector,” said Lauren Compere of Boston Common Asset Management.

“Our findings indicate a systematic reluctance by banks to demand higher standards from high carbon sector clients, despite the fact that doing so could vastly reduce bank risk and accelerate action on climate change,” Compere said in a statement.

Green finance group calls on EU to stop funding fossil fuels A group of financial experts has set out their vision for hardwiring sustainability goals into the European Union’s financial system, calling on 28-country bloc to stop pouring public money into polluting fossil fuels and focus spending on clean energies instead.

Call for “cultural shift” within banks

To turn this around, the report calls for “a cultural shift within banks,” saying this “must include a willingness to walk away from clients” who do not adopt science-based carbon-cutting strategies.

Specifically, the report calls on banks to decarbonise their balance sheets and adopt “clear timelines” to phase-out financing for fossil fuels and deforestation projects.

“Restrictions on thermal coal lending need to extend to oil and gas,” added Stuart Palmer, from Australian Ethical, a wealth management company based in Sydney.

Critics have also argued that green finance commitments made by banks are often window-dressing and “do not represent new financing but merely re-allocations or rebranding of existing commitments,” Compere said.

There are some signs of change, however. For instance, Compere said she welcomed a draft EU sustainable finance taxonomy aimed at channelling investments into low-carbon technologies.

But she said the taxonomy should go one step further by penalising “brown” investments that exacerbate global warming.

“Alongside the green though must be an assessment of the brown, or financing that is climate-harmful, as we have seen some banks do like Natixis,” Compere said.

AXA sustainability chief: Penalties for fossil fuel assets ‘merit close attention’ The European Commission’s High-Level Group on sustainable finance is currently looking at the pros and cons of slapping “penalties” on fossil fuel assets that may end up being stranded as investors shift to low-carbon portfolios, Christian Thimann told EURACTIV in an exclusive interview.

[Edited by Zoran Radosavljevic]