Global Banks Claim to Be Fighting Climate Change, Yet Fossil Fuel Financing Continues

Mika Horelli, BRUSSELS

– At the end of 2024, the financial industry finds itself at a crossroads. More and more banks, investment funds, and financial institutions have pledged allegiance to the Paris Climate Agreement, committing to limit global warming to 1.5°C and reach net-zero emissions by 2050. These promises have become part of a larger global movement toward responsible finance, which aims to address the environmental and social impacts of economic activity.

The scale of this movement is significant. Institutions behind these commitments, originally publicized at the Glasgow Climate Summit in 2021, now control roughly 40% of global financial assets. This represents an astonishing €175 trillion (approximately $190 trillion or £151 trillion), enough to influence not just markets but also entire industries. On the surface, the progress seems promising: these financial giants are ostensibly aligning themselves with a future powered by renewable energy, biodiversity conservation, and equitable growth.

But beneath the polished veneer lies a troubling contradiction. While many banks and asset managers proclaim their dedication to climate goals, their actions tell a different story. Fossil fuel financing, the very activity they claim to be phasing out, remains widespread and substantial.

The Numbers Don’t Lie

A 2024 report by the German research organization Urgewald paints a sobering picture. Since 2020, global banks have financed fossil fuel projects to the tune of over €2 trillion (approximately $2.2 trillion or £1.7 trillion). This includes investments in coal mines, oil pipelines, and natural gas facilities—the kinds of projects that scientists warn are incompatible with a sustainable future.

The biggest culprits include financial institutions from China, the United States, Japan, India, the United Kingdom, and Canada. For example, JP Morgan Chase, the largest U.S. bank, remains one of the world’s top financiers of fossil fuels. In 2023 alone, the bank allocated over $60 billion (€55 billion or £49 billion) to such projects. Similarly, UK-based Barclays and Canada’s RBC have continued to back fossil fuel ventures despite public commitments to reduce their environmental impact.

This isn’t just a problem for distant countries. Fossil fuel financing affects everyone, from Arctic communities facing melting ice caps to urban residents contending with extreme heat waves. It’s a global issue that demands global solutions.

A Nordic Exception?

Amid this bleak landscape, there are glimmers of hope. Some financial institutions, particularly in the Nordic region, have taken meaningful steps to reduce their reliance on fossil fuel financing. Nordea, a major Scandinavian bank, has cut its funding for oil, natural gas, and offshore companies by more than 70% since 2019. The bank now works with only a small number of companies, and even these are subject to strict oversight. Furthermore, Nordea actively encourages these companies to transition to renewable energy sources, demonstrating that banks can play a proactive role in driving change.

Yet even these efforts face limitations. The global energy crisis, exacerbated by Russia’s invasion of Ukraine in 2022, has highlighted the ongoing dependence on fossil fuels. While Nordea may reduce its fossil fuel portfolio, the broader market demand for coal, oil, and gas continues to grow. In 2023, coal consumption reached record levels, driven in part by Europe’s scramble to replace Russian energy supplies.

The Arctic in Danger

One of the most concerning aspects of fossil fuel financing is its impact on the Arctic, a region already experiencing the devastating effects of climate change. The Arctic is warming four times faster than the global average, making it a bellwether for the planet’s future. Despite this, investments in Arctic oil and gas production have surged. Reclaim Finance, an organization that monitors financial sector activities, reports that such investments have grown by over 25% in the past two years.

Major players include ExxonMobil from the United States, Gazprom from Russia, and TotalEnergies from Europe. While sanctions related to the Ukraine war have weakened the role of Russian banks like Sberbank and Gazprombank in Arctic projects, Chinese state-owned banks and private equity firms have stepped in to fill the void. This shift raises serious questions about the global nature of climate accountability. If one country or region tightens its regulations, fossil fuel financing often moves elsewhere, continuing unabated.

Many banks claim to avoid financing Arctic projects but use loopholes to skirt their commitments. For instance, some define the Arctic so narrowly that the majority of projects fall outside their exclusion policies. European banks like BNP Paribas and Barclays have faced criticism for continuing to fund Arctic ventures despite public pledges to withdraw. This pattern of selective definitions and strategic exceptions undermines the credibility of their climate commitments.

The Rise (and Limits) of ESG Investing

The growth of ESG (Environmental, Social, and Governance) investing has been touted as a solution to the problem of unsustainable financing. ESG funds, which consider environmental and social factors in investment decisions, have exploded in popularity. By 2024, their total value exceeded €44 trillion (approximately $48 trillion or £38 trillion), according to The Economist.

While ESG investing represents progress, its effectiveness is often overstated. Reports show that harmful activities, such as coal mining, don’t disappear; they simply shift ownership. Publicly listed companies sell off their most polluting assets to private equity firms, which operate with far less transparency. This means that while ESG portfolios may look greener, the environmental damage continues behind the scenes.

For example, when a major energy company sells a coal mine to a private investor, the mine doesn’t cease operations. It continues to emit greenhouse gases, but now its activities are less visible and subject to fewer public accountability measures. This dynamic creates the illusion of progress while failing to address the root problem.

A Global Approach Is Essential

The European Union has led the way in regulating responsible finance, as demonstrated by the implementation of its Corporate Sustainability Reporting Directive in 2024. However, the EU alone cannot solve a problem of this magnitude. Fossil fuel financing is a global issue that requires global solutions. This includes establishing clear international rules and ensuring robust enforcement mechanisms.

The challenges are immense. Geopolitical tensions, particularly between the United States and China, complicate efforts to build consensus. But without coordinated action, climate goals will remain out of reach. The urgency of the situation demands bold leadership and unwavering commitment.

For too long, the financial industry has played a double game, publicly supporting climate goals while quietly funding fossil fuels. This masquerade must end. Banks and investors have a pivotal role to play in the transition to a sustainable future. By aligning their actions with their words, they can drive the systemic change needed to tackle the climate crisis.

Ultimately, the path forward is clear: establish global rules, close loopholes, and hold institutions accountable. Anything less risks perpetuating the status quo—a world where short-term profits take precedence over long-term survival. The stakes could not be higher. It’s time for the financial sector to live up to its promises and become a genuine force for good.