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Article A green economy manifesto

Dirty fuel, dirty money

Despite their pledges to fight climate change, banks are still investing in fossil fuel extraction

Imagine the scenario. You are a committed eco-warrior. You save water, turn off your lights, cycle or use public transport whenever possible; you boycott companies and products that harm the environment; you’ve even cut down drastically on meat and dairy products, all to do your bit for the planet. Then one day you discover that, against your knowledge, you are directly funding climate change. How on earth could that be, you might be forgiven for asking?

The answer is simple but potentially disconcerting: through the money in your bank account.

This is because, despite claims to be environmentally responsible, most high street banks invest their customers’ money in fossil fuels. In 2012 alone, the UK’s top five high street banks invested more than £66bn in fossil-fuel extraction, according to a report by the campaign, Move Your Money. And according to BankTrack’s 2014 Banking on Coal report, major international banks invested just under €70bn in coal – the most harmful fossil fuel – in 2013, a rise of 350% in under 10 years.

These huge investments come despite the banks’ own pledges to fight climate change. HSBC, which bills itself as “one of the first banks to act decisively to impose restrictions on the financing of the most carbon-intensive projects and clients”, invested £17bn in fossil-fuel extraction in 2012 alone. And RBS, which claims to be making big moves towards reducing its investments in the most damaging fossil-fuel projects, is the third biggest investor in coal in BankTrack’s Top 20 Coal Banks list.

“On the one hand these banks promote their sustainability and green credentials,” says Fionn Travers-Smith, campaign manager at Move Your Money, “but if you actually look at their investments and holdings, they are still providing finance for the new exploration of fossil fuels as well as existing fossil fuel-providing companies and projects.”

The funding of new fossil-fuel exploration is particularly important – and damaging – according to Travers-Smith, because in order to stay below the 2°C limit of safe global warming, we can burn only a fifth of our known fossil-fuel reserves, without looking for new ones. Banks play a crucial role in financing these new exploration projects, according to Travers-Smith. “You need to finance the project before you can take the fossil fuels out of the ground and make a profit,” he says. “This is where banks come in – they provide equity bonds and loans for these companies. Banks funding these companies in advance is essentially what allows them to operate.”

So much for the commercial banks. Perhaps you would expect publicly owned banks to be doing somewhat better? Not so, according to Bankwatch, a charity that monitors the actions of international financial institutions in Europe. Bankwatch has analysed the lending portfolio of the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD), two of the EU’s publicly owned banks, and found that both make considerable investments in fossil fuels. According to the analysis, from 2006 to 2011, 48% (€6.3bn) of the EBRD’s energy lending went on fossil fuels. And the EIB lent 30% (€20bn) of its energy investments on fossil fuels over a similar period. This comes despite EU commitments to cut greenhouse gas emissions 20% by 2020 and 80-95% by 2050.

Banks promote their sustainability and green credentials, but if you look at their investments and holdings, they are still providing finance for the new exploration of fossil fuels.

Much of the problem comes from the fossil-fuel industry’s powerful lobbying influence, according to Petr Hlobil, campaigns director of Bankwatch. Hlobil sees the fate of Europe’s energy sector as a struggle between renewables and powerful industry voices. “On some fronts, renewables are making good progress; on some other fronts the industry is winning,” says Hlobil. “One of the things the industry’s using at the moment is the energy security argument – that we need to get gas elsewhere, not just Russia.” Thus a huge amount of funding is going on gas infrastructure projects, according to Hlobil, while the EU seeks relationships with new gas-supplying states such as Azerbaijan – a misguided move, according to Hlobil, that will swap one corrupt dictatorship for another.

Perhaps the EU banks can comfort themselves with the knowledge that even the World Bank continues to increase its fossil-fuel investments, despite preaching the opposite. A report in April by Oil Change International found that the World Bank had increased its funding of fossil fuels in the 2013-14 financial year with investments of $3.4bn - 13% up on the previous year and the highest recorded in four years. This report came just days after World Bank president Jim Yong Kim had declared: “We need to get rid of fossil-fuel subsidies now.”

“Ironically, the Bank has been encouraging countries to reduce their own fossil-fuel consumption subsidies but then does not see its support of oil, gas and coal through its own financing as a subsidy,” says Elizabeth Bast, managing director of Oil Change International. The World Bank has also continued to finance exploration projects for new fossil-fuel reserves, according to Bast: “Despite the pledge to end finance for coal-power plants except in extreme circumstances, World Bank Group financing still went to coal, largely due to loopholes in financing practices.”

With the banking and fossil fuel industries so closely interlinked at every level, change might seem like a distant and flimsy prospect. But there are things we can do, according to Hlobil, such as putting pressure on MEPs to change the EU’s energy investment strategy. Public pressure can even work on the World Bank, according to Elizabeth Bast, who points out that campaigning from concerned citizens has forced it to finance more clean-energy alternatives over the last 10 years.

But it is in the field of commercial banking that ordinary citizens can have the biggest effect simply by changing banks, according to Travers-Smith. Move Your Money has provided a list of financial institutions that offer fossil fuel-free accounts and a set of steps that everyone can follow. “We recommend that you put your bank on notice,” says Travers-Smith. “Move your money if it refuses to satisfy your demands for a fossil fuel-free account and move to a financial organisation that does offer a fossil fuel-free account. And finally make a big noise about it on social media, by writing to your bank and by encouraging others to follow your example.”

Move Your Money’s campaign has seen more than 2,000 people put their bank “on notice” so far. However, none of the major UK banks have made any move to divest their finances from fossil fuels, instead choosing to issue statements reasserting their green credentials. Cold comfort, perhaps, but even in this tiny response, Travers-Smith sees some hope for the future. “It’s interesting that they responded because it shows it’s something they see as a business risk,” he says. “It makes it even more important for people who take this issue seriously to consider moving their money because it’s clearly something the banks are paying attention to.”

This article is a response to the topic idea; Banks are a faceless force fuelling resistance to change.

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