Global banks' green financing gap

Jan 26, 2023 View in browser   By Allison Prang THE BIG PICTURE BANKING ON CLIMATE CHANGE — If the world's most significant banks are going to help us transition to a net-zero economy, they might need to pick up the pace, according to a new Fed paper. "The current level of green financing remains below what is needed for the transition to net zero," several authors wrote in a paper published earlier this month that looks at the climate activities of global banks designated as systemically important. Thirty of the world's major banks — 13 in North America, 10 in Europe and seven in Asia — have committed $1.2 trillion a year on average in new green financing. But if they keep financing projects at that pace, they're only likely to hit $33.6 trillion in new financing through 2050. That comes out to roughly a quarter of what is needed, according to the authors, whose views don't necessarily represent those of the Fed board. Most of the industry's financing right now is coming from banks in North America, which contribute about $675 billion of the $1.2 trillion annual total. Europe's banks are contributing roughly $450 billion, and banks in Asia are contributing less than $100 billion. (China, which has the largest banks in the group by assets, hasn't yet explicitly made any sustainable finance commitment, according to the Fed authors.) Major banks' financing of fossil fuels has fallen in recent years. | Federal Reserve A number of banks have joined the Glasgow Financial Alliance for Net Zero, or GFANZ, to jointly help contribute to decarbonization. (That being said, last year major U.S. financial institutions like JPMorgan and Bank of America were threatening to leave the group, according to the Financial Times, because of fears over getting sued. In at least one instance, one financial firm pulled out of the partnership to emphasize to its clients that it speaks independently on these issues.) The Fed is also requiring the six major banks in the U.S. by the end of this July to explain how they'd perform under various future climate scenarios. The tests are multifaceted – the banks will have to explain how their portfolios will perform under certain scenarios, and also how they'll do during the green transition. Despite many banks making green commitments, environmental think tank InfluenceMap found in a report published last year that 30 of the largest publicly-traded financial firms belong to trade groups that have opposed efforts to address climate change. Even so, major banks are also financing fossil-fuel production less in recent years, the authors found. (Sustainable debt in recent years has spiked in popularity and according to Bloomberg, green-labeled debt in 2021 netted banks more fees compared to oil and gas.) While that might ring positive for environmentalists, there's a lot to be done for the world to reach net-zero emissions. "Despite some progress by large global banks to address climate change considerations, much work lies ahead to properly measure and disclose climate-related risks, and to better align financing activities with their net-zero targets," the authors wrote.   JOIN POLITICO ON 2/9 TO HEAR FROM AMERICA'S GOVERNORS: In a divided Congress, more legislative and policy enforcement will shift to the states, meaning governors will take a leading role in setting the agenda for the nation. Join POLITICO on Thursday, Feb. 9 at World Wide Technology's D.C. Innovation Center for The Fifty: America's Governors, where we will examine where innovations are taking shape and new regulatory red lines, the future of reproductive health, and how climate change is being addressed across a series of one-on-one interviews. REGISTER HERE.     YOU TELL US GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. 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WHAT WE'RE CLICKING —The Indian government sold $1 billion worth of sovereign green bonds, the FT reports. —New York City is implementing a composting program in all five of its boroughs in what it's calling the country's largest, according to The New York Times. —The Washington Post says the Biden administration has reinstated certain protections for a large portion of the Tongass National Forest in Alaska.   LISTEN TO POLITICO'S ENERGY PODCAST: Check out our daily five-minute brief on the latest energy and environmental politics and policy news. Don't miss out on the must-know stories, candid insights, and analysis from POLITICO's energy team. Listen today.       Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Jordan Wolman @jordanwolman Allison Prang @AllisonPrang   Follow us

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