Investment pressures on banks funding fossil fuels: are they failing to decrease significantly?
**Investors Step Up Pressure on Banks to Embrace Green Finance**
In a bid to accelerate the transition towards a low-carbon economy, investors are employing various strategies to prompt banks to disclose their fossil fuel exposure, set ambitious targets for reducing financing of fossil fuels, and increase investments in renewable energy.
One of the primary tactics being used is the filing of shareholder resolutions at Annual General Meetings (AGMs). These resolutions call for banks to be more transparent about their fossil fuel financing and to establish explicit targets for reducing such financing. Investors are also engaging directly with bank leadership, both publicly and privately, to advocate for stronger climate policies.
Innovative financial products are another key area of focus. Investors are developing new financial instruments, such as green bonds, that earmark funds exclusively for renewable projects. These instruments provide a market-ready path for banks to scale up clean energy financing.
Public pressure and reputational campaigns are also being used to highlight the risks of continued fossil fuel financing. This pressure can lead to consumer and client backlash, forcing banks to reassess their financing practices.
However, investors face several challenges in their efforts to pressure banks. Resistance from bank management is a significant hurdle, with some banks increasing fossil fuel financing despite growing investor pressure. The limited success of shareholder resolutions is another challenge, as many resolutions fail to achieve majority support, especially in banks with entrenched management or significant fossil fuel-aligned shareholders.
The complexity of transition finance is another challenge, as creating credible financial instruments that directly link to emissions reductions requires robust methodologies for measurement, reporting, and verification. Diverging interests among investors and regulatory and policy uncertainty also pose significant challenges.
Despite these challenges, progress is being made. Innovations in transition finance, such as the Methane Finance Working Group’s guidance, offer a blueprint for scaling up renewable investment. Meanwhile, investors continue to emphasize the long-term risks of fossil fuel lock-in and the financial opportunities in clean energy.
Recent trends suggest that bank strategies remain mixed, with some institutions doubling down on fossil fuels even as others innovate in green finance. The growing sophistication of transition finance tools and sustained public pressure are gradually reshaping bank behavior, though not yet at the pace or scale required by climate science.
In the UK, investor pressure on banks to reduce fossil fuel financing and tilt their loan books to renewables has been a recurring theme during the proxy season. The Church of England Pensions Board, with £3.4bn of funds under management, called for a full exit from fossil fuel financing at the AGM of the Royal Bank of Canada, while a group of 21 investors, including Danish asset owner Akademiker Pension, Australia's Australian Ethical, the UK's Border to Coast Pensions Partnership and Greater Manchester Pension Fund, made a statement demanding an implementation plan from banks to reduce fossil fuel financing at the Standard Chartered AGM.
In the US, several North American banks have departed the Net Zero Banking Alliance, and the SEC has disagreed with banks on several occasions regarding disclosure of energy supply ratio and 'net zero activities'. Despite coal phase out policies, European banks have been found to be financing Glencore's coal-related activities.
In conclusion, investors are leveraging a range of strategies to pressure banks to align with a low-carbon transition, but face significant challenges in doing so. While progress is uneven, the growing sophistication of transition finance tools and sustained public pressure are gradually reshaping bank behavior—though not yet at the pace or scale required by climate science.
- Investors are developing new financial instruments, such as green bonds, to earmark funds exclusively for renewable projects, offering a market-ready path for banks to scale up clean energy financing in environmental-science, finance, and business.
- Public pressure and reputational campaigns are being used to highlight the risks of continued fossil fuel financing, potentially leading to consumer and client backlash and forcing banks to reassess their financing practices, linking climate-change with business and finance.
- In the UK, investors like the Church of England Pensions Board and a group of 21 investors are pushing banks to reduce fossil fuel financing and tilt their loan books to renewables, demonstrating how shareholder resolutions in environmental-science can lead to action in finance and business.
