Banks and, by extension, almost all diversified investor portfolios remain highly exposed to climate risk. This exposure can only increase with their ever-noticed financial commitments to the fossil fuel industry and its expansion.
The latest data comes from the study Banking on Climate Chaos, published on May 13 by a group of environmentalists. We read that the 60 largest banks have overall injected more than 700 billion US dollars into the balance sheets of companies active in fossil energy in 2023. This financing brings the total of their commitment to 6,900 billion US dollars since the Paris climate agreement.
JPMorgan Chase dominates a list where we find the five major Canadian banks clearly visible in the world ranking. According to the study’s observations, last year the Royale occupied the 7the rank, followed by Scotia at 10ethen the TD at 11e. The Bank of Montreal and CIBC complete this pack at 15e and at 16e rank respectively, swelling the total contribution of this small group of Canadian banks to more than 100 billion in 2023. This commitment exceeds 910 billion over the period 2016-2023.
Shortly before, FinanceMap’s assessment concluded that these banks’ fossil fuel financing activities and their limited fossil fuel exclusion policies “are very poorly aligned with the International Energy Agency’s net-zero emissions trajectories.” energy and the IPCC”. Especially since these activities still mainly support the expansion projects of these companies. While recalling that they are signatories of the Net Zero Banking Alliance (NZBA, in English), a United Nations initiative.
The financial sector climate analysis platform says it has examined $1.6 trillion in business loans and bond and stock subscription transactions from the five major Canadian banks, for the years 2020, 2021 and 2022. It cites the BloombergNEF agency, which recalls that the ratio between investment in fossil fuels and the supply of low-carbon energy must reach 1 to 4 by 2030, supporting a global warming scenario of 1.5° vs. To then assert that the financing flows of Big Five Canadian companies would have helped reverse this ratio over the 2020-2022 period, which stood at 3.9 to 1. “The financing ratio of fossil fuel companies compared to green companies in Big Five is significantly higher than that of the main American (2.8 to 1) and European (2 to 1) banks,” concludes the platform.
The ECB sounds the alarm
Frank Elderson, member of the management board of the European Central Bank and vice-president of its supervisory board, delivered a solid speech on this theme during the meeting of the executive committee of the European Banking Federation on March 14. From the outset, he recalls that the institution is not calling on banks to divest from carbon-intensive industries, but rather a call to actively manage risks, which may very well take the form of form of financing the transition and resilience, he gives as an example.
“Global warming and increasingly frequent extreme weather events are not just one of many isolated risks banks face. Rather, they constitute a driver for each traditional risk type (identified by the Basel Committee on Banking Supervision), from credit risk, liquidity risk and market risk to reputational and operational risk, including legal risk. » On this last point alone, climate-related litigation has exploded in recent years, he highlighted, with the filing of some 560 new cases worldwide since 2021, increasingly targeting companies and banks. .
We should add to this list the risk of ending up with what we call stranded assets on the balance sheets of banks, but also in the portfolio of the vast majority of investors.
Especially since the most recent scientific evidence suggests that the reference trajectory now points towards average temperatures of 2.9°C above pre-industrial levels. “So everything we’ve read about the devastating difference between the 1.5 degree scenario and the 2 degree scenario pales in comparison to the hothouse scenario we’re heading towards. This means that the physical risks we are currently witnessing […] are just the tip of the iceberg of what we can reasonably expect in a world subject to 2.9 degrees of global warming. »
And the member of the ECB board added: “Financial risks are not limited to climate change. We are currently witnessing an unprecedented decline in natural ecosystems and the vital services they provide, such as pollination, clean water or healthy soils. This is also important for banks, since 75% of all bank loans in the eurozone go to companies that are heavily dependent on at least one ecosystem service. »
What do you think of all this?