Are investors failing to exert sufficient pressure on banks funding fossil fuels?
In the ongoing battle against climate change, investors are ramping up the pressure on banks to reduce their financing of fossil fuel projects and increase investments in renewable energy. This push is evident in various initiatives and growing social expectations, with the Science Based Targets initiative (SBTi) introducing a mandatory fossil fuel transition policy in July 2025.
However, progress in this area is hampered by several challenges. Banks may cease financing new projects but continue to support existing fossil fuel operations, slowing the transition. Some financiers pause bond issuance related to polluting companies yet remain exposed to ongoing fossil fuel harm indirectly. Furthermore, political and regulatory inertia, such as delays in grid modernization and fossil fuel subsidy rollbacks, slows the pace of clean energy adoption and electrification.
These complications create loopholes where fossil financing persists despite stated commitments. For instance, European banks like HSBC, Standard Chartered, Barclays, Commerzbank, and Santander have coal policies in place, but general financing for coal-related activities is not always covered.
Recent developments illustrate this dynamic. The RBC's 'Say on Climate' vote was opposed by over 80% of shareholders, indicating a lack of support for the bank's climate strategy. Similarly, Royal Bank of Canada has walked away from its earlier targets, retiring its sustainable finance commitment to fund C$500bn in sustainable projects by 2025, citing growing regulatory pressures.
Investors are now demanding an implementation plan from banks to reduce fossil fuel financing and tilt their loan books to renewables. This was evident at the AGMs of several banks, including Standard Chartered, Barclays, and Royal Bank of Canada, where investors urged banks to reduce fossil fuel financing and accelerate the transition to renewable energy.
The Church of England Pensions Board, with £3.4bn of funds under management, called for a full exit from fossil fuel financing at the Barclays AGM, acknowledging the bank's on-going progress. A similar statement was read by 21 investors at the Standard Chartered AGM earlier this month, with signatories including Danish asset owner Akademiker Pension, Australian Ethical, Border to Coast Pensions Partnership, and Greater Manchester Pension Fund.
Despite these challenges, some banks are reaffirming their commitment to climate action. Amanda Mackenzie, chair of Lloyds Bank's responsible business committee, reaffirmed that climate and nature remain key to the bank's strategy at the AGM.
Looking ahead, the NZI Annual Conference is scheduled for October 21, 2025, at the London Stock Exchange (registration is available), providing an opportunity for further discussions on this crucial issue. The 2024 Banking on Climate Chaos report, which provides evidence that investors base their thinking on, shows that since the Paris Agreement was signed, 60 banks provided over $6tn to the fossil fuel sector, with a third coming from American banks, 15% from Chinese, and another 13% from Canadian lenders.
As the pressure on banks to act on climate change intensifies, it remains to be seen how these institutions will respond and whether they can successfully navigate the challenges and loopholes that currently complicate the scaling-up of renewable investments.
- In the realm of environmental science, investors are demanding that banks, such as HSBC, Standard Chartered, Barclays, Commerzbank, and Santander, tighten their coal policies to exclude general financing for coal-related activities.
- The financial sector, including institutions like the Royal Bank of Canada, is experiencing increased pressure to shift investments from fossil fuels to renewable energy, as intensified by the Science Based Targets initiative (SBTi) deadline of July 2025.
- Despite facing challenges like political and regulatory inertia, growing regulatory pressures, and loopholes that persist despite stated commitments, some banks like Lloyds are reaffirming their commitment to climate action within their business strategy.
