Photos: Banking On Climate Crisis\ODI
Washington, D.C. — A new report published today by Center for American Progress and the Sierra Club finds that the 18 largest U.S. banks and asset managers alone were responsible for financing the equivalent of 1.968 billion tons of carbon dioxide equivalent in 2020.
This would make the U.S. financial sector the fifth-biggest emitter in the world if it were a country—ranked just below Russia and ahead of Indonesia. The new research offers a novel picture of the enormous carbon footprint of American finance and calls for a suite of regulations to be introduced across the sector to bring U.S. banks in line with the Paris Agreement target of 1.5 degrees Celsius of global warming.
The analysis, carried out by leading climate solutions and project developer South Pole, used a market-leading carbon accounting methodology to calculate, for the first time, the aggregate carbon emissions associated with the lending and investment activities of the U.S. financial sector, based on an indicative sample. While the analysis clearly demonstrates the scale of impact from financial institutions in driving climate change, it likely represents a gross underestimate, as it relies on public disclosures that exclude crucial data, including emissions related to advisory services and underwriting and estimations of Scope 3 emissions for bank clients. Scope 3 emissions account for 88 percent of emissions for oil and gas companies.
The timing of the report is meaningful because it demonstrates how the financial industry takes advantage of weak disclosure rules to obscure understanding of its contributions to global emissions. Narrow public disclosures by banks do not include transaction-level data in their estimations of credit exposure. In the coming weeks and months, both the Office of the Comptroller of the Currency (OCC) and the U.S. Securities and Exchange Commission (SEC) will be considering rules that can—and should—directly address this shortcoming. This report should inform their decision-making.
Following the release of the report, Ben Cushing, campaign manager for the Sierra Club’s Fossil-Free Finance campaign, said:
“Regulators can no longer ignore Wall Street’s staggering contribution to the climate crisis. Wall Street’s toxic fossil fuel investments threaten the future of our planet and the stability of our financial system and put all of us, especially our most vulnerable communities, at risk. Financial regulators have the authority to rein in this risky behavior, and this report makes it clear that there is no time to waste.”
Andres Vinelli, vice president of Economic Policy at the Center for American Progress, said:
“Climate change poses a large systemic risk to the world economy. If left unaddressed, climate change could lead to a financial crisis larger than any in living memory. The U.S. banking sector is endangering itself and the planet by continuing to finance the fossil fuel sector. Because the industry has proved itself unwilling to govern itself, regulators including the SEC and the OCC must urgently develop a framework to reduce banks’ contributions to climate change.”
According to the Intergovernmental Panel on Climate Change, in order to limit global warming to 1.5 degrees Celsius, global emissions need to fall by 45 percent from 2010 levels before 2030. Pledges from the finance sector at COP26 in Glasgow this November have been widely criticized for a lack of concrete targets or timelines; a failure to directly address banks’ support of fossil fuel companies; and a reliance on watered-down “intensity” targets on emissions, instead of absolute targets. Banks continue to pour money into the fossil fuel industry. In fact, since the signing of the Paris Agreement in 2015, the world’s largest 60 banks alone have provided $3.8 trillion to the fossil fuel industry.
President Joe Biden has set ambitious targets for emission reductions in the United States, but so far, his administration has fallen short of utilizing its regulatory and policymaking powers to address the role of corporations in driving climate change. The report recommends numerous immediate and specific steps that federal financial regulators can take to account for the imminent systemic threat of climate change, including reforms to capital markets regulation and regulations regarding capital requirements and supervision of banks.
Fossil fuel investments represent a large systemic financial risk in and of themselves. As the climate changes and as the world moves toward cleaner and cheaper renewable energy, fossil fuel assets are increasingly at risk of being “stranded,” whether because the world is forced to move to cleaner energy or because of the impacts of climate change itself. As the report notes: “According to insurance provider Swiss Re, climate change could reduce global GDP by 11 percent to 14 percent by 2050 as compared with a world without climate change. That amounts to a $23 trillion loss, causing damage that would far surpass the scale of the 2008 financial crisis.”
The report replicates a similar approach to one by Greenpeace and WWF that found that the U.K. financial sector was responsible for more than 800 million tons of carbon dioxide equivalent, nearly double the United Kingdom’s total emissions.
Click here to read the report: “Wall Street’s Carbon Bubble: The Global Emissions of the US Financial Sector”
