Green Finance Briefing: US banks continue fossil fuel financing

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Shareholders begin to pressure banks to stop fossil fuel financing

This past week, shareholders at some of the US’ biggest banks voted on climate resolutions that proposed to stop investments in new fossil fuel projects by the end of the year. 

The result wasn’t as green as net zero enthusiasts had hoped – none of the proposals passed the shareholder votes at Bank of America, Citigroup, or Wells Fargo. 

The banks’ management fought these resolutions, urging shareholders to vote against them in public proxy statements. Citi even requested the SEC to exclude the proposals, arguing that they sought to “micromanage the company” – the SEC declined to do so.

“Our board believes that the policy change requested by the proposal is unnecessary and would restrict our company’s ability to implement our climate strategy, which we believe provides the most effective path for our company to address climate change,” Bank of America said in its proxy statement. 

The current instability in energy markets also likely played a role, making investment managers more cautious about shaking things up in the current geopolitical situation. 

In any case, this outcome is likely to reverberate across the financial sector, as shareholder resolutions are being closely monitored to gauge how big the interest actually is to take bold climate action. 

At Citi, the proposal noted that the bank had not committed to stopping fossil fuel expansion, and that it actually recently financed Russia’s largest coal producer and operator, JSC SUEK, along with other banks, including some in Germany. 

The request was for Citi to adopt a policy by the end of 2022 “committing to proactive measures to ensure that the company’s lending and underwriting do not contribute to new fossil fuel supplies.”

In response, CEO Jane Fraser said that it’s “not feasible for the global economy, for human health or livelihoods to shut down the fossil fuel economy overnight.” 

While the dynamics are indeed complex, nobody was actually asking to pull the plug on the fossil fuel industry overnight – that would be irresponsible, and frankly, impossible. But it seems that demanding a new path forward by setting an intention to stop financing new projects is also not currently feasible for finance executives.

Citi told the SEC that fossil fuel companies have committed – or are expected to commit to – plans and targets to adapt their business model, and they need support in these endeavors. However, oil companies are also expected to get pressured by investors at their respective upcoming shareholder meetings. For the first time ever, top proxy advisory firm Institutional Shareholder Services didn’t agree with major oil firms’ claims that they had Paris-aligned targets, and asked investors to vote proposals that would be consistent with the accord.

But there is a silver lining here, albeit quite thin in an increasingly cloudy sky.

Around 11%-13% of shareholders did vote for the proposals at the three banks, representing more than $65 billion of investment capital. This is not a bad number considering these were first-time resolutions asking for dramatic changes. Plus, any resolution that gets more than 5% can be refiled the following year.

Kate Monahan, director of shareholder advocacy at Trillium Asset Management, who put forth the proposal at Bank of America, hopes that next year, this number will be even bigger. 

"New proposals often take time to gain traction, and an 11% vote gives us a strong foundation to build on for next year. We were heartened by the support the proposal received from large investors like the New York State pension fund, and encourage fellow investors to consider the grave risks posed by continuing to fund fossil fuel expansion," she said in an interview. 

Chart of the week

The global issuance volume of green bonds fell nearly 35% year-on-year to $83.8 billion in Q1 2022, marking the second consecutive quarter of decreases, according to the Climate Bonds Initiative.  

As central banks around the world are battling inflation and rising interest rates, green bond issuance costs are growing as well, making it less attractive for investors. Moreover, Russia’s invasion of Ukraine has created further uncertainty and affected funding for energy transition projects. 

The biggest issuer by region was Europe, accounting for more than half of the debt sold in the quarter. But looking at country levels, China topped the charts with $21.4 billion of green debt sold, followed by Germany with $16 billion, and France with $7.6 billion. The US came in fourth at $4.2 billion.

Quote of the week

“It sounds crazy but if you go back to when we launched the “Road to Glasgow”, which would have been February 2020, and if you look at the language we used there, that was pedagogical for 90% of the people in the room. It was all about the transition to net zero and how we need to build a system for that, how we need to mainstream it and to have every decision to take climate into account. And so now the dialogue, fortunately, is much more specific.”

- Mark Carney, former Bank of England governor and UN Special Envoy on Climate Action and Finance

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What we're reading

Bank shareholder proposals to curb new fossil fuel lending get slim support (Reuters)

68% of U.S. execs admit their companies are guilty of greenwashing (Fast Company)

Fund managers doing bogus ESG ‘engagement’ are put on notice (Bloomberg)

Mastercard links compensation for all employees to ESG goals (ESG Today)

BlackRock’s former sustainable investing head launches new advocacy platform (Sustainable Views)

The majority of ESG funds are not sustainable. Here’s why. (Kiplinger)

Companies used carbon credits created in oil extraction projects (FT)