Climate Action Pays Off: Sustainable Projects Attract More Investment Than Fossil Fuels

Climate-friendly projects, for the first time, raised a greater amount of money in the debt market than fossil-fuel companies. But there is a downside.

Bloomberg data shows that in 2022 approximately $580 billion was arranged for renewable energy and other environmentally responsible ventures. On the other hand, the oil, gas, and coal industries turned to lenders and underwriters for closer to $530 billion.

However, it is not necessarily the case that green financing is finally surpassing fossil fuel lending, but rather Big Oil is seeking funding from other sources. High oil prices over the past year may have allowed energy companies to become less dependent on capital markets, according to April Merleaux, research manager at the environmental nonprofit Rainforest Action Network.

“We’re also seeing fossil-fuel companies turn to less traditional sources of capital, such as private equity, which is much harder for us to track,” Merleaux shared with Bloomberg, and added that it is uncertain whether the lending market trend witnessed in 2022 will continue into 2023.

Many big oil companies have stated that they intend to expand fossil-fuel production before decarbonizing. Still, this approach is not recommended by the International Energy Agency (IEA), Merleaux continues.

Pointing the finger at the banks, she says while they are aware of the necessary actions to be taken, there is currently a lack of evidence indicating that they are fully prepared to implement their emissions-reduction goals.

In 2022, banks earned an estimated $3.3 billion in fees from green bond and loan deals, exceeding the $2.5 billion earned from fossil fuel bonds and loans, Bloomberg data show. Credit Agricole, BNP Paribas, and Bank of America were the top arrangers of green bonds and loans, while RBC Capital Markets, Wells Fargo, and JPMorgan Chase were the leading providers of the fossil fuel industry.

Despite this, it is clear that Wall Street and other financial institutions continue to heavily fund the companies that contribute the most to global warming when looking at the long-term scope.

However, on the bright side, Big Oil banks, including JPMorgan, have declared their commitment to addressing climate change and have announced plans to expand their efforts. Last month, JPMorgan unveiled new emissions-reduction targets for the airline, cement, iron ore, and steel industries, in addition to the oil and gas, electric power, and automotive manufacturing sectors that were previously targeted. These six sectors are responsible for the majority of global emissions, and JPMorgan’s new targets are intended to align with the International Energy Agency’s 2050 net-zero scenario.

Merleaux and others have also criticized JPMorgan’s decision to prioritize the carbon intensity of its financing portfolio over committing to reduce absolute emissions. This aligns with the recommendation of a United Nations panel of experts, who suggested that companies and financial institutions should prioritize reducing absolute emissions when setting net-zero goals. In response, JPMorgan has argued that intensity-based metrics are the most effective way to evaluate a client’s progress against climate scenarios.