As You Sow today released new Fossil Fuel Finance and Insurance ratings that score mutual funds and ETFs based on their investments in banks and insurers providing loans and underwriting that support fossil fuel projects – including tar sands, arctic drilling, and coal mining.

Financing the climate crisis

Since the Paris Agreement, the six largest US banks – JP Morgan Chase, Citi, Wells Fargo, Bank of America, Morgan Stanley, and Goldman Sachs – have provided $1.4 trillion in financing to the fossil fuel industry, contributing to the climate crisis and resulting in substantial portfolio risk for investors. In order to keep global warming below 1.5°C, the world needs to rapidly transition away from fossil fuels.

To rate mutual funds on fossil fuel finance, we use data from Banking on Climate Chaos. Banking on Climate Chaos looks at 60 of the largest commercial and investment banks and tracks their total fossil fuel financing (lending, and underwriting debt and equity issuances).

Insuring the climate crisis

Primary insurers and reinsurers are also continuing to underwrite and invest in coal, oil, and gas, while experiencing dramatic losses associated with catastrophic weather-related events.

To rate mutual funds on fossil fuel insurance, we use data from the Insure Our Future Scorecard. Insure Our Future looks at 30 of the largest primary insurers and reinsurers and rates their fossil fuel insurance policies.

Portfolio risk

By continuing to finance fossil fuels, banks and insurance companies are not only responsible for exacerbating climate and social impacts, but they are also exposing investors to financial risks.

  • Bad loans – As world markets transition to renewable energy, exposure to stranded assets combined with decreased profit margins could cause fossil fuel companies to default on loans.
  • Insured losses – Wildfires, storms, and other extreme weather fueled by climate change are causing a faster rise in insured losses.
  • Regulatory risk – Governments across the world are ramping up regulatory pressure on fossil fuel operations, and could target financial support streams with new regulations.
  • Social stigma – Nations across the world accept that we must rapidly decrease emissions in order to diminish climate impacts. Companies who continue to financially support fossil fuels after the Paris Agreement are at risk of social backlash.

The new Fossil Fuel Finance & Insurance fund ratings are designed to help investors identify investments that avoid climate risk from financial institutions.

Next steps

To search for funds and see their new Fossil Fuel Finance & Insurance ratings, check out our Fossil Free Funds database.

Employees with a 401(k) account can follow these simple steps to secure a climate safe retirement plan.

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