“Hottest day in recorded history.” “The warmest year on record.” These phrases have become all too common in news headlines. We know that drastically reducing fossil fuel use is the only way to stop climate change. So why are big banks still committing hundreds of billions of dollars to companies that are EXPANDING fossil fuels?
The 60 biggest banks committed $705 billion to fossil fuels in 2023, with American banks providing a full third of that. Financing fossil fuel expansion (through lending and bond underwriting) carries risks for the climate, for human rights, and for the financial stability of the banks themselves. Building new fossil fuel infrastructure locks in future emissions, posing systemic risks to the global economy. Some of these projects could become stranded assets as the world transitions to clean energy, leading to write-downs for banks that financed these projects.
If your 401(k), IRA, or mutual funds are invested in banks that finance fossil fuels, it could impact your financial returns as well. The systemic risks produced by fossil fuel expansion affect all sectors and could potentially lead to widespread economic instability. As these systemic and financial risks grow in severity, funds could see reduced long-term returns.
That’s why Fossil Free Funds introduced our Fossil Fuel Finance ratings for mutual funds and 401(k)s in 2022. Now, we’ve updated those ratings to use the most recent data on bank financial commitments to fossil fuels. Using the latest edition of the Banking on Climate Chaos report, our fund and 401(k) ratings measure portfolio exposure to the 60 largest banks, weighted by their total fossil fuel financing in $USD.
It’s time for these banks to be making strong climate commitments, and fund managers should be actively engaging with banks on their climate policies, encouraging them to reduce fossil fuel exposure and increase renewable energy investments. For many of these banks, fund managers like Vanguard, BlackRock, and State Street are among their biggest shareholders. Those asset managers have a duty to clients to ensure the long-term sustainability of their investments. They should be using their shareholder power to lead banks away from destructive fossil fuel financing.
Climate change creates financial risk. Investors should be aware of which companies in their portfolios are contributing to those risks. Check out the updated Fossil Fuel Finance ratings at Fossil Free Funds to see if you’re invested in banks financing fossil fuel expansion.
