there Royal Bank of Canada “Scepter” subtracts a JP Morgan ChaseTop of the rankings The world’s 60 biggest banks that finance fossil fuels. According to a new annual report titled Bank on Climate Confusion – Led by Rainforest Action Network, BANK TRACK, Indigenous Environment Network, Oil Change International, Reclaim Finance, Sierra Club and Urgewald – the Canadian bank committed $42.1 billion to the fossil fuel industry in 2022 alone, including $673 billion raised globally. JPMorgan Chase dropped to second place with 39.2 billion, joining him on the podium Wells Fargo 38.8 billion with European bank Bnp Paribas rounded out the top 12 with $20.8 billion in assets. But what are the risks for banks with heavy exposure to fossil fuels? Why can they be punished in the medium and long term?
“Despite increased commitments to zero emissions and ambitious climate goals, bank loans to projects or companies that use fossil fuels are still at high levels,” he affirms. We are wealth Serkan Soylu is Director of ESG Research at Morningstar Sustainable Analytics. “The Reputational risk (For highly exposed companies, Ed) is high, especially the large banks that invest heavily in these sectors and are heavily criticized by their shareholders. But, from a longer-term perspective, it is also challenging for banks to quantify the risks associated with the transition to a low-carbon economy. Not only the total amount of funding for carbon-intensive projects or institutions, but also the project eligibility and decarbonization plans of bank client institutions are important to banks’ overall carbon risk exposure, especially from a financial and regulatory point of view. View”. From view RegulateIndeed, Soylu continues, regulations in the banking and financial sector are expected to incorporate a climate change perspective more comprehensively. And “tighter regulatory scrutiny of banks’ climate-related finance will significantly alter the competitive environment.”
Financing Climate Chaos: Risks for Banks
In this context, the expert observes that credit institutions may be penalized in the medium and long term if they continue to be heavily exposed to carbon-intensive investments. Primarily, for reasons related to potential reversals by shareholders. “As policymakers continue to consolidate their commitment to net zero goals, the financial sector and banks continue to be part of sector-wide initiatives such as net zero alliances. Contrary to these good practices, continued over-investment or financing by the banking sector in fossil fuel projects can create unease among stakeholders; leading to higher levels of commitment Stock exemptions”, explains Soylu.
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Another issue concerns i customers. “Both corporate or institutional customers and retail or wealth customers are increasingly aware and sensitive to banking climate practices,” Soylu says. “Banks that invest heavily in climate-friendly projects may start operating with higher rates of return and lose business opportunities. This may trigger changes in regional and global competitive dynamics. Finally, as banking regulations are expected to integrate climate-related issues, firms with greater exposure to fossil fuel projects may be more at risk Soylu said. Violation of regulations And can run Penalty Unexpected. “Also, from a financial stability perspective, as one of the immediate risks, climate change will continue to play a key role in the evolution of overall risk management systems. Any potential change in capital requirements that discourage fossil fuel financing will harm banks with greater exposure to carbon-intensive projects,” the expert concludes.
Banks invest (more) in fossil fuels
In the seven years following the Paris Agreement, the world’s 60 largest banks have committed $5.5 trillion in fossil fuel financing, including $673 billion in 2022 alone, as initially projected. A few banks headquartered in the US, Canada and Japan dominate the rankings. For the first time since 2019, the year the first studies were launched, the Royal Bank of Canada The fossil fuel industry topped the list with $42.1 billion in funding ($253 billion since 2016). JP Morgan Chase It maintains the top spot for total financing with $424 billion over the seven years tracked. Mitsubishi Ufj Financial Group — based in Chiyoda, Japan — is considered the largest fossil fuel lender among Asian banks at $29.5 billion. The list includes two Italians: Indesa Sanpaolo (3.2 billion loans in 2022, totaling 21.03 billion since 2016) and UniCredit (5.7 billion in 2022, totaling 42.8 billion in seven years).
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