Bank of America is backtracking on its promise not to finance fossil fuels
Two years ago, Bank of America received compliments from climate activists for saying this would be the case no longer finance new coal mines, coal-fired power stations or drilling projects in the Arctic because of the toll they place on the environment.
The banks latest environmental and social risk policy reneged on these commitments. The policy, which was updated in December, says such projects will instead be subject to “enhanced due diligence.”
Bank of America's change follows growing opposition from Republican lawmakers to companies that take environmental and social factors into account in their operations. Especially Wall Street has come under fire for what some Republicans have called “woke capitalism,” a campaign that has drawn banks into the broader culture wars.
States like Texas and West Virginia have adopted financial rules intended to fend off attempts to block fossil fuel companies from access to banking services. In New Hampshire, state lawmakers have tried to criminalize the business principle known as ESG, short for environmental, social and governance.
These actions have sent a chill through the ESG world. Last year, major investors money taken from sustainability-oriented funds at a record pace, while withdrawing from the sector amid conservative criticism. Larry Fink, CEO of asset manager BlackRock and once a prominent proponent of ESG, said last June that he stopped using the term because it had become too politicized.
Bank of America said in a statement that customers or transactions “that pose elevated risks will continue to undergo an enhanced due diligence process, which involves senior-level risk assessment.”
In late 2021, the bank's policy stated that it “will not directly finance new thermal coal mines or the expansion of existing mines” or “petroleum exploration or production activities in the Arctic.” It also would not “directly finance the construction or expansion of new coal-fired power plants, including the refinancing of recently built plants,” unless those facilities use carbon capture or similar technology.
Coal, a major contributor to global warming, faced “significant challenges” as the world stepped up efforts to tackle the climate crisis, the bank said at the time. In addition, Bank of America said it recognized that “the Arctic is a unique region with specific considerations to take into account, including those of the sea and nature, a fragile ecosystem and the rights of indigenous peoples.”
That language is gone from the updated policy.
The bank declined to provide details on what its risk assessment would include.
There have been other controversial changes. In November, JPMorgan Chase said in its annual climate report that it was reviewing the oil and gas emissions reduction target that guided its energy investments and was adopting a new “energy mix” target, taking into account project financing for clean energy.
Environmental groups criticized the change, saying JPMorgan glossed over its previous goals.
In a statement at the time, JPMorgan said its revised target recognized that “a singular focus on fossil fuels will not successfully achieve the necessary transition of the global energy system.”
Global conflicts in Europe and the Middle East are also causing banks to focus beyond ESG The tensions are pushing banks to prioritize energy security, says Citigroup CEO Jane Fraser said at a recent conference in Saudi Arabia. Energy security advocates tend to prioritize uninterrupted energy production over environmental concerns.
“There is a new 'S' in ESG, which is security – whether it is food security, energy security, defense or financial security,” Ms Fraser said. “That's certainly a theme that all CEOs around the world are talking about.”
Even before the latest reversal, funding was flowing to coal, oil and gas companies. In 2022, fossil fuel financing by the world's 60 largest banks amounted to $669 billion, according to a count from a group of interest groups that look at the banks' track records in the field of climate.
In the seven years after the milestone Paris Agreement In 2015, when nearly every country in the world agreed to reduce greenhouse gas emissions, those same banks financed the fossil fuel industry to the tune of about $5.5 trillion, the figures show.
Emissions from burning fossil fuels for energy are the biggest driver of global climate change. The International Energy Agency, the world's top energy agency, has said countries around the world should immediately stop approving new coal-fired power plants and new power plants. oil and gas fields if they want to avoid the most catastrophic consequences climate change.
For environmental advocates, the banks' backtracking has consequences beyond the financing itself. It “sends a very bad signal,” said Lucie Pinson, director of Reclaim Finance, a nonprofit that scrutinizes fossil fuel companies' climate strategies. “Bank of America is sending a message to its customers that it is OK to absorb new fossil fuel assets,” she said. “We should have stopped developing such assets years ago.”