Sustainable banking was a strong theme from participants in our recent Faithful Finance course – 'what can I do about the activities of the bank my organisation uses?'
Returning to FaithInvest’s early work on sustainable banking, Ceres, a US non-profit focused on energy transition, is out with a report on climate financing Ahead or Behind? The State of Climate Finance in the Banking Sector which emphasises the critical role of the banking industry in addressing climate change through their climate finance activities.
Ceres evaluates the progress of US banks in transitioning their lending portfolios (your deposits) to align with the 'inevitable' energy shift from fossil fuels to renewable sources, highlighting opportunities for stakeholders, shareholders and clients to advocate for meaningful change.
The authors note the inevitability of an energy transition:
The global shift to renewable energy is underway, with renewables now constituting 96% of new electricity in the US.
Fossil fuel investments are becoming less viable, creating opportunities for sustainable financing aligned with ethical values.
And while most major banks have set ambitious targets (for example, JPMorgan Chase aims to finance $2.5 trillion in sustainable development by 2030, including $1 trillion focused on climate solutions), actual progress varies widely.
Lack of transparency and standardisation in disclosures, particularly around Scope 3 emissions (sometimes called 'financed emissions') which represent the vast majority of bank emissions, raises concerns about further progress and potential 'greenwashing'.
Indeed, the report cites a 70% increase in greenwashing incidents in the financial sector in 2023. Notably, for US-based asset owners, US banks lag significantly behind their global counterparts in adopting international best practices, such as sustainable finance taxonomies, where 'US regulators have not developed a climate finance taxonomy (or any other requirement for climate disclosure) --- and none is on the horizon'.
What can we as long-term faith and values-based investors do?
Engagement and Advocacy:
Engage banks by demanding alignment with declared energy transition-aligned goals, and using their lending activity to prioritise sustainable energy projects. Faith-based asset owners can leverage their business relationships to advocate for improved transparency – particularly around Scope 3 emissions reporting, and a shift in financing towards clean energy and just transition projects.
Finally, support public calls for banks to move beyond pledges and adopt transparent sustainable finance taxonomies, such as the Ceres sponsored Climate Action 100+, and reporting practices.
Looking for a positive example? The authors note Barclays Bank, a multi-national UK-headquartered universal bank, as a leader in providing clear reporting on their activities, though simultaneously Barclays is a member of The Dirty Dozen banks responsible for the most fossil fuel financing activity since the Paris Agreement was signed in 2016.
Your work may start with a simple question to the bank owned in your organisation’s portfolio or the bank that provides your banking services: What are their lending activities to fossil fuel projects?
Then read our report on Sustainable Banking, and check out organisations such as Ceres, Climate Safe Lending Network, or Transition Pathway Initiative for more guidance and activities.