Banks in the UK invest a massive £119bn into fossil fuel projects, defying their promised commitments to sustainability and environmental protection.
In a stark revelation, a new report has highlighted that UK banks, including Barclays, HSBC, and Lloyds, have been financing more fossil fuel companies than green companies for the past three years, despite their net zero by 2050 targets.
The findings, published by InfluenceMap, a non-profit research organisation, suggest that this trend is due to several reasons. One of the key factors is the banks' legacy investments and infrastructure in the fossil fuel sector, which are difficult to unwind quickly. Another reason is the short-term financial gains that fossil fuel companies offer, often providing stable and lucrative returns.
The legal and regulatory framework also plays a role, as compliance with existing laws and regulations can limit the pace of transition. The report also points out that the transition to a low-carbon economy requires significant investment in green technologies and infrastructure, and banks may continue to support fossil fuel companies as a means of generating the capital needed for these investments.
Market demand and economic pressures are another factor, with banks being driven to finance fossil fuel sectors as long as there is a demand for these resources.
Bonnie Steinberg, senior analyst at InfluenceMap, stated that this continued financing of expansionary oil and gas companies and pushback against sound climate-related financial policy worsens the long-term risks these banks face. Steinberg suggests that the banks' exclusion policies should recognise fossil fuel expansion as a stranded asset while focusing their transition efforts away from carbon lock-in and towards science-based definitions of green technologies.
The report identifies a growing gap between what the UK's biggest banks are publicly saying about climate and what they are financing behind closed doors. InfluenceMap argues that without a clear policy outlining eligibility criteria for transition finance, there is a significant risk of greenwashing by the banks through continued financing of high-emitting activities.
Investors have expressed concerns about the structure of financing at Barclays, with issues raised at the bank's AGM on 7 May. The Church of England Pensions Board, which manages £3.4bn in funds, called for a full exit from fossil fuel financing at Lloyds' AGM in Edinburgh.
HSBC cautioned the government against defining what constitutes a "credible net zero transition", and both Barclays and HSBC lobbied against the ambition of the UK's proposed sustainable finance framework, potentially risking the credibility of the transition plan assessments that underpin their exclusion policies.
Despite their climate commitments and restrictions on direct financing to fossil fuel expansion, the banks continue to finance fossil fuels at significant margins compared to green companies. Between 2020 and 2024, the funding ratio of fossil fuel companies over green companies was 3.1 to 1 for Lloyds, 2.9 to 1 for HSBC, and 1.8 to 1 for Barclays. NatWest was the exception, as its total financing deal value for green companies was greater than that for fossil fuel companies.
Investors must engage with banks on this critical issue and take action if it is clear banks are working to counter regulations that are urgently needed to better protect people and the planet. A total of £119bn in financing was given to the fossil fuel sector by UK banks between 2020 and 2024, spread across 1,183 individual deals with 354 companies.
Only NatWest and Lloyds recognised the risks of greenwashing and carbon lock-in associated with increased financing to high-emitting sectors. This represents half (50.3%) of the deal flow value allocated to the fossil fuel sector.
The report assessed the UK's four largest banks (Barclays, HSBC, Lloyds, and NatWest), showing that all four continue to finance high-emitting industries such as oil and gas at rates incompatible with the International Energy Agency's Net Zero Emissions by 2050 scenario. The report calls for urgent action from the banks and the government to ensure a sustainable and green transition for the UK's financial sector.
- The revelation from InfluenceMap's report indicates that UK banks are heavily invested in fossil fuel companies, financing them to a greater extent than green companies for the past three years, which contradicts their stated net zero by 2050 targets.
- The trend of financing fossil fuel companies over green ones is influenced by several factors, including short-term financial gains, legacy investments, regulatory frameworks, and market demands, according to the report published by InfluenceMap.
