Since the landmark Paris Climate Agreement, many banks in Europe, including some of the largest financial institutions, have played a significant role in helping fossil fuel companies raise over €1 trillion (£869 billion) from the global bond markets.
This investigation, conducted by The Guardian and its partners, sheds light on how major banks, such as Deutsche Bank, HSBC, and Barclays, have continued to support the fossil fuel industry by facilitating the issuance of fossil fuel bonds.
Despite public commitments to reduce their involvement in carbon-intensive projects, these banks have continued to profit from the expansion of oil, gas, and coal.
Before getting into what the banks have done, we must define bonds. Bonds are financial instruments companies use to secure funds for specific projects or their overall operations.
They serve as a contract between the issuing company and investors who purchase the bonds.
The Mechanism Behind Fossil Fuel Financing
Banks play a pivotal role in this bond process by underwriting and marketing these bonds, earning fees in return.
Essentially, banks act as intermediaries between companies seeking financing and investors in the global bond markets. It is also worth noting that multiple banks often collaborate on a single bond issue.
The Investigation’s Focus
This investigation centers on bonds issued by energy companies that publicly disclosed their intentions to increase fossil fuel production since the Paris Climate Agreement.
The Paris Climate Agreement’s primary objective was to limit global warming to far less than 2°C over pre-industrial levels.
Climate experts have stressed that new fossil fuel projects are incompatible with the Paris accord.
The investigation uncovered €1 trillion in fossil fuel bonds issued through global bond markets since the beginning of 2016. Prominent borrowers included Brazil’s Petrobras and Russia’s Rosneft.
The Main Banks
Among European banks, Germany’s Deutsche Bank, Britain’s HSBC, Barclays, and French banks Crédit Agricole and BNP Paribas emerged as the leading facilitators of fossil fuel bonds.
Indirect Support and Growing Scrutiny
As the pressure mounts on Europe’s financial institutions to align with climate-friendly policies, many banks have transitioned from traditional lending relationships with fossil fuel companies to indirect support through corporate bond issuances.
How Have They Gotten Away With This?
These banks have not been caught so far because most do not include bond sales in their climate change performance metrics, even though these funds enable high-carbon projects.
Banks Face Criticism
Climate experts and sustainability advocates have criticized banks for their role in providing access to funds for oil and gas companies through the bond market.
By underwriting these bonds, banks are seen as complicit in enabling emissions from fossil fuel projects.
The “Back Door” to Funding
Global bond markets have become a “back door” for major polluters seeking financing amid increased scrutiny of direct bank lending.
Banks have been described as “cheerleaders” for these bonds, allowing fossil fuel companies to raise funds while maintaining commercial ties.
Calls for Sector-Specific Policies
Campaigners emphasize the urgent need for banks and investors to adopt sector-specific policies covering all financial services, including bonds.
These policies would ensure that banks’ financing practices align with their commitments to achieve net-zero emissions by 2050.
The Largest Player
Deutsche Bank, the largest underwriter of fossil fuel bonds, facilitated €432bn in bond issuances since the Paris Climate Agreement while simultaneously committing to reduce its emissions from the oil and gas sector.
A Common Trend
After the Deutsche Bank, the largest offenders are HSBC, Barclays, Crédit Agricole, and BNP Paribas who have played significant roles in facilitating fossil fuel bonds, despite their climate commitments.
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