A recent paper struggles to find evidence that climate commitments make a difference
As the world desperately seeks to avoid irreversible climate catastrophe, many have looked to the financial sector to help guide capital towards solutions and away from heavily carbon-emitting industries. But recent research suggests that visible bank efforts to curb air pollution are less strenuous than they might appear.
“We find that all banks have reduced their loan-emission exposures over the last 8 years,” write three economists in an August working paper for the National Bureau of Economic Research. “However, we do not find differences between banks that did and those that did not signal their sustainability goals.”
The economists Galina Hale of the University of California, Santa Cruz, Fernanda Nechio of the Federal Reserve Bank of St. Louis, and Brigid Meisenbacher of Columbia University, looked at data from the global syndicated loan market. They discovered that even signatories of the 2006 environmental, social, and corporate governance-boosting United Nations Principles for Responsible Investment (PRI) pact were slacking in the commitments to the climate change fight.
“We find limited evidence that banks that sign PRI attempt to address their exposure to transition risk by shortening maturities of loans to highly emitting sectors,” they wrote. “However, this effect is relatively small in magnitude and is only temporary.”
The findings line up with a report from the Rainforest Action Network’s most recent Banking on Climate Chaos report that suggests half of the $7 trillion invested in fossil-fuel companies by giant global banks like Goldman Sachs $GS, Bank of America $BAC, and JPMorgan $JPM Chase — all of whose wealth management arms are PRI signatories — has gone towards expanding the sector.
“Banks that promise to green their portfolios do not seem to significantly reduce the share of loan to highly emitting sectors any more than banks that did not sign such commitments,” the economists wrote.
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