Super Banks: Miles Away From Net Zero ?

" Good banking is produced not by good laws but by good bankers.”

Banks are society's most powerful game changers, investing in renewable energy projects, offering green loans, and financing eco-friendly initiatives. However, implementing sustainable supply chain practices to divest high environmental impacts like fossil fuels is still a far cry. Banks are slow in adopting sustainable and environmentally friendly practices, a movement often called "green banking”. Their profit orientation keeps them away from De-carbonising loans and becoming a Net-Zero.?

The race for booking profits has shifted banks' focus from environment to enrichment. The top four global offending banks are in the United States. Along with JPMorgan Chase and Citibank, the underperformers are Wells Fargo and Bank of America. Citibank is the biggest funder of 100 critical companies with ambitious fuel expansion plans. Wells Fargo is the world's biggest funder of the gas industry, and Bank of America has the highest LNG financing. Barclays is propping up polluting coal plants despite adopting the Paris Agreement in 2015, having lent $17.7 billion to coal plants.

Ironically, most Super Banks have high-profile net-zero climate commitments. They are signatories of the Net Zero Banking Alliance (NZBA), a United Nations Environment Programme designed to unwind the financial sector from fossil fuels. But there are glaring loopholes in promises, commitments and deliverables.

In North America, RBC Canada's giant Bank lent $42.5 billion to fossil fuel projects, with $4.8 billion to support tar sand operations and $7.4 billion for fracking. It is the top funder of tar sands oil extraction. Barclay's is the largest financier of fossil fuels in Europe, and Bank of China is the worst in China.?

The Indian scenario is also similar. Most Indian Banks are missing the bushes for a plant. While climate disruption and weather extremes have hit a new high, not a single Indian bank has undertaken climate-related scenario analysis to gauge the resilience of loan assets. SBI has recently floated an RFP to assess the carbon footprint of its loan portfolio. The results will be available after many years.

State Bank of India and HDFC have the highest exposure to carbon-intensive sectors, with SBI's exposure dominated by coal. While Yes Bank, HDFC Bank, and Axis Bank have emerged as the top three performers in climate-risk preparedness, IndusInd Bank has slipped since the last assessment. Eight Indian banks have started disclosing Scope 3 emissions, an indirect result of the Bank's activities in addition to Scope 1 and 2. Yes Bank, measures financed emissions, but only for the electricity sector. YES Bank is the only one to explicitly identify climate risk as a Pillar 2 under its Internal Capital Adequacy Adequacy Assessment Process (ICAAP).

Only 8% of the Indian Public Sector bank loans are in the renewable energy sector. Only ten banks have disclosed Green Finance activities despite RBI's concerns that the climate crisis could pose a systemic risk to the Indian economy.

General Purpose Corporate financing is one of the most misused banking products that significantly diverts from Net Zero. Banks defend their record on climate, citing that they will not directly finance the construction of a new coal project financing. However, they freely invest in the parent companies building those coal plants through general-purpose loans or corporate loans that are not project-specific. From 2016 to 2022, 96% of the financing that went to the fossil fuel industry was general-purpose corporate financing. The product is a significant loophole that the banks routinely exploit to avoid meeting net-zero climate commitments.?

Besides directly financing fossil fuel companies, Super Banks help companies raise money by issuing bonds and equities. Most bank financing for fossil fuel expansion comes from underwriting bonds and equities that help fossil fuel companies raise capital for profit and business development. Since the Paris Agreement was adopted, the six biggest US banks—JPMorgan Chase, Citi, Bank of America, Wells Fargo, Morgan Stanley, and Goldman Sachs—underwrote $266 billion worth of bonds and equities for 30 top fossil fuel companies.?

Super banks have yet to opt to go green. There needs to be more concern about energy and water efficiency and waste reduction to adopt green banking practices. Banks must launch Innovative green products and carbon-offsetting products to cancel the climate-changing effects of greenhouse gas emissions. Banks must support high-impact industries such as forestry, mining, oil and gas, fisheries, and infrastructure. In project finance, banks can act as environmental policemen to comply with ecological and ESG standards.

Green banking incurs additional costs for banks. Through a positive relationship between green banking strategy and profitability, there is evidence that environmentally responsible banks are financially successful and grow similarly to conventional competitors.

ESG-compliant banking promotes green initiatives and the economy, where the environmental benefits of reduced carbon dependency are the most significant. The scope, coverage, and advantages of green banking are long-term.

By properly using commercial lending muscle, super banks can catalyse the necessary transition to an economy that minimises greenhouse gas pollution and drives energy efficiency through Green Banking.

Rightly said, "By polluting the oceans, not mitigating CO2 emissions and destroying our biodiversity, we are killing our planet. Let us face it: there is no planet B."