Capital Markets: The Hidden Pipeline for Fossil Fuel Financing

As the climate crisis worsens, pressure has mounted on banks to take responsibility for their role in financing the companies driving fossil fuel expansion and the climate crisis. In response, banks have begun to make commitments to address their climate impacts, and align their financing with the goal of reaching net-zero emissions by 2050. 

Among those who have made this commitment are the six largest Wall Street banks: JPMorgan Chase, Citi, Wells Fargo, Bank of America, Morgan Stanley, and Goldman Sachs. But despite their new climate pledges, the major US banks are among the world’s largest financiers of fossil fuels. Since 2016, the year after the Paris Agreement was adopted, the big six Wall Street banks have provided $433.8 billion in lending and underwriting to 30 of the largest fossil fuel expanders in the world.

It comes perhaps as no surprise that the big US banks are among the worst fossil financiers in the world. Their climate plans fall far behind the best practices of their international peers, especially when it comes to setting robust emissions reduction targets and adopting policies restricting fossil fuel financing. 

But one element of strong climate plans is often overlooked — banks’ role in financing fossil fuels through capital markets. A new analysis by the Sierra Club on the role of big US banks in capital markets reveals a hidden pipeline for fossil fuel financing through the banks’ underwriting of bonds and equities for polluting companies. 

Banks’ role in capital markets

Banks play a vital role in capital markets. Acting as underwriters, they are the gatekeepers for financing of fossil fuel companies: they advise companies issuing bonds and equities, hold the vital information on the issuer, and help market the instruments to investors disclosing only the necessary risk. 

Though banks like to focus on lending and downplay their role in capital markets, the reality is that nearly two thirds (61%) of financing by the top US banks for fossil fuel expansion comes from underwriting bonds and equities.

From 2016-2022, the six biggest US banks — JPMorgan Chase, Citi, Bank of America, Wells Fargo, Morgan Stanley, and Goldman Sachs — underwrote $266 billion in new bond and equity issuances for 30 of the top fossil fuel expansion companies. 

Misleading net-zero claims

Banks are performing a sleight of hand, distracting investors and regulators with net-zero transition plans that are half-finished, while continuing to funnel money to fossil fuel companies via capital markets with limited scrutiny. Currently, only three of the six major Wall Street banks include bond and equity underwriting in their sectoral emissions reduction targets — JPMorgan Chase, Goldman Sachs, and Wells Fargo. The remaining three banks have so far chosen to only apply emissions reduction targets to lending activities. 

Even among those who have set emissions reduction targets that include underwriting, insufficient disclosures and lack of standardization make it difficult to understand how robust banks’ facilitated emissions accounting methodologies are, and what progress they are making toward achieving their emissions reduction targets. 

Banks don’t want us to know all of the ways they help fossil fuel companies raise funds to continue building the pipelines, oil rigs, fracking wells, and coal mines that are destroying the climate and hurting communities.

But investors, regulators, and customers around the world see through their duplicity. We are demanding complete, robust, and transparent net-zero plans that cover all types of financing activities and will lead to real-world emissions reductions in line with our global climate goals. 

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