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Finance Watch warns of banks' exposure to fossil fuels

Published on October 04, 2022 by Pierre Belhache - 3 mins reading time
Banks Environment

Finance Watch warns of the exposure of the world's 60 largest banks to fossil fuels. These investments represent a threat to the planet and jeopardize financial stability.

1.5% of total plant assets

Are the big banks too exposed to fossil fuel assets? In a study published on October 4, 2022, the NGO Finance Watch puts the figure at $1350 billion, or nearly 1.5% of these institutions' assets.

 

In the case of French banks, exposure to fossil fuel-related risks represents around $142 billion. According to the report, these assets represent 1.31% of the banking groups' total assets. By way of comparison, the European average is 1.05%.

Delicate asset accounting

Despite the alarming figures, accounting for fossil fuel assets remains a tricky business. By 2021, several organizations had put the exposure of Europe's 11 largest banks at €532 billion, well above the $239.3 billion attributed by Finance Watch to Europe's biggest banks. This discrepancy can be explained by differences in the scope and definition of fossil fuel-related activities. Indeed, the NGO points out that the 2021 report had a much broader scope and did not include transport or services. In its recent study, the latter targets only upstream activities and power plants.

Banks and NGOs regularly clash on climate issues. While the former highlight their progress, environmental organizations denounce the continued financing of fossil fuels.

For its part, the International Energy Agency states that no new oil and gas projects should be launched if the +1.5°C threshold is reached by 2100. In May 2022, a shock report by the World Meteorological Organization, a UN body, confirmed the global warming trend, stating that there was a 50% chance of this scenario being confirmed. This risk was estimated at 0 in a 2015 report.

New measures needed

The Brussels-based association believes that " these assets risk losing considerable value in the transition to carbon neutrality ".

Finance Watch underlines the need for international regulators to take further action on capital requirements. For the NGO, it is essential to strengthen legislation on fossil fuel assets by applying " a 150% risk weighting ".

For banks, this implies " additional capital in the range of $157 billion to $210.2 billion, equivalent on average to around three to five months of bank net income in 2021 ", adds Finance Watch.