Two years ago, Bank of America earned kudos from climate activists for saying it would no longer finance new coal mines, coal-fired power plants or drilling projects in the Arctic because of the toll they would take on the environment.
The bank’s latest environmental and social risk policy fell short of these commitments. The policy, updated in December, says such projects will instead be subject to “enhanced due diligence.”
Bank of America’s change follows growing backlash from Republican lawmakers against companies that consider environmental and social factors in their operations. Wall Street in particular has been criticized for what some Republicans have called “woke capitalism,” a campaign that has dragged banks into the broader culture wars.
States including Texas and West Virginia have passed financial regulations aimed at repelling attempts to deny fossil fuel companies access to banking services. In New Hampshire, state lawmakers have sought to criminalize the business principle known as ESG, short for environmental, social and governance.
These actions have sent a chill through the ESG world. Last year, large investors pulled money out of sustainability-focused funds at a record pace as they distanced themselves from the sector amid conservative criticism. Larry Fink, chief executive of asset management firm BlackRock and once a prominent advocate of ESG, said last June that he had stopped using the term because he had become too politicized.
Bank of America said in a statement that clients or transactions “involving elevated risks will continue to undergo an enhanced due diligence process involving a senior-level risk review.”
As of late 2021, the bank’s policy stated that it “will not directly finance new thermal coal mines or the expansion of existing mines” or “oil exploration or production activities in the Arctic.” It also would not “directly finance the construction or expansion of new coal-fired power plants, including the refinancing of newly constructed facilities” unless those facilities use carbon capture or similar technologies.
Coal, a major contributor to global warming, faced “significant challenges” as the world stepped up efforts to tackle the climate crisis, the bank said at the time. Additionally, Bank of America said it recognized that “the Arctic is a unique region with specific considerations to take into account, including marine and wildlife concerns, a fragile ecosystem, and the rights of indigenous peoples.”
That language has disappeared from his updated policy.
The bank declined to provide details on what its risk review would include.
There have been other controversial changes. In November, JPMorgan Chase said in its annual climate report that it was reviewing the oil and gas emissions reduction target that had guided its energy investments and was adopting a new “energy mix” target that took into account financing of clean energy projects.
Environmental groups criticized the change, saying JPMorgan was obfuscating its previous goals.
In a statement, JPMorgan said at the time that its revised goal recognized that “a single focus on fossil fuels will not successfully achieve the necessary transition of the global energy system.”
Global conflicts in Europe and the Middle East are also pushing banks to focus beyond ESG The tensions are pushing banks to prioritize energy security, Citigroup Chief Executive Jane Fraser said at a recent conference in Saudi Arabia. Energy security advocates tend to prioritize uninterrupted energy production over environmental concerns.
“There’s a new ‘S’ in ESG, which means security: whether it’s food security, energy security, defence, financial security,” Fraser said. “This is certainly something that CEOs around the world are talking about.”
Even before the latest reversals, large amounts of financing flowed to coal, oil and gas companies. In 2022, fossil fuel financing by the world’s 60 largest banks reached $669 billion, according to a tally by a group of advocacy organizations that examine banks’ climate records.
In the seven years since the historic 2015 Paris Agreement, in which nearly every country in the world agreed to reduce planet-warming greenhouse gas emissions, those same banks have financed the fossil fuel industry by about 5.5 trillion dollars, by the count.
Emissions from burning fossil fuels to produce energy are the main driver of global climate change. The International Energy Agency, the world’s main energy agency, said the world’s nations must immediately stop approving new coal-fired power plants and new oil and gas fields if they want to avoid the most catastrophic effects of climate change.
For environmental advocates, the banks’ step back has effects that go beyond the financing itself. “It sends a very bad signal,” said Lucie Pinson, director of Reclaim Finance, a nonprofit that scrutinizes the climate strategies of fossil fuel companies. “Bank of America is sending a message to its customers that it is OK to acquire new fossil fuel assets,” she said. “We should have stopped developing such assets years ago.”