In today’s Finshots, we break down the latest Fossil Fuel Finance Report and tell you why banks can’t seem to keep up with their climate commitments.

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The Story

Companies have three main ways to raise money. They can issue shares, borrow from banks or raise funds by selling bonds. Without these options, growing or even staying afloat becomes tough.

And that’s exactly the kind of financial squeeze a global coalition of environmental groups including Rainforest Action Network, BankTrack and Oil Change International, wants for fossil fuel companies.

Their goal is simple.

Make it harder for oil, gas and coal firms to raise capital so that they’re forced to pivot into cleaner, renewable businesses instead of expanding their fossil fuel operations.

Sounds logical, right?

But there’s one problem. Banks, the very foundation of this funding system, aren’t exactly playing along.

Back in April 2021, many global banks proudly signed the Net-Zero Banking Alliance (NZBA), a net-zero initiative. The pledge was simple: align their financing activities with the Paris Agreement goal of limiting temperature rise to 1.5ºC above pre-industrial levels.

But fast forward to now, and the numbers tell a very different story.

Between 2021 and 2024, the world’s 65 biggest banks including JPMorgan Chase, Bank of America, Citigroup and even SBI (State Bank of India), poured a whopping $3.3 trillion into companies still knee deep in the fossil fuel business. And in the past year alone, that figure has jumped by over 20% to $869 billion.

So while banks make bold promises on their climate commitments, their money is clearly walking in the opposite direction.

And sure, some of these banks are also funding renewable energy. But when they keep backing fossil fuels at this scale, it undercuts their clean energy investments and worsens the climate crisis. It’s like trying to empty a bathtub with one hand while the tap’s still running full blast.

So why are banks still doing this?

Well, one reason is something called transition finance. Basically, banks argue that cutting fossil fuel companies off entirely doesn’t help anyone. Instead, they say it’s better to fund these companies so they can reduce emissions by investing in renewables, shutting down old plants or installing carbon capture technology.

That sounds fair in theory and in some cases, it works too.

Take the example of Starwood Energy (now Lotus Infrastructure). In 2022, it closed two coal plants — Logan and Chambers, a full 30 months earlier than planned. It worked out a deal with its power buyer Atlantic City Electric to end the contract early and raise $200 million in loans at lower rates to clean up the sites and replace them with renewable energy. And instead of sticking with coal, Starwood decided to turn both sites into large clean energy battery hubs. The shutdown helped cut nearly 4 million tons of CO₂ emissions. And now, those old coal sites are being transformed to store clean energy for the grid.

That’s how transition financing should work.

But with banks, the reality is that many of them use this idea as an excuse to keep funding fossil fuel companies, even if those companies have no serious plan to transition.

On top of that, there’s the bigger issue — greenwashing.

Many banks make it sound like they’re cutting ties with fossil fuels. But when you look closer at the fine print in their policies, you’ll find some pretty big loopholes.

For instance, some banks claim that they no longer fund fossil fuel projects like new oil pipelines or coal mines. That’s great. But they still offer general-purpose loans to the companies behind these projects. And guess what? Those loans can still be used to fund fossil fuel expansion.

Only about half the world’s banks with oil and gas policies take the extra step of also cutting off funding at the company level. And when it comes to coal, only 16 out of 1,800 banks say they won’t fund companies that are expanding in coal, which still isn’t enough.

Some banks use both project level and company level exclusions. But even then, fossil fuel companies often find ways around these policies. This simply means that while banks can say no to a risky project, they could still invest in the company behind it. It’s like saying, “We won’t support your bad idea... but we’ll still give you cash to do other stuff.”

Take TotalEnergies, for example. Several banks refused to back its controversial LNG project in Papua New Guinea. But most of them still invest in the company itself. The proof is in the pudding. According to the latest Fossil Fuel Finance Report, 70% of the money that went into expanding fossil fuel projects in 2024, actually came from banks that claimed to have some sort of exclusion policy.

So yeah, even though many banks say that they’re limiting fossil fuel financing, their policies are often inconsistent, full of loopholes and easily bypassed.

And finally, there’s the issue of stranded asset risk or the idea that fossil fuel assets could suddenly lose value because of new climate laws or a shift to clean energy. 

See, when the bond market lends to fossil fuel companies, it charges higher rates because it factors in this risk. That makes borrowing more expensive for these companies. But banks don’t do that. They often underestimate the risk and continue lending at cheaper rates. And that gives fossil fuel companies easy access to money, especially when they know there are banks willing to lend without demanding real transition plans.

So, what’s the solution, you ask?

Well, the folks behind the Fossil Fuel Finance Report offer a simple starting point. They say that banks need to set clear, strict limits on the emissions they’re financing — targets that actually line up with the 1.5°C climate goal. And that means setting real deadlines for cutting emissions across every part of the fossil fuel chain from production to transport to final use.

They also suggest that banks must immediately stop funding fossil fuel expansion. That means no loans, investments or support for companies building new coal, oil or gas projects. This should apply not just to specific projects, but also to general funding or helping those companies raise money in the markets. It doesn’t matter how big or small the expansion is. If a company is planning to grow its fossil fuel business, banks shouldn’t be involved.

Sounds simple enough. But there’s a catch. And it’s called the substitution effect.

This is simply when one bank pulls out of a fossil fuel deal, another often steps in to take its place. Especially in large, syndicated loans where multiple banks pool money to fund a large deal. So unless everyone acts together and stops funding fossil fuel expansion, the money will always find a way.

And things are only getting messier. 

The US plans to officially exit the Paris Agreement in 2026. That means American banks won’t be bound by global climate goals. In fact, JPMorgan, Citigroup and Goldman Sachs have already walked out of the NZBA. That has nudged four of Canada’s top lenders to follow suit, and now European banks are starting to consider leaving too.

It’s turning into a domino effect. Big banks from big economies are quietly stepping back from their climate commitments, just when the world needs them most.

But the dilemma is that achieving net zero emissions globally by 2050 would mean annual investment in oil, gas and coal must fall by more than half by 2030. And if the big economies, which have also been the world’s biggest polluters, don’t take the lead, then what’s the point? We could write reports or set targets… but without real leadership, it’s all just words on paper.

Until then…

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