Banks are financing their own multitrillion-dollar nightmare

Economic Times

20-06-2025

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If you come home early from vacation and find robbers ransacking your house, you could call the police and try to stop the crime. But the true alpha move would be to help the robbers load your valuables onto the truck and then tell them which of your neighbors are also on vacation in exchange for a cut of the profits.Banks are choosing the alpha option, basically abetting theft from themselves by backing new projects to extract and burn fossil fuels, thus stoking the planetary heating that stunts economic growth and their own insurance and mortgage businesses. Of course, these financial companies do get a cut of the short-term profits from this environmental sabotage. And by abandoning the pretense of siding with the climate, they avoid political blowback from a US government that has declared war on it. But the long-term result will be a global economy trillions of dollars poorer and far less stable, impoverishing just about everyone, including the banks.The world's 65 biggest banks delivered $869.4 billion in financing to fossil-fuel companies last year, up $162.5 billion from 2023, according to a new report by the Rainforest Action Network, the Sierra Club, and several other nonprofit groups. Banks have funneled $7.9 trillion in loans and underwriting to these polluting industries since the Paris climate accords took effect in 2016, by the report's measure. This doesn't include any investments by banks' asset-management units, which amount to hundreds of billions of dollars more.Last year's financing surge reversed two years of declines and coincided with a turn of political sentiment against 'woke' environmental, social and governance considerations in business. Climate actions drew some of the harshest attacks, with President Donald Trump and other conservatives blaming them for rising energy prices. Such claims helped Trump win a second term. On his first day in office, he declared that his predecessor's foolish concern for the climate had created a 'national energy emergency' that hurt Americans' finances. His prescription has been to attack any public or private activity meant to slow the burning of fossil fuels.Banks saw the direction that the wind was blowing and quickly changed tack. The biggest immediately quit the Net Zero Banking Alliance, a group that vows to help eliminate greenhouse-gas emissions by 2050. They claim to still have their own goals for curbing emissions, but they've apparently given up trying to make their actions match their words.To meet the Paris Agreement 's rapidly fading stretch goal of holding global heating to 1.5 degrees Celsius above preindustrial averages, energy financing should favor green projects over fossil fuels by a 4-to-1 ratio, according to BloombergNEF. In 2023, the latest data available, the ratio was just 0.89-to-1. Boosting fossil-fuel financing last year probably didn't move that ratio in the right direction.Meanwhile, the economic damage caused by a heating planet keeps mounting. Global climate-related costs — including insured and uninsured losses, government relief spending and higher insurance premiums — have topped $18.5 trillion since January 2000, Bloomberg Intelligence estimated recently. The US alone accounted for $7.7 trillion of the damage, or 36% of its growth in gross domestic product over that stretch. In just the 12 months through April, US climate-related costs totaled nearly $1 trillion, BI said, roughly matching bank financing for fossil fuels during that time.You might argue economic activity is economic activity, that building a house is basically the same as rebuilding a house, that government disaster relief is no different from any other flavor of government spending. But simply responding to disasters again and again is no way to grow an economy. Money spent to rebuild houses, bridges and roads is money not spent on college educations, better infrastructure or other productivity-boosting measures. It steals growth from the future.A National Bureau of Economic Research paper last fall estimated that a planet hotter by 3C — its current trajectory — would have a GDP that was smaller by more than a third. A study last week from the University of Maryland's School of Public Policy found that a complete rollback of the Inflation Reduction Act's climate measures, something Trump and congressional Republicans have been working hard to do, would shave $1.1 trillion from US GDP alone over the next decade. It would also kill 22,800 Americans, take $160 billion from American incomes and cause the average home's energy bill to be $206 higher. Talk about an emergency.But if you need a more immediate climate threat to finance profits to be convinced, you can already see one in the growing crisis in home insurance. Every new wildfire, flood, tornado and hurricane exposes just how underinsured and underprepared Americans are for such disasters, putting possibly $2 trillion in home valuations at risk.Given the political reality, it's understandable for banks to speak softly about protecting the planet and their own future profits. Helping fossil fuels build an even bigger stick with which to beat them makes much less sense.