Danielle Fugere, the president and chief counsel of the shareholder advocacy organization As You Sow, emphasized that transparency is essential for holding banks accountable to their climate commitments. “We need to understand their actions,” she stated. Laws like those in California highlight the financial risks associated with climate change driven by fossil fuels and aim, at least theoretically, to discourage investments that would worsen these issues.
However, simply mandating that banks disclose their emissions and climate-related risks is unlikely to avert the most severe consequences of climate change. A pivotal report by the International Energy Agency in 2021 indicated that to keep global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit), no new oil, gas, or coal infrastructure should be developed. Patrick McCully, a senior analyst for energy transition at the French nonprofit Reclaim Finance, advocates for legislators to urge banks to reduce their fossil fuel financing. “These organizations are not aligned with humanity’s best interests, and we must intervene,” he told Grist.
On the other hand, Fajans-Turner remarked that implementing such a policy would be challenging to codify into law and would likely encounter legal hurdles even in the most progressive areas, where industry groups have successfully challenged natural gas bans on new construction.
Ann Lipton, a business law professor at Tulane University, suggested that an effective approach for policymakers to curb new fossil fuel projects would involve looking beyond the banking sector. For example, lawmakers might require insurance companies to consider climate-related financial risks when crafting their policies, making it more challenging for fossil fuel ventures to secure coverage. “While we would love for banks to halt financing risky endeavors, ultimately, banks’ role is to support ventures that are reliably profitable,” she stated. “It’s incumbent upon society as a whole to render that [investment] unprofitable.”
Another potential strategy is to require banks to present a definitive decarbonization plan, which could serve as a means to indirectly prevent new fossil fuel investments. “Inherently, setting a target implies that the bank is undertaking some form of action to achieve that target,” Fugere explained. If a plan sets a “net-zero” target for a specific date, it should credibly include reducing fossil fuel financing. If it claims alignment with efforts to limit global warming to 1.5 degrees Celsius, it must not facilitate the expansion of fossil fuel resources.
