The clock is ticking for banks, insurers and asset managers still providing support to oil, gas and coal producers. It’s not just the moral imperative—that fossil-fuel use is destroying the atmosphere and life on Earth
According to Moody’s Investors Service, financial institutions in the Group of 20 leading industrial and developing nations have
Banks, insurers and asset managers need to adjust their “business models toward lending and investing in new and developing green infrastructure projects, while supporting corporates in carbon-intensive sectors that are pivoting to
Exposure to Carbon-Intensive Sectors
- Banks: $13.8 trillion (19% of on-balance sheet loans)
- Insurers: $1.8 trillion (13% of cash and invested assets)
- Asset managers: $6.6 trillion (28% of equity holdings)
The warning from Moody’s was followed this week by the European Central Bank, which said
When combined, the statements underscore the business urgency for the financial-services industry to end its role as an enabler of dangerous carbon emissions.
On this issue, things have been getting worse rather than better. Banks, for example, have organized
Earlier this month, it was announced that more than 450 firms are now part of the Glasgow Financial Alliance for Net Zero. The signatories have pledged to targeting net-zero CO2 emissions by mid-century across their
Public shaming hasn’t seemed to move the needle. But money might.
The credit impact of “a delayed and disorderly carbon transition” is the greatest risk to financial firms, as the increasing frequency of catastrophic weather events will lead to loan defaults and rising insurance claims, Moody’s wrote in a report published last month, adding that scrutiny of the industry’s interim climate targets is
“Banks that adopt a rapid but predictable shift towards climate-friendly finance will best preserve their credit quality,” said Alka Anbarasu, a senior vice president at Moody’s.
For banks, having a high credit rating is paramount because they rely on low funding costs to make loans at higher interest rates and profit from the net interest spread. Additionally, almost no one will want to have their money deposited at a risky financial institution.
The
Separately, the Organization for Economic Cooperation and Development said
Banks in Turkey, Russia, Indonesia, India and China are most exposed to carbon-transition risk, with three sectors—manufacturers, transportation companies, and power producers and other utilities—accounting for more than 75% of the potential bad loan exposure, Moody’s reported.
Banks in Australia, the U.K., U.S., France and Germany are least exposed.
To contact the author of this story:
Tim Quinson in New York at