Is Goldman Sachs’ Recent Environmental Push Enough?

Coal

Published on December 21st, 2019 | by Anand Upadhyay

December 21st, 2019 by  


Goldman Sachs has been garnering quite a lot of Twitter praises after the bank updated its “Environmental Policy Framework.” As per the changes, the firm has now pledged:

  • To decline any financing transaction that directly supports new upstream Arctic oil exploration or development. This includes but is not limited to the Arctic National Wildlife Refuge.
  • Decline the opportunities for transactions which directly finance new thermal coal mine development or any mountaintop removal mining.

(Emphasis added)

To give due credit, as per a press release from the Rainforest Action Network, Goldman Sachs has now become the first major US bank to put explicit restrictions on financing for the entire oil and gas sector and also for thermal coal mines and power plants worldwide.

This is a definitely a step forward in comparison to the other major US banks which have only committed to reduce credit exposure to coal mining through lending but still facilitate the coal industry by helping them to raise investment capital. Goldman Sachs’s new policy tightens the screws on thermal coal by including underwriting and explicitly committing to phase out coal financing.

But would this be enough to limit climate change to 1.5 degrees Celsius? Not really.

If you dive into the actual data from the big daddies of fossil fuel financing, it tells you different story. The chart below lists the top private banks and financing institutions and the money they have poured into emitting GHG emissions over the past three years.

Screenshot from Fossil Banks No Thanks

Following the Paris climate agreement, during 2016 to 2018, just 33 global private sector banks have burnt a capital of $1,900 billion in fossil fuel projects and companies. Four of the top five banks are US Banks — JPMorgan Chase, Wells Fargo, Citi, and Bank of America — with the fifth being Royal Bank of Canada.

Each of these five mammoths have pumped more than $100 billion into the fossil sector during a short period of three years. In fact, JP Morgan Chase, the dirtiest of the lot, was just shy of the $200 billion mark when the data was captured.

So, the point is, even if Goldman Sachs was to completely stop financing fossils (it won’t in the near future), given their share of about $59 billion in the fossil pie (financing during 2016–2018), this would address less than 3.1% of the problem. And that’s considering it won’t increase its funding in the fossil categories which are still open as per its own policy.

As “Fossil Bank No Thanks,” a global campaign calling on banks to end their fossil fuel financing, observes,

“Banks tell us they increase their lending for renewable energy, they ‘engage with clients on emissions reduction’, they change their light bulbs. Some have moved further and no longer finance coal mines, tar sands, or oil projects in the Arctic. This is a start. But no large bank has yet committed to end its financing of the fossil fuel industry altogether.”

By the way, the campaign has a great twitter page. Do check them out.

Needless to say, the action from Goldman Sachs is not on account of some newfound love for the clean energy markets or concern for the climate crisis. If you read this commentary from a Goldman Sachs analyst on CNBC published almost three years ago, it is a rather delayed decision. The bank is, of course, also paying heed to the sustained protests by the Arctic Indigenous communities.

Only last month, the European Investment Bank (EIB) had also announced its plans to stop funding fossil fuel projects at the end of 2021. Even back then, this was celebrated as an important victory by the environmentalists, as EIB is the largest multilateral lender. But the fact is (similar to Goldman Sachs) EIB has been gradually but steadily turning down the knob on fossil fuel financing for some time now. It is interesting how an article in the FT describes EIB as an “ultra-conservative lender” which “often falls for easy-to-fund, no-risk projects that flatter its balance sheet without substantial added public value.”

Many announcements from the banks worldwide appear to be a sudden resolve to support clean energy and climate finance, but most of them are ditching coal and oil BECAUSE adding new fossil-based power systems is just not cost effective any more. And it has not been for a while now.

In spite of the frantic likes and shares on social media, the net effect of the EIB’s declaration, once it starts, would only be about $2.24 billion a year. In comparison to this, JP Morgan Chase pumped in an average of $65 billion during 2016–2018 in fossil financing.

Fossil fuels will lose real momentum only when the the big US banks take a U-turn from their current stand. Goldman Sachs has started to. What about the others?

Related: 3 Banks Funding Fossil Fuels The Most Are Tesla [TSLA] Bears 
 
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About the Author

is a Fellow with The Energy and Resources Institute (TERI, New Delhi) and the Co-Project Manager for the “Indian Solar Market Aggregation for Rooftops” (I-SMART) project which aims to aggregate a demand of 1000 MW rooftop solar. He tweets at @indiasolarpost. Views and opinion if any, are his own.