Research, conducted at the University of Gothenburg in Sweden, showed that large banks have minimal and unclear commitments on how to combat climate change and reduce fossil fuel funding. The study was published on Thursday (24) in the journal Climate Policy.

The world's 10 largest banks —which includes BANKS JP Morgan Chase in the United States; Barclays, UK; Toronto Dominion Bank of Canada; and Japan's Mitsubishi UFJ Financial Group —they're more on climate change, but they're still the biggest funders of fossil fuel organizations. In 2020 alone, $425.92 billion was spent on fossil fuel financing by this group.

The newly published study includes a call from researchers to change the way banks support this industry. "If someone should 'follow the money' to find the culprits of a crime, what does that say about the significant amounts of money that the financial industry puts into fossil fuels?" asks Åsa Löfgren, associate professor at the Gothenburg Department of Economics, in a statement.

According to her, the efforts of these companies related to climate change tend to relate to the effect on their work, such as reducing the use of electricity in their buildings. But there is little or no recognition of the indirect but significant effect of its customers' emissions. This lack of commitments may reflect an absence of critical reflection on their responsibility to finance climate change," he adds.

For Löfgren, effective policies aimed at the banking sector are needed. These companies need to consider how to measure and reduce climate impacts not only from direct operations but also from bank financing or loans to certain customers. The researchers hope that "popular pressure" will affect the priorities and strategies of the big banks.

The paper analyzes the 2015-2019 annual reports of the world's 10 largest banks, based on their level of fossil fuel financing following the 2020 Banking on Climate Change report. The largest funder is JP Morgan Chase with $64.93 billion, followed by Citigroup with $52.41 billion and Scotiabank with $26.04 billion spent.

Experts used word research to identify and highlight bank citations regarding climate change. The pattern is a growing trend for annual reports to focus on elements of climate change, but varies between institutions. Despite the increase, the study finds a pattern of little discussion about how climate change can affect banking institutions in relation to their social impact.

For Jasmine Elliott, a PhD student at Gotembrugo and one of the authors of the study, the financial sector is included among those who recognize the ways in which they have an impact and how to contribute better. "Climate risks seem to be widely identified as a credit risk to clients defaulting on loans or as a physical risk that affects the bank's own operations – such as extreme climate risks for properties and investments," he explains.

The observations are still in line with research and analysis of climate disclosure reports on the lack of details of financial risks related to corporate climate. Banks see opportunities for "green" products and services as the primary way to engage with customers on the issue. "While this may be a relevant step in promoting sustainability, it still does not address the causatous factors, negative contribution they have had and continue to make on the climate through their core financing activities," Elliott notes.

The study has limitations regarding the review of annual reports on which it is based, and not on specific documents on the theme "sustainability and environmental, social and governance initiatives". However, the authors argue that the annual report is one of the best ways to get an overview of a company's priorities and what it wants to portray to the public.