Financial institutions in the Nordic region under scrutiny for continued funding of fossil fuel projects.
In a concerning development, several major Nordic banks have come under fire for continuing to finance fossil fuel projects, despite their membership in the Net-Zero Banking Alliance (NZBA).
The Glasgow Financial Alliance for Net Zero (GFANZ), the umbrella body for UN-convened climate alliances, has revised its membership criteria, lowering the threshold for participation. However, this revised criteria could potentially weaken the accountability of banks in meeting their climate targets, making it harder for investors to hold banks accountable for fossil fuel financing.
According to a report, DNB and Nordea together hold 60% of the fossil fuel investments among the nine banks. Despite their membership in the NZBA, these banks have invested around $6bn in fossil fuel companies planning to expand their production of oil, coal, and gas. DNB, SEB, and Nordea account for 95% of the total loans granted to fossil fuel expanders. Nordea alone has lent more than $400m to the coal industry.
The report also points out that the continued lending by DNB and Nordea to fossil fuel projects reflects a broader challenge in balancing climate goals with business realities. While NZBA membership implies a commitment to aligning lending portfolios with net-zero emissions by mid-century, many banks currently focus on gradual decarbonization pathways that still permit fossil fuel lending during a transitional period.
The controversies surrounding these banks extend beyond their home regions. The report states that oil exploration activities funded by these banks threaten sensitive Arctic ecosystems. One of the projects funded is the expansion of a coal mine in the Czech Republic, which could emit at least 60 million additional tonnes of CO2e.
The departures from the NZBA were primarily driven by US regulatory pressures and heightened reporting expectations. Six major US banks and some of Canada's largest banks have announced their departure from the NZBA. Japan's second-largest bank, Sumitomo Mitsui Financial Group, has also announced its exit from the NZBA.
The report's authors state that there is no room for new coal, oil, and gas in a 1.5°C world and that banks should require their clients in the fossil fuel sectors to immediately publish Paris-aligned fossil fuel phase-out plans. They also emphasize that banks must be held accountable for their commitments to reduce fossil fuel financing, a concern that the revised membership criteria for the GFANZ does not address.
Nordea, despite its controversies, is a member of the Net-Zero Banking Alliance Steering Group. DNB and Swedish SEB are also members of the NZBA. These banks' continued involvement in fossil fuel financing raises questions about the effectiveness of the NZBA in enforcing its members' net-zero commitments.
As the world grapples with the urgent need to combat climate change, the role of financial institutions in supporting or hindering this effort comes under increasing scrutiny. The case of the Nordic banks serves as a stark reminder that despite proclaimed net-zero ambitions, the reality of lending portfolios can often tell a different story.
- Environmental science research has been seeking ways to balance science-based climate targets with the financial industry's need for business continuity.
- The ongoing climate-change challenges necessitate stricter environmental standards in fossil fuel financing, particularly within the industry and environmental-science fields.
- Critics argue that the lowered membership criteria of the Glasgow Financial Alliance for Net Zero could affect the finance sector's ability to meet energy sector transition objectives, focusing on renewables rather than increasing fossil fuel investments.
