We are now putting further pressure on banks to contribute to the green transition. These banks include Citigroup, Goldman Sachs, Bank of America, Wells Fargo and Credit Suisse. At the 2022 annual general meetings of these banks, we supported proposals aiming to stop the financing of new gas, coal or oil projects. Specifically, the proposal means that they must adjust their lending to the International Energy Agency’s climate plan and contribute to meeting the climate goals of the Paris Agreement.
We’re sending a message and increasing the pressure on banks to get them to realise that they need to limit the financing of fossil fuels in order to curb climate change.
- Mads Steinmüller, Interim Head of Active Ownership, Danica Pension
“We’re sending a message and increasing the pressure on banks to get them to realise that they need to limit the financing of fossil fuels in order to curb climate change. Banks should move in a greener direction and increase their financing of renewable energy and green technologies. It’s particularly important to take action against US banks as they are big financers of the fossil fuel industry, and if we can make them change their strategy, it would be an important victory for the green transition,” says Mads Steinmüller, Interim Head of Active Ownership at Danica Pension, and he continues:
“The goal of ending our reliance on Russian oil and gas does not mean that the rest of the world should increase its fossil energy production. On the contrary, we need to invest heavily in renewable energy and in solving the climate crisis – and banks must have that same focus.”
Triggering a green domino effect
Meeting the goals of the Paris Agreement requires annual investments of several thousand billion Danish kroner in climate technologies and renewable energy, and most of these investments must come from the banks. Therefore, we are now launching a targeted dialogue with American and European banks in particular to convince them to set carbon emission reduction targets and increase green financing.
“It’s positive that banks want to become carbon neutral, but many of them don’t have a specific plan for achieving that goal. And several banks are not nearly ambitious enough. This is why we’re now putting extra pressure on them to set specific and ambitious reduction targets for their financed emissions in various sectors. This could trigger a green domino effect in other industries,” says Mads Steinmüller.
It means that high-emitting companies will have difficulty obtaining financing for their business through the bank, which will force them to consider greener alternatives.
“Banks will set even higher requirements that companies reduce their carbon emissions in order to continue to obtain financing. This will give companies an incentive to improve the energy efficiency of their factories, develop low climate impact products or make the energy sector replace black energy with green energy. Our goal is to accelerate this movement, thereby enabling us to meet our carbon emission reduction targets,” concludes Mads Steinmüller.
Read more about our initiatives to meet the goals of the Paris Agreement here or about our goal to have net-zero investments here.
The green dilemma facing banks
The green transition requires huge investments. The EU estimates that EUR 180 billion is needed annually from the private sector to meet its climate goals. Consequently, banks play a key role in the green transition because they provide the funding necessary for businesses to invest in their own green transitions. But banks also provide finance to the fossil fuel industry, thereby financing oil and gas.
This poses a dilemma. On the one hand, society remains dependent on oil for fuel, heating and the production of pharmaceuticals and other everyday products. On the other hand, banks and the fossil fuel industry need to transition from carbon-based to green energy in order to help slow down climate change – and if this transition does not happen in time, it will lead to huge economic consequences for the banks.
It is a complex issue, and one that we discuss with the banks we invest in, some of which have clear and ambitious climate plans. We are aware that a number of banks have not progressed far enough and still lack plans on how to, for example, reduce their financed carbon emissions and ultimately achieve net-zero lending. Our focus is on supporting the banks’ transitions and making them drivers of the green transition. We do this by voting at their annual general meetings or by engaging in direct dialogue with the banks’ executive management teams. The goal of this is to encourage the banks to commit to achieving carbon neutrality and to set carbon emission reduction targets for their lending and investments.