In the evolving landscape of the American financial sector, a notable trend has emerged: several regional banks in the United States are significantly increasing their lending activities to the fossil fuel industry—specifically, to oil, gas, and coal sectors. This surge in lending is occurring as many large European banks are strategically withdrawing from these markets due to heightened climate regulations and growing environmental concerns.
Increased Market Share Among US Regional Banks
Among the regional banks that have notably increased their participation in fossil fuel financing are Citizens Financial Group Inc., BOK Financial Corp., and Truist Securities Inc. According to data compiled by Bloomberg, these banks have ascended between 13 to 40 positions in the global ranking of fossil fuel lenders since the end of 2021, placing them among the top 35 banks globally in terms of the number of deals. Additionally, Fifth Third Securities Inc. and US Bancorp, which were already ranked within the top 30, have both risen by 10 spots during the same period.
Since the onset of 2022, Citizens Financial, BOK Financial, Truist Securities, Fifth Third, and US Bancorp collectively increased the number of loans they provided to the fossil fuel sector by over 70% on an average annualized basis. This increase is particularly significant when compared to the lending patterns observed over the previous six years, indicating a robust strategic pivot towards these energy sectors.
Rory Sheehan, a spokesperson for Citizens Financial, expressed the bank’s commitment to supporting initiatives that foster a transition toward a lower-carbon future. However, he also acknowledged the continuing importance of the oil and gas industry in the current energy landscape. This dual approach highlights the complex balance that financial institutions must navigate between advancing sustainable practices and supporting traditional energy sectors.
European Banks’ Retreat from Fossil Fuels
The shift in lending practices is partially influenced by stricter climate policies in Europe, where banks are increasingly distancing themselves from fossil fuel investments. This is partly due to fears of potential reputational damage and legal repercussions related to environmental, social, and governance (ESG) regulations and climate-related litigation.
For example, BNP Paribas SA and ING Groep NV, two of the largest banks in the European Union and the Netherlands respectively, are tightening their policies against fossil fuel clients and have faced legal challenges from climate advocacy groups. Both banks have seen a decline in their rankings in the fossil fuel lending market over the past two years.
Wall Street and Fossil Fuels
Despite the retreat from some global banks, Wall Street’s giants like Wells Fargo & Co., Bank of America Corp., and JPMorgan Chase & Co. continue to lead in fossil-fuel financing. According to Bloomberg, these institutions topped the list of banks involved in fossil-fuel loans since early 2022, underscoring the substantial role that major U.S. banks play in supporting the fossil fuel industry.
State Legislation and Local Banks’ Response
Some U.S. regional banks are stepping up their fossil fuel lending activities in states that have passed or are considering anti-ESG legislation. In Oklahoma, for instance, the passage of the Energy Discrimination Elimination Act in late 2022 has fostered a more favorable environment for local banks like BOK Financial to increase their involvement in fossil fuel deals. Marisol Salazar, a senior vice president at BOK Financial, noted the bank is experiencing a surge in opportunities within this sector, attracting not just customers but also talent across various professional domains.
Implications for Fossil Fuel Borrowers
The increased lending activity by regional banks ensures that fossil fuel companies continue to have access to competitive credit terms. This development challenges some assumptions about the efficacy of divestment policies and suggests that alternative financing sources are filling the void left by banks that are pulling back from fossil fuels.
Broader Financial Dynamics
In some cases, traditional banks are being supplanted by private credit managers and commodities traders, who are entering the fossil fuel financing space with sophisticated funding arrangements. Jason Kerr, a partner at White & Case with a focus on African markets, described this shift as “dramatic,” indicating a significant transformation in how fossil fuel financing is structured.
The Future of Fossil Fuel Financing
Even as some banks retract their support for the fossil fuel industry, the emergence of new financial players ensures that the capital flow to this sector remains uninterrupted. The resilience of fossil fuel financing amidst shifting regulatory and economic landscapes reflects the enduring complexity and significance of this sector in the global economy.
