Which banks are financing the clean energy transition?

Predictions for the total cost of the clean energy transition range from an incremental US$1 trillion per year to a total of US$10 trillion per year – but everyone agrees it won’t be cheap. The real question is, are the world’s banks ready to fund the development of renewable technologies at scale, and updating all the infrastructure in between? And which banks will take the lead? 

For the first time, we can see a pattern emerging. Corporate Knights has teamed up with the U.K.-based financial publication The Banker to produce the world’s first list of green-ish banks ranked by the percentage of revenues they earn through sustainable lending, underwriting and investments. The 2022 Sustainable Banking Revenues Ranking shows global bankers are off to a slow start, but over time it will help guide consistency of reporting and provide an ongoing window into bankers’ progress in meeting the world’s Paris Agreement commitments.  

Corporate Knights researchers ranked 60 banks for which they found quantifiable sustainable-revenue data from an initial pool of 91 banks. Corporate Knights ranked these banks based on their income from sustainable financing activities as a percentage of total revenues, not by total sustainable revenues, to use a more direct comparison and allow smaller institutions to compete head-to-head with global giants.  

In first place is Vancouver-based Vancity, a community-first credit union that boasts a sustainable revenue ratio of 34.13%, nearly 50% higher than that of the runner-up, Norway’s SpareBank 1 Østlandet, with 23%. 

“Being member-owned has shaped us over the decades,” Vancity president and CEO Christine Bergeron told The Banker. “We’ve always had core pillars around environmental sustainability, social equity and cooperative values, and we’ve continued to lean into those values in our activities.” 

In third spot with a ratio of 19.47% was another mission-focused institution, union-owned Amalgamated Bank, which calls itself “America’s socially responsible bank.”  

These rankings will likely change quickly as the energy transition ramps up and big institutions compete to participate in new electrical grids, factory retoolings and infrastructure upgrades.  

Fourth-place Intesa Sanpaolo Group is Italy’s leading banking group, with 3,700 branches and 13.5 million clients. Elena Flor, Intesa’s head of ESG and sustainability, tells The Banker her bank has already integrated social context into its operations: “We act not only on the basis of profit, but with the objective of comprehensive long-term value creation for all our stakeholders, including our commitment to the reduction of climate-change impact and social inequalities.”  

To qualify for the ranking, banks must have signed up to the UN’s Net-Zero Banking Alliance (NZBA), which means they commit to achieving net-zero lending and investment portfolios by 2050. Firms on the list must also have committed to reporting climate-related activities through the Task Force on Climate-Related Financial Disclosures framework, designed to boost transparency and ensure that opportunities and risks related to climate will become a natural part of firms’ planning and risk-management processes.  

However, there is always room for improvement, even among these leaders, and especially when it comes to disclosing specifics in their sustainable financing commitments. Corporate Knights researchers found it was hard to distinguish banks’ revenues from sustainable investments because of the lack of detail and the lofty big-picture nature of the commitments they’ve made. “In an ideal world,” explains Matthew Malinsky, research manager at Corporate Knights, “we’d look at banks’ annual audited financial statements and see the specific outstanding exposures to sustainable activities on the loan book and the investment book, as well as any new additions throughout the reporting period.” 

Adds Malinsky, “We’d also see the underwriting activity to sustainable companies or sustainable activities, and we’d know interest, fees and other income earned from these activities. Finally, we’d be clear on which definitions were being used and which taxonomy the definitions were derived from.”  

Corporate Knights researchers also found that banks are achieving only a fraction of the financing needed for the energy transition.  

Based on an analysis by management consulting firm McKinsey that found the world needs US$9 to $10 trillion in annual financing to meet Paris Agreement targets, Corporate Knights estimates that approximately 5% of total global banking assets will need to be allocated to sustainable finance on a revolving basis. The total outstanding sustainable loan book of the 60 banks in the ranking is US$687 billion, approximately 1% of their total loan (based on their disclosures that can be quantitatively vetted).   

“The climate-action revolution must be funded or it won’t happen,” says Toby Heaps, co-founder and CEO of Corporate Knights. Heaps hopes the list will help bankers, governments and climate-watchers track the progress of the clean energy revolution. “We now have a critical mass of banks – 40% of global balance sheets – represented in the NZBA, committed to playing their role in financing and making climate transition a reality.” 

Ranked by total sustainable revenues, Intesa Sanpaolo places first on the list, with US$3.68 billion, followed by New York City–based Citi at US$2.18 billion and France’s BNP Paribas with US$1.51 billion. All three firms claim they have adopted sustainability and supporting the net-zero transition as key objectives.  

Karoline Bakka Hjertø, head of sustainability at SpareBank 1, believes green banking is just beginning to take off. “I think it is impossible to work within sustainability – in any industry – and be happy about the speed of activity,” she told The Banker. “We all agree that change needs to happen faster, and that really this work should have started decades ago.”