Green financing tops fossil fuel investment for first time

More money was raised in the American debt market for climate-focused initiatives than fossil fuel companies for the first time last year, but there’s more to the story, new data reveals.

In welcome clean investing news to kickstart 2023, more money has been directed to green energy projects than fossil fuel initiatives for the first time, Bloomberg reports.

Around US$580 billion was raised for renewable energy and other environmentally-friendly ventures in the American debt market last year, while oil, gas and coal industries received a smaller US$530 billion, data compiled by the business media company found.

Bloomberg also revealed that green bonds and loans are generating more revenue for bankers, who are earning an estimated US$3.3 billion from fees related to clean finance deals, compared to US$2.5 billion earned from lending in the highest-polluting energy sectors. 

Maria Loyez, chief customer officer at sustainable investment company and B Corp Australian Ethical, said the new data was a positive sign and echoes similar trends in the Australian financial landscape.

“It’s great to see because the US is a big market and it can have a big influence on overall net zero [emissions],” Loyez told Pro Bono News.

“We’re seeing the same trends in Australia. We’re seeing a continued increase in demand from consumers for sustainable and responsible investing, and we’re certainly seeing that in our business too.”

Green bond issuance is on the rise in Australia, with the Treasury Corporation of Victoria issuing $2.5 billion in green and sustainability bonds in the last financial year, up from a $300 million offering in 2016.

Meanwhile, the Responsible Investment Association Australasia (RIAA) reported that Australia’s responsible investment market holds a record $1.5 trillion in assets, a figure which is expected to continue to grow. Climate change and sustainability are among the top investment areas for Australians.

“I think the US data shows that there are significant and interesting investments in renewable energy, but there are limited opportunities in listed assets in Australia, and for individual investors accessing unlisted assets in the clean energy sector [it] can be challenging due to liquidity issues,” continued Loyez.

“There’s no longer any debate about climate change, and there’s no longer any debate about what we need to do to fix it, [and] I think people are understanding that.

“Our view is that, ultimately, fossil fuels are going to be stranded assets because we won’t be able to continue to use them, to invest in them, and their valuation is going to change very quickly as a result.”

However, Bloomberg importantly suggests green financing may not have actually increased – instead, fossil fuel companies are turning away from capital markets and looking to alternate sources including private equity to raise money.

Furthermore, while climate-friendly investments may be popular in the current economic climate, banks have still raised almost US$4.6 trillion for oil, gas and coal companies since the 2015 Paris Agreement, while green loans and bond sales generated half this amount (US$2.3 trillion).

Loyez says companies are readily misusing ESG factors and how these are communicated to the public, which contributes to the rise of greenwashing and other unethical practices.

The 2022 Global ESG Monitor report found Australian companies are lagging behind when it comes to ESG transparency, and that the ASX 50 has the lowest percentage of companies reporting sustainability-focused performance targets.

“ESG is used very broadly, I think, in Australia and globally. Companies using ESG integration only as a tool is quite misleading for consumers who may expect that they are investing in cleaner energy, or that they won’t be invested in things that don’t align with their values,” said Loyez.

She importantly adds that “from a debt perspective, Australian banks are still investing in fossil fuel projects”, a practice that Australian Ethical advocates heavily against.

“Over time we have seen financial institutions make commitments to align their lending, investing and underwriting activities to the Paris Agreement and to phase out coal. Now the finance industry needs to deliver on their coal exit commitments, and to look beyond coal to other parts of the energy industry and the broader economy.

“We focused this year on the financial sector’s support for the unsustainable expansion of gas projects in Australia. The International Energy Agency tells us that net zero by 2050 means gas needs to decline this decade. But Australian oil and gas companies continue to plan and invest in new oil and gas fields, and this is a dangerous disconnect.

“We need to create a transition really quickly now, and so continuing to invest in fossil fuels is just no longer an option if we’re to keep within a 1.5 degree aligned world.

“We are seeing significant demand from consumers for responsible investments, in super, managed funds, and we also see from the RIAA research that consumers want to align their values in their banking choices too. We expect this trend to continue and hopefully will lend further weight to our advocacy work with the banks around their continued lending to fossil fuel projects in Australia.”