Banks Scale Back Fossil Fuel Lending, but Private Financing Fills the Gap
There has been a significant decline in commercial bank lending to fossil fuel companies, dropping from $802 billion in 2022 to $632 billion last year., according to The 2023 Banking on Climate Chaos report.
Major oil players like ExxonMobil and Shell sought no new financing, marking a shift driven by public pressure and regulatory scrutiny. However, while traditional bank lending shrinks, the fossil fuel industry is increasingly turning to private markets, bond issuance, and government-backed incentives to sustain its expansion.
It’s hard to say no to short-term opportunity. (The surging demand for new forms of capital) is proof positive that the only way to shift capital away from the industry is through regulation that makes it harder and more expensive for the fossil fuel industry to fund itself.
April Merleaux, co-author of the RAN report
Private equity firms have stepped in with lending to the oil and gas sector surging to $9 billion in 2023—up from just $450 million over the previous two years. According to data provided by Preqin, an analytics company that tracks the alternative investment industry.
Mergers and acquisitions doubled, reaching $271 billion as companies sought to scale operations and manage methane emissions costs.
Meanwhile, banks are experimenting with transition credits and emissions-weighted risk transfers to keep fossil fuel financing within ESG frameworks.
The Japanese government is the world’s second-largest provider of international public finance for fossil fuels and the world’s largest provider of international public finance for gas.
Japan, it appears, has emerged as a key enabler, with its government pushing domestic banks to increase loans for fossil fuel projects. Despite progress in curbing traditional fossil fuel financing, the report underscores a stark reality: without stronger regulations, the industry will continue finding alternative funding sources.
