Dozens of climate activists were arrested outside Citigroup Inc.'s headquarters in New York City in late June in the latest of a series of protests targeting Wall Street fossil fuel lending.

Despite the ramp-up of such protests this summer and another year of record temperatures worldwide, executives with America's most powerful banks maintain they are diligently working with clients to decarbonize lending portfolios by 2050.

A rapid and aggressive divestment from fossil fuels is not in anybody's interest, bank officials stressed in interviews and in talks at the Reuters Global Energy Transition conference held in New York City the same week activists targeted Citi.

"Our approach is a collaborative one; we don't boycott sectors," Ben Ratner, JPMorgan Chase & Co.'s executive director of sustainability, said in an interview. "We support free enterprise and we are there to help our clients — including in carbon-intensive sectors — to take advantage of emissions reduction opportunities and new energy business opportunities. After all, we are a bank and we work to generate long-term shareholder value while supporting our clients through the transition."

Large investors prematurely stepping back from the fossil fuel industry could result in "unintended consequences," Ratner added, citing energy insecurity, price volatility that could hurt vulnerable populations, and the transfer of emissions to other banks and investors less concerned with where money is placed.

Citi, for its part, echoed what other major banks said: Financial institutions alone cannot get the job done.

"Our climate strategy really reflects that of our clients," Valerie Smith, Citi's chief sustainability officer, said during a panel at the Reuters conference. "It's focused on sustainable finance … our $1 trillion sustainable finance goal, and our net-zero commitment for 2050. And increasingly, it's focused on transition finance — working with clients to help them decarbonize while also financing climate solutions."

Smith said one such project was to support the first large tax credit transfer project for the solar manufacturing industry under the 2022 Inflation Reduction Act. The deal, which came just days after the US Treasury issued its Section 45X credit rules in December 2023, involved First Solar Inc. selling $700 million in tax credits to an investor.

"Notwithstanding all the challenges, we do see a lot of forward momentum," Smith said. "It feels like we're really just getting started."

Investment lagging

Four of the nation's five largest banks, including Citi and JPMorgan, are members of the United Nations-convened Net-Zero Banking Alliance and have committed to work with clients to decarbonize their lending portfolio by 2050, in alignment with the Paris Agreement on climate change.

But going from promise to action has proved challenging. The world's largest banks — with JPMorgan and Bank of America Corp. among the top 10 — in 2022 provided 73 cents in financing for low-carbon energy for every $1 that supported fossil fuel industries, a slight drop from the year before, according to the latest BloombergNEF data, issued in December 2023. Overall, banks' fossil fuel investments have trended down since 2020.

Citi's financing ratio in 2022 was 60 cents in low-carbon financing for every $1 provided for fossil-fuel activities, BloombergNEF said. JPMorgan's ratio was 80 cents for each $1. To keep the average global temperature rise below the critical 1.5 degrees Celsius, the financing ratio for the low-carbon sector should be four times what is financed for fossil fuels this decade, the report said.

At the COP26 climate conference in 2021, the newly formed Glasgow Financial Alliance for Net Zero (GFANZ) announced it had more than $130 trillion committed to helping fund the global energy transition from nations, banks and investors by 2050.

By the end of 2023, global clean energy investments had reached a record $1.8 trillion, but that was still less than half what will be needed by 2030, Mark Carney, the GFANZ co-founder and chair of Brookfield Asset Management Ltd., told the International Development Bank in February. Carney's firm is among nonbank investors that support clean energy investments, announcing the same month it had raised $10 billion in the first closing of a new global transition fund.

Investments in new clean energy technologies are not just capital-intensive, they are also risky because solutions are often unproven, bank officials said. That prompts some companies and investors to go slow until they know the technology or investment has legs before they scale up, and banks to ponder how best to support such clients.

"I think the problems we're trying to solve are going to require new kinds of financial instruments and new kinds of financial architecture to solve these complex problems," Meaghan Muldoon, Bank of New York Mellon Corp.'s chief sustainability officer, said during the Reuters conference. "There are different kinds of tools that are not yet able to be used at scale."

A key question for the banking sector now is how to move such new complex, financial instruments forward, Muldoon added.

Bank loans vulnerable in extreme weather

Some industry observers worry that US banks continue to focus more on short-term returns for investors instead of taking a longer perspective needed to plan for a global energy transition and the impact climate change can have on their loan portfolios.

An analysis published by the US Federal Reserve in May, based on an exercise with the six largest US banks, found that while the banks use climate scenarios to test the resiliency of their business models, they also acknowledged that "climate-related risks are highly uncertain and challenging to measure."

The analysis concluded that more than 20% of commercial bank loans would be affected by the economic shock from a hypothetical hurricane in the Northeastern US, as would nearly half of residential loans.

"We know that climate change is going to pose systemic, unmanageable and quantifiable risk to banks with broad market exposure," Bryant Sewell, research manager for the shareholder advocacy group Majority Action, said in an interview. "Continuing to burn fossil fuels at the current pace actually dwarfs the cost of transitioning away from these fuels. With that in mind, you'd want to see banks take action to protect their portfolios."

Concessions and a meeting with protestors

Following a proxy proposal filed by the Office of the New York City Comptroller, Citi, JPMorgan and the Royal Bank of Canada in April agreed to publicly disclose their lending ratios for clean and fossil fuel activities, becoming the first large North American banks to do so.

"The transition from financing fossil fuels to low-carbon energy is going far too slowly and, thus far, it hasn't even been possible for shareholders to track," New York City Comptroller Brad Lander said in a statement at the time. "We appreciate JPMorgan, Citi, and RBC agreeing to provide greater transparency so that long-term investors can more effectively measure how well they are or aren't living up to their commitments."

The focus on lending often overlooks the additional role banks play as a trusted adviser to companies that seek to decarbonize their operations, Vamsi Alla, managing director of JPMorgan's Center for Carbon Transition and corporate finance advisory, said in an interview.

The center helps companies that seek to transition to clean energy access capital while providing strategic advice to senior executives and boards at large companies worldwide, Alla said. It also supports the bank's own stated efforts to align its financing portfolio with net-zero emissions by 2050.

"We need to promote energy security, we need to help scale investments in clean technology, we need to encourage public-sector leadership on policy, and we need to set meaningful goals to reduce our emissions intensity," Alla said.

In early July, Citi's Smith and members of the bank's corporate banking and risk management teams met with some of the activists who had protested outside their bank headquarters a few days earlier.

"We asked them if they would commit to stop financing companies that are engaged in upstream oil and gas development given the 6,000 people who have committed to joining our protests this summer," said Alec Connon, director of the Stop the Money Pipeline coalition, who attended the meeting at Citi.

The Citi officials did not respond to that and several other questions they were asked, Connon said.

"They told us they are proud of their climate strategy and that their strategy is to help their clients' ambition," Connon said. "We pointed out to them that some of their clients have absolutely no intention of transitioning, that some of them have actively been fighting the transition for half a century now."