“Greenlaundering” hiding true scale of banks’ lending to fossil fuel companies

Two-thirds of bank’s fossil fuel financing made through tax havens specialising in secrecy

Secretive financial practices are allowing banks and fossil fuel companies to conceal the true scale of their fossil fuel financing – a practice referred to as “greenlaundering” by a new study published today by the Tax Justice Network.¹ Unless steps are taken to dispel the smog of financial secrecy, progress made to pressure banks to phase out fossil fuel financing will continue to be jeopardised, the NGO warns.

The report is the latest in a series by the Tax Justice Network investigating how the broken global tax system and weak global transparency standards are accelerating climate breakdown and undermining efforts to address it.² The report, which is the first to look at the intersection between financial secrecy and bank’s fossil fuel financing, comes as countries negotiate historic reform proposals on both tax and climate policy at the UN.

The report finds that two-thirds of the fossil fuel financing provided by the world’s 60 largest banks is granted to subsidiaries in secrecy jurisdictions – a type of tax haven that specialises in enabling individuals and legal entities to hide their finances from the rule of law.³ The report analyses information compiled by a coalition of organisations working to end the bankrolling of climate chaos and human rights abuses, including Rainforest Action Network, Bank Track, and more.⁴

The authors of the report liken banks’ financing through secrecy jurisdictions to granting a loan through a “hall of mirrors” that makes it impossible for regulators, campaigners and the public to know for certain where money is going and whether banks and fossil fuel companies are abiding by hard-won rules, restrictions and commitments on sustainable finance.

Financing made to subsidiaries of Glencore and Aramco, the worlds’ biggest coal and oil companies respectively, are traced in the report and used as examples to illustrate how industry-wide greenlaundering can work.⁵

Subsidiaries, typically shell companies, are often located in secrecy jurisdictions to receive loans and underwriting services which are then passed along to the other parts of a fossil fuel company’s operations elsewhere in the world. Due to secrecy jurisdictions’ lack of transparency rules, paper trails linking the subsidiaries to fossil fuel companies can be easily hidden – or don’t have to be recorded in the first place.

Since the subsidiaries are not easily linked to their fossil fuel corporate owners, and since they are only setup to receive and pass along finance, and do not conduct fossil fuel activity themselves, they can pass under the radar of rules and exclusionary policies targeting the fossil fuel industry. At the same time, banks can pretend on paper to not know that these subsidiaries belong to fossil fuel companies when issuing finance to them and reporting on it.

The result is that trillions in fossil fuel financing gets washed of its true “brown” purposes, and both banks and fossil fuel companies get to claim to regulators, investors and the public that their finances are greener than they actually are.

In response to an advance look at the Tax Justice Network’s report, Glencore denied all suggestions of “concealment”. Aramco did not respond. All responses from banks and fossil fuel companies covered by the report are provided in the report’s metholodgy.

Franziska Mager, senior researcher and advocacy lead at the Tax Justice Network and one of the report authors, said:

“We’re raising the alarm on banks and fossil fuel companies greenlaundering their finances to hide how much money they’re truly putting into fossil fuels. The situation is much worse than we’ve been led to believe, and the guardrails put in place on fossil fuel financing are being easily jumped over.”

The report shows how the exclusion policies of Barclays, BNP Paribas, Citigroup, Deutsche Bank and RBS fail to adequately reflect the full reality of how bank financing is often issued to and received by fossil fuel companies, leaving the door wide open for fossil fuel companies targeted by the policies to continue to access financing.

In the case of BNP Paribas, the report documents financing granted by the bank’s own subsidiaries based in secrecy jurisdictions to the subsidiaries of fossil fuel companies that appear to contradict the spirit of commitments the bank reported in its own climate reports.

Some of the banks that responded to the Tax Justice Network’ pre-publication questions provided further information, as well as referenced the constraint of banking confidentiality. All responses are contained in the report’s methodology.

Franziska Mager said:

“Greenlaundering enables a culture of planned ignorance among the biggest banks where they can pretend on paper not to know that the shell companies they’re loaning staggering sums to are fronts for fossil fuel companies. Ask a bank how it can be sure that a shell company with no employees in a tax haven can pay back these huge loans and the answer is, we know the company’s good for it because it’s part of a global fossil fuel corporation. Ask if the same shell company is linked to fossil fuels when quizzing the bank on green compliance, and the answer is, no, it doesn’t look like it.”

The report urges governments to act on long called-for, robust tax and financial transparency measures, like beneficial ownership transparency, public country by country reporting and drastically improved reporting standards. Many countries have adopted versions of these transparency measures in recent years that are too watered-down to be effective following guidance from the OECD, a small club of rich countries and tax havens that has been world’s de facto tax rule-maker for over 60 years.⁶ A historic power struggle is currently underway at the UN, with most countries wanting to move leadership on global tax rules from the OECD to the UN and some rich OECD countries pushing back.⁷ The report urges governments to back the move to UN leadership to finally open the door to the robust transparency measures the OECD has long resisted.

Alison Schultz, research fellow at the Tax Justice Network and one of the report’s authors, said:

“The fight for climate justice and tax justice go hand in hand. Our broken global tax system is costing countries billions in public money and fuelling extreme wealth inequality, which in turn is accelerating climate breakdown and blocking action, leading to even more costly damages to the most vulnerable communities.

“The vast majority of countries are currently working on what can be the biggest shakeup in history to global tax rules, to end the scourge of global tax abuse by multinational corporations and the superrich. But a minority of rich countries still seem to be holding back from support for a robust framework convention on tax – despite this being the best opportunity that we’ve ever had, and one that their own people demand they act on with urgency. Some of the same countries are blocking real progress on climate at COP29 – stopping the world from clawing back billions in tax from tax havens in one meeting, and then claiming in the other meeting that there’s no money for the climate crisis. This needs to change now – the climate can’t wait, and nor can the people of the world.”⁸

A report recently published by the Tax Justice Network estimates that countries can raise US$2.1 trillion a year by following the example of Spain’s recent wealth tax on the richest 0.5% – which is double the amount needed annually for developing countries’ external climate finance.⁹

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Read the report here

Notes to editors

1. The new study by the Tax Justice Network is here.
2. See the Tax Justice Network’s work on climate here.
3. A secrecy jurisdiction provides facilities and services that enable people or entities to escape or undermine the laws, rules and regulations of other jurisdictions elsewhere. A secrecy jurisdiction can be utilised not just to underpay tax but for other illicit activity like laundering money, evading sanctions and funding terrorist groups. See the Tax Justice Network’s ranking of the world’s harmful secrecy jurisdictions on the Financial Secrecy Index.
4. The Tax Justice Network’s study analyses information from the Banking on Climate Chaos report.
5. In response to an advance look at the Tax Justice Network’s report, Glencore denied all suggestions of “concealment”. Aramco declined to comment. All responses from banks and fossil fuel companies covered by the report are provided in the report’s methodology document.
6. Read more about the OECD’s failed stewardship of global tax policy here.
7. More information on the UN tax convention here. For more up to date coverage on current negotiations, see our live blog on the matter.
8. The State of Tax Justice 2023 reports that countries are losing $480 billion in tax a year to multinational corporations and wealthy individuals using tax havens to abuse tax.
9. Read more about the Tax Justice Networks study on wealth taxes here.