Cover story: How bank boards are exposed to fossil fuel influence

Three years ago, in December 2020, the former CEO of ExxonMobil, Lee Raymond, announced his retirement from the board of JPMorgan Chase, where he had served as the lead independent director for nearly two decades. It seemed like a forced move; some had questioned Raymond’s reappointment earlier that year, in May 2020, with proxy adviser Glass Lewis urging shareholders to vote against it, as his age was already beyond JPMorgan’s board retirement limit. Another adviser, ISS, was more diplomatic when it said “new independent oversight is necessary”.

Others were concerned, though for different reasons. Climate activists’ grievance was about the former oil boss’s influence on one of the world’s largest lenders. Even New York City’s then comptroller, Scott Stringer, seemed to lament the link, though his former office told The Banker that the main concern was about Raymond’s compensation.

JPMorgan said Raymond’s retirement had “zero” to do with investor pressures or climate considerations. However, environmental group 350.org’s senior campaign specialist Richard Brooks greeted the news rather differently, saying: “With Raymond no longer holding them back, [JPMorgan] Chase must overhaul its coal, oil and gas funding.”

According to research by BankTrack, the Rainforest Action Network and other non-profits, the bank remains the world’s largest financier of fossil fuels since the signing of the Paris Agreement in 2015, where governments committed to keeping global warming in check.

Chasing oil

Though not responsible for lending decisions, a bank board does play a role in stirring the organisation’s future towards or away certain activities. And the presence of fossil fuel in bank boards, which is particularly felt in some oil-rich countries that are also large banking markets, raises the question: how influential are board-level ties between banks and fossil fuel companies as part of the world’s need to decarbonise?

After a year of broken climate records, with temperatures exceeding the 1.5°C limit set out in the Paris Agreement between February 2023 and January 2024, as documented by the EU’s Copernicus Climate Change Service, this is a particularly pertinent question.

The financing of fossil fuels, on the other hand, has not decreased as fast as environmental groups and climate experts would have hoped since the 1.5°C threshold was set.

Alison Taylor, associate professor at NYU Stern School of Business, who has been studying corporate governance for years, says she is not surprised that in countries where fossil fuels are a significant proportion of the economy there is a trend of dual directorships. While dual directorships involving independent board members are not necessarily detrimental to the green transition, experts say they are poorly addressed.

“It’s remarkable no one is really paying attention to this,” Taylor says, adding that mapping the overlapping relationships on the boards of financial institutions could reveal some interesting findings in many countries. 

JPMorgan is not the only large lender based in a fossil fuel-rich country (the US) where such ties exist. Banks in Australia and Canada show a closer connection still. In both countries, all major banks have between one and four independent board members with current or previous ties to companies connected to fossil fuels.

A large proportion of these independent directors on the boards of Australian and Canadian banks either previously worked as former senior management executives for major oil and gas, coal-mining or steel production companies, or are independent directors on the boards of fossil fuel companies or companies closely linked to fossil fuels. In some cases, they are also the board chair, who holds the most power and authority as they are the main link between the board and upper management.

Even in France, an economy less dependent on oil and gas where some banks are shareholders in energy companies or the state is heavily involved in the energy sector, there also are dual directorships between banks’ boards and those of national energy giants such as TotalEnergies and Engie. Analysts note that French banks have been on TotalEnergies’s board for years, although the board has become more diverse in terms of profiles and nationalities over time.

In the US, the trend may go in the opposite direction, with BlackRock, the world’s largest asset manager, appointing the CEO of Saudi Aramco, the world’s largest oil company, to its board last year. Among other things, Amin Nasser would contribute his understanding of “the drivers of the shift towards a low-carbon economy, as well as his knowledge of the Middle East region”, said BlackRock’s CEO Larry Fink.

Soon after, in August 2023, UN-appointed human rights specialists sent letters to Saudi Aramco and its financiers, warning that it may be in violation of global human rights because of its expansion of fossil fuel production and contribution to climate change. 

Meanwhile, JPMorgan also established a new tie with the Saudi state-owned oil company. In January this year, it appointed a new director to its board, Mark Weinberger, the former global chairman and CEO of EY, who also sits on the board of Saudi Aramco. 

US climate scientist Michael Mann says that having people who have held senior management positions within fossil fuel companies sitting on banks’ boards is “deeply troubling”.

Mann is a director at the Penn Center for Science, Sustainability and the Media at the University of Pennsylvania and is best known for his “hockey stick” graph showing global warming increasing since the industrial revolution began. He says this speaks to the larger problem of fossil fuel influence on governments and institutions. “There is no question that such involvement by fossil fuel executives compromises the decision-making process and hinders the necessary rapid transition off fossil fuels,” he says.

Mann disputes the argument that former fossil fuel executives could provide useful expertise on decarbonisation and claims that they tend to be biased against the scientific evidence on which climate change is based.

JPMorgan declined to comment. BlackRock did not respond to a request for comment.

Activists speak out

Taylor says that these dual directorships raise questions about the concentration of vested interests and why there is not greater progress with the energy transition. “It’s difficult to have new thinking here,” she says, adding that there is a problem with boards in general in terms of their longevity and decision making not changing fast enough to meet societal expectations. “The bigger issue is the network of relationships. We’ve got a global problem with these networks of relationships being way too close. Are they really going to hold each other accountable?”

In Australia and Canada, environmental and shareholder activist groups have been particularly vocal about the ties between banks and the fossil fuel industry, and how it is potentially impacting the transition to net zero in those countries.  

In 2023, Australia is estimated to have earned a record $220bn from fossil fuel exports, according to financial analyst Tim Buckley, who is director of Climate Energy Finance, a think-tank based in Sydney. “The incumbent power of the fossil fuel industry is felt across Australia’s political system, and in our financial sector,” Buckley says. 

In 2019, the Australia Institute, a public policy think-tank based in Canberra, ranked Australia as the third-largest fossil fuel exporter, behind only Russia and Saudi Arabia, saying it made up 7 per cent of all exports globally. Will van de Pol, CEO of shareholder activist group Market Forces, says the “revolving door” between the leadership of the fossil fuel industries and the big banks should be a huge concern for shareholders and customers, who are increasingly demanding banks stop financing coal, oil and gas expansion. 

Based on the make-up of the boards of Australia’s big four banks as disclosed on their websites, 11 out of 32 independent board directors at ANZ Bank, Commonwealth Bank of Australia, Westpac and NAB had a current or previous connection to fossil fuels as of February 15. Australia’s two biggest banks by assets, ANZ and CBA, had the most connections, according to The Banker’s research. Three of the big four banks’ board chairs were also linked to fossil fuel-dependent businesses, including steel producers and fuel suppliers.

Four out of seven independent directors at ANZ have some previous or current connection to fossil fuel companies. The board’s chair has worked for oil majors such as Shell, another board member was a former CEO in a major gas transmission company, others work as a strategic adviser for companies such as BHP Group, the world’s biggest miner which has earned billions in profits from thermal and metallurgical coal. 

However, to improve governance around matters impacting the bank’s reputation, in 2016, ANZ set up an “ethics, environment, social and governance committee” to provide oversight of its measures to “advance its purpose”. ANZ’s sustainability approach, including how it manages climate-related risks and opportunities, is now primarily overseen by the board and management through two committees, the board’s ethics, environment, social and governance committee, and the executive ethics and responsible business committee.

ANZ did not respond to a request for comment. 

At CBA, three out of eight independent directors have previously worked as senior executives in the oil and gas industry or in engineering services supporting fossil fuels. The board’s chair previously led BlueScope Steel, Australia’s biggest steelmaker, which uses coal-fired blast furnaces. While BlueScope is seeking alternatives to coal, last year, according to ABC News Australia, it spent A$1.15bn ($0.75bn) on relining a mothballed coal-fired blast furnace.

Market Forces praised the new fossil fuel finance restrictions CBA introduced last year, along with other big Australian banks, including a requirement to not finance most fossil fuel companies from 2025 that do not have independently verified plans to cut all emissions in line with the Paris Agreement’s “well-below 2°C” upper limit, but said they still do not go far enough.

CBA declined to comment, but referred The Banker to its corporate governance document which talks about “structuring the board to be effective and add value” by emphasising certain skill sets, including environment skills. CBA has one non-executive director who also serves as non-executive director at an engineering company in the renewable energy and fossil fuel sectors. Another director has experience with sustainability and climate action in the financial services sector. 

Amanda Richman, ethical stewardship lead at investment firm Australian Ethical, which invests in some of Australia’s big four banks, describes the directors on their boards as a “tightly connected network”. Although the banks require oil and gas clients to introduce transition plans by 2025, Richman says this is too late. Given the level of ambition of the big four banks’ lending and underwriting policies, and the urgency of the climate crisis, she says there are questions to be asked about whether the current composition of boards is helping or hindering the green transition. 

Buckley of Climate Energy Finance says the “group think” and vested interests in Australia’s fossil fuel industry demonstrates the need for a massive generational change and diversity improvement on boards to break the incumbent industry thinking and control. 

In Canada, 13 out of 67 independent directors on the boards of the country’s big five banks (Royal Bank of Canada, Bank of Montreal, Scotiabank, CIBC and TD Bank) have current or previous ties with fossil fuel companies. These ties include directors who also sit on the boards of oil and gas companies or power utilities that use fossil fuels. Some directors also previously held senior management roles in fossil fuel companies. Roughly 11 per cent of directors on the boards of the big five Canadian banks also have current or previous ties to clean energy companies.

Regulating the board

Carol Hansell, founder and senior partner at Hansell McLaughlin Advisory Group, which advises boards, management teams, shareholders and regulators on legal and governance challenges, says fossil fuel leaders are well respected in Canada. “They’re people who understand the Canadian economy and are well experienced business executives. The expertise and experience that somebody from the fossil fuel industry brings to the discussion is helpful. But [they] don’t dictate everything in the boardroom.”

However, independent senator for Quebec and environmental engineer Rosa Galvez says Canada’s oil and gas industry is not reducing its emissions in line with the country’s net zero carbon goals by 2050, and levels the blame at the ties between banks’ board and fossil fuel companies. In March 2022, she introduced a private members bill, the Climate-Aligned Finance Act, into Canada’s Senate, aimed at the financial institutions she says facilitate and finance emissions. 

The bill calls for federal financial institutions and federally-regulated entities’ financial flows to be aligned with Canada’s 2050 net zero commitments, the enforcement of targets with respect to climate commitments, additional capital adequacy requirements for banks, and the appointment of people with climate expertise to the boards of financial institutions. More controversially, it aims to establish “climate alignment as a superseding duty for directors, officers or administrators of reporting entities”.

“Where you have board members at a decision table wearing two hats, governance needs to be [clearer],” says Galvez. “The most evident case is when you have people sitting on pension boards and oil and gas [companies’ boards].

“It’s a legitimate question for workers who expect to have a pension in 30 years. Are their interests being taken into consideration when the same members sitting in oil and gas want to have profits?”

Experts say CAFA is unlikely to survive in its current form. “To say they have duties that supersede any other duty means the whole of corporate governance is likely to come crashing down,” says Hansell.

RBC, Scotiabank, CIBC, TD Bank and BMO either declined or did not respond to The Banker’s requests for comment. TD Bank and Scotiabank referred The Banker to a statement issued by the Canadian Bankers Association, which said Canada’s banks are committed to doing their part to address climate change and acknowledge that firm commitments are required to accelerate clean economic growth and to meet the goals of a net zero economy.

Further, OSFI, Canada’s financial supervisory authority, says it is not currently aware of any information that would suggest fossil fuel influence at board level that would impact financial companies’ ability to address climate risks. 

However, non-governmental organisations and environmental lawyers claim that finance and public administrations at a federal and provincial level enjoy “too cosy a relationship” with the fossil fuel industry, which is hindering Canadian banks’ progress towards their 2050 net zero targets.

“It is striking that there isn’t more concern by shareholders,” says Alan Andrews, climate programme director at non-profit Ecojustice Canada. “The argument goes [that] we need to have the oil and gas sector on [a corporate] board to help with the transition, but we’re not seeing evidence that is working — we’re seeing those oil and gas interests as a brake on progress. The best evidence of that is the pace of action.”

RBC, CIBC, TD Bank, Scotiabank and Bank of Montreal are all in the top-20 biggest financiers of fossil fuels in the seven years since the Paris Agreement was signed, according to the 2023 Banking on Climate Chaos report by BankTrack, the Rainforest Action Network and other non-profits. RBC was the bank that lent the most, globally, to the fossil fuel industry in 2022, according to the report. (The research on which it was based was subsequently updated, showing RBC in second place for that year, after JPMorgan.) 

All of the big five Canadian banks have at least one director on their board with experience in the renewables or clean energy sectors, and have all made sustainable finance commitments (in renewables, energy efficiency or green buildings), says Amr Addas, a sustainability adviser and a lecturer at the John Molson School of Business at Concordia University in Montreal. However, he says, they are less transparent about embedded carbon risks in their lending and investment portfolios.

He says dual directorships between banks and fossil fuel companies should help banks better understand the challenges energy companies face, but he is not sure these conversations are taking place.

Kevin Leung, a sustainable finance analyst at the Institute for Energy Economics and Financial Analysis Europe, says dual directorships can provide an opportunity for companies to share knowledge. However, where there are commercial relationships between the two firms, he says the presence of dual directors can reduce independent outcomes. 

This may be countered by having a high number of well-represented non-executive directors that can diversify risks arising from individual ties, but Leung says it is critical to look for indicators that signal waning independence or conflicts of interest. “For example, new financing for expansionary fossil fuel projects, which is inconsistent with the latest [International Energy Agency] roadmap [to keep global warming to 1.5°C], would undermine the transition goals,” he says. 

Potential for conflicts of interest must also be monitored in light of transition targets set by banks as part of decarbonisation commitments made under the Glasgow Financial Alliance for Net Zero, the network spearheaded by former Bank of England governor Mark Carney in 2021, notes Alasdair Docherty, sustainable finance and data analyst at IEEFA. Reductions to financed emissions, for example, would be completely at odds with the goals of a fossil fuel industry, which by and large continues to struggle transitioning to more sustainable areas of economic activity, he says. Many of the banks with dual directorships are also members of the Net Zero Banking Alliance, which is part of the Gfanz. 

Support for such initiatives have been waning. In February, JPMorgan’s asset management business quit the Climate Action 100+ network, where signatories commit to push polluters to cut emissions. At the same time, BlackRock transferred its CA100+ membership to its smaller international arm.

In terms of pushing for the green transition, Alix Ditisheim, an ESG analyst at French impact investor Phitrust, says banks struggle to formalise a clear position on fossil fuel financing. “Hence it is difficult to think that their representatives on boards could really push for green transition strategies,” she says.

Anne-Claire Imperiale, head of sustainability at Sycomore Asset Management, says it is more about the skills on a company’s board than the representation. “Responsible bankers would be relevant in this scenario, but we really need the skills on climate,” she says, adding that it would be good to see sustainability integrated at strategic level to challenge climate expertise at board level and for climate and scientific experts to join the board and provide training to make these board positions attractive. “Regulation could also be passed to recruit these people in high-emitting sectors,” she says.

Hansell says boards are looking broader and more deeply to get people with the right expertise. But warns that it may still not read well if a bank has multiple independent directors on its board with ties to the fossil fuel industry. “Financial institutions need people who understand climate risk, and not with such a heavy emphasis on fossil fuels,” she says, adding that diversity of thinking is needed. “Climate risk is one of the most important issues everybody is facing. Who on the board can oversee that effectively?” 

Additional reporting by Claudia De Meulemeester

This article was amended after publication to include an update on the 2023 Banking on Climate Chaos report