How Do Non-State Pressures Shape Bank-Based Energy Finance? A Longitudinal Analysis of Activism and Transnational Initiatives

In 2024, greenhouse gas emissions from burning fossil fuels (FF) reached a new record high. Despite more than 30 years of international climate governance, a robust regulatory framework to wind down FF production remains elusive. Large financial returns from FF, combined with persistent demand, have incentivized holders of climate-forcing assets to obstruct effective climate policy, often successfully (Colgan, Green, and Hale 2021). As the gap between climate commitments and FF production persists, attention is turning to the financial sector, whose lending and investment decisions critically enable or constrain FF expansion, and whose role is central to the future success of global climate action. Commercial and investment banks play a prominent role in financing energy projects. Since the Paris Agreement, banks have committed USD6.9 trillion to FF sectors (Rainforest Action Network et al. 2024). This is occurring even with regulators to demand that banks integrate environmental and climate risks into banks’ capital assessments. Alongside regulation, banks face growing non-state pressure from transnational voluntary industry partnerships and climate activism by civil society organizations. In this paper, we build a novel dataset covering more than 10,000 lending and underwriting deals between the world’s top 1,000 banks and energy-sector firms from 2010 to 2024. It covers two types of non-state pressures: sustainability pledges made through membership in transnational initiatives, and climate activism by NGOs. Empirically, we analyze whether climate activism influences banks’ decisions to join (and exit) voluntary climate commitments, and to what extent these commitments translate into real changes in banks’ FF and renewables financing. Using bank–year panel regressions, we assess, in the absence of binding regulation, whether commitment decisions are driven by signaling to the public, responses to NGO pressure, or financial incentives. Our analysis contributes to at least three strands of literature: International political economy analyses highlighting the role of the financial sector as a key stakeholder in climate governance (Reghezza et al. 2022); international relations literature examining the role of non-state actors in climate governance (Baeckstrand et al. 2017), and interdisciplinary research studying strategic decision-making within financial institutions (Christophers 2019). References Baeckstrand, Karin, et al. 2017. “Non-state actors in global climate governance: from Copenhagen to Paris and beyond.” Environmental Politics 26:561-579. https ://doi.org/10.1080/09644016.2017.1327485. Christophers, Brett. 2019. “Environmental Beta or How Institutional Investors Think about Climate Change and Fossil Fuel Risk.” Annals of the American Association of Geographers 109:754–774. https://doi.org/10.1080/24694452.2018.1489213. Colgan, Jeff D., Jessica F. Green, and Thomas N. Hale. 2021. “Asset Revaluation and the Existential Politics of Climate Change.” International Organization 75:586–610. https://doi.org/10.1017/S0020818320000296. Rainforest Action Network, et al. 2024. Banking on Climate Chaos: Fossil Fuel Finance Report 2024. https://www.bankingonclimatechaos.org/wp-content/uploads/2024/05/BOCC 2024 vF1.pdf. Reghezza, Alessio, et al. 2022. “Do banks fuel climate change?” Journal of Financial Stability 62:101049. https://doi.org/10.1016/j.jfs.2022.101049.