How We Rate Banks
Our bank ratings fall into five categories: “Great,” “Good”, "OK", “Bad” and “Worst,” depending on the number of overall points the bank scores on our proprietary scorecard.
Our Rating Methodology Caters for Different Types of Financial Institutions
Our methodology ensures a balanced and equitable evaluation across different types of financial institutions, including banks (large and small), credit unions, and building societies. We seek to recognise their diverse roles in the financial ecosystem while maintaining a consistent standard for sustainability assessment.
We also leverage other valuable initiatives, where available. Institutions certified as B Corporations are scored favourably, while membership in the Global Alliance on Banking Values also enhances an institution's score, as both indicate a strong a commitment to positive economic, social, and environmental impact. Conversely, banks that appear in the annual Banking On Climate Chaos report will require strong counterbalancing signals to be pulled out of the "Worst" category.
What Factors Affect a Bank’s Rating?
Lending Data
The primary metrics of our ranking system are:
- Percentage of the overall bank lending that is provided to the fossil fuel companies/sector and whether it is de minimis (< 1%),
- The ratio of a bank’s loans to renewable energy companies / projects vs loans to fossil fuel companies / projects, and
- Holding of bonds issued by fossil fuel companies/projects.
Banks that increase the ratio of renewable to fossil fuel lending year-on-year will see their ratings improve, all things being equal. Rating banks based on absolute numbers as well as trends over time recognises that some banks have legacy lending that is not possible to terminate immediately, while rewarding those banks that make the greatest contribution to the clean energy transition.
We prioritise this data above all else because it is important to rate banks based on what they do, not what they say.
Some banks may score Bad not because they are lenders to the fossil fuel industry but because they have not been transparent about sectors that lend to, and consequently, we had no information to rate them on.
To stay true to our mission, we only consider banks’ performance as it relates to energy financing. We do not currently consider other types of sustainable activities (e.g., socially responsible lending). We also do not award points for banks’ own use of renewable energy or other activities such as tree-planting, because the impact of these actions pales in comparison with the impact of lending to fossil fuel companies.
Based on the International Energy Agency’s Net Zero by 2050 Roadmap Report the science is clear - any amount of lending to new fossil fuel projects (with the exception of phase-down) is not compatible with the goals of the Paris Agreement. Starting in 2024, we will be paying particular attention to new lending and will be highlighting instances where this is in violation of a bank’s own policies.
If a bank, or a bank-like institution, uses a banking partner that we have rated Worst or Bad to provide services to its customers or for its own banking needs, it will negatively impact the primary bank’s rating.
Sustainable Banks
Banks that are rated Good or Great are added to our Sustainable Banks webpage. That doesn’t always mean that these banks have no fossil fuel lending at all. It can also signify:
A de minimis amount of fossil fuel lending, or...
The bank’s lending to renewable energy projects greatly exceeds its lending to the fossil fuel sector, and...
It scored highly on other metrics.
Banks that have zero fossil fuel lending, e.g. by virtue of their operating model or lending only to individuals, charities etc., will be identified on our website with a “fossil free” certificate.
Data sources we use
We use a wide range of data sources. This includes financial statements, annual and sustainability reports, CDP questionnaires, Investor Relations pages of the bank’s website, toxicbonds.org database and lobbying databases. Lending data is tested for the latest available financial year (ratings released in February 2024 are based on calendar year 2022). Lobbying data and product availability is tested at the date the rating exercise is carried out.
Still have questions?
If you have any questions on the rating methodology,
please contact hello@bank.green.