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Wells Fargo targets inclusion and climate issues in $2 billion bond issue

© Shutterstock / askarimWells Fargo.

Wells Fargo has issued its second sustainable bond, raising $2 billion to fund projects in housing, renewables and clean transport.

The $2 billion issuance is the second from Wells Fargo (NYSE:WSC), following a $1 billion bond in 2021 aimed at improving housing affordability, socioeconomic advancement and empowerment, and renewable energy.

The bank’s sustainability commitments made in 2021 include reaching net-zero greenhouse gas emissions by 2050, and to deploy a further $500 billion to finance sustainable businesses and projects between 2021-2030.

Wells Fargo will face a steep challenge in meeting these commitments, given its role as the third biggest provider of financing to the fossil fuel industry.

Wells Fargo’s latest $2 billion inclusion and climate bond brings its total issuance to $3 billion since 2021, with the use of proceeds targeting social and environmental issues. The use of proceeds will likely go to supporting housing affordability, economic opportunity, renewable energy and clean transportation, four of the nine eligibility criteria described in Wells’ Sustainability Bond Framework.

The lender also boosted its commitment to diversity and inclusion, employed 24 firms described as diverse in various aspects of the transaction. Distributing 75% of the fees involved in all aspects of this transaction to firms that meet the bank’s diversity and inclusion criteria, further adds to the social impact of this activity.

Updated sustainability goals target fossil fuel exposure

In 2022, Wells Fargo further elaborated on its emissions reductions target, committing to a 26% reduction in emissions related to financing the oil and gas sector by 2030, from a 2019 baseline. What’s critically important about this announcement is the fact that it includes its lending, as well as the facilitation of facilitating capital market transactions.  These have been sticking points for several banks in acting on emissions reduction.

The bank has also committed to a 60% reduction in emissions from its power financing activities, with a focus on supporting renewable energy financing. The bank set a goal in 2021 of achieving net-zero greenhouse gas emissions by 2050, which includes launching the deployment of $500 billion in financing to sustainable businesses and projects between 2021 and 2030. This compares to reported sustainable financing of $157 billion between 2012 and 2020.

Reliance on fossil fuel lending may be a hard habit to break

Wells Fargo is the third largest provider of funds to the fossil fuel industry, which showed the largest increase among peers in 2021, and has increased at 7.5 times the average rate of growth for the top 10 lenders since 2016, according to a report by the Rainforest Action Network. This suggests that the bank has a high level of operational dependence on fossil fuel financing.

However, Wells’ asset base is ranked 16th among global banks, smaller than that of peers who have been pulling back on their fossil fuel financing. This may imply a bigger risk to potential stranded assets in the future, requiring write-offs and jeopardising the bank’s positive actions on climate and inclusion via its bond issuances.

Wells Fargo’s lending activities appear to run contrary to its being a signatory of the Net Zero Banking Alliance. This introduces an additional reputational risk as accusations of greenwashing add further challenges to its approach to meeting net zero and sustainability targets.  A filing by the Sierra Club Foundation led to a shareholder request for Wells Fargo’s board to proactively ensure lending and underwriting activities do not contribute to new fossil fuel development, by the end of 2022.

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