Fossil fuel financing by Wall Street’s leading banks has declined sharply in 2025, highlighting a market-led shift away from high-carbon investments that is unfolding independently of public net zero commitments. According to Bloomberg data, the top six US banks reduced their collective lending and underwriting to oil, gas, and coal projects by 25 percent in the first seven months of the year compared to the same period in 2024. Total financing fell to 73 billion dollars, pointing to a recalibration in response to changing economic signals rather than climate policy enforcement.
The most significant cut was observed at Morgan Stanley, where fossil fuel financing dropped 54 percent. JPMorgan Chase, which remains the largest financier among its peers, reported the smallest reduction, with a 7 percent decline. Wells Fargo led the group in overall volume, providing 19.1 billion dollars in fossil fuel loans and bond issuances through August 1, although that total was still 17 percent lower than a year ago.
While these moves come amid a political environment that favors fossil fuel development, especially under the administration of President Donald Trump, the lending reductions suggest a deeper alignment with shifting market realities. The changes in Wall Street’s behavior reflect strategic repositioning based on risk and return expectations rather than adherence to public climate targets.
Net Zero Retreats Amid Political and Market Realignment
The current decline in fossil fuel lending coincides with a broader transformation in the financial sector’s climate positioning. All of Wall Street’s major banks have recently distanced themselves from the Net-Zero Banking Alliance, a coalition designed to steer banking portfolios toward alignment with the Paris Agreement. Their withdrawal followed the reelection of President Trump, whose administration has actively reversed numerous climate-related policies and regulations.
Despite this public pivot, data shows that decarbonization trends are still present within these institutions. Analysts at BloombergNEF point out that public net zero commitments often lag behind actual changes in portfolio allocation. According to Miquel Kishimoto Guardiola, a BloombergNEF analyst, examining the underlying structure of lending books is a more accurate measure of energy transition impact than public statements or climate pledges. He emphasizes that a meaningful shift is evident when capital is being redirected from fossil fuels to clean technologies.
This nuanced reality is supported by the latest financing figures. Even banks that have abandoned formal climate coalitions appear to be reallocating resources in ways that reduce their exposure to high-carbon sectors. The broader industry, including banks in the United Kingdom such as HSBC Holdings and Barclays, which also exited the Net-Zero Banking Alliance, shows similar movement.
Global upstream investment in oil and gas projects is also expected to decline for the first time since 2020, according to JPMorgan analysts. That downturn is being driven by a combination of cost pressures, lower returns on capital, and rising uncertainty in the global energy outlook. This macroeconomic backdrop is reducing the attractiveness of long-cycle fossil fuel projects, particularly those requiring substantial up-front investment and long-term capital commitment.
Capital discipline is being reinforced by volatile commodity pricing and geopolitical instability, including ongoing energy policy shifts in China, Europe, and the Middle East. These dynamics are affecting banks’ risk assessments, pushing them to reevaluate their long-term exposure to fossil fuel assets.
Wells Fargo, which provided the largest volume of fossil fuel financing among the six banks, has also gone further than most in walking back net zero targets. Even so, its overall lending to the sector still dropped compared to 2024. JPMorgan and Morgan Stanley declined to comment publicly on their financing strategies. The lack of formal responses reflects the heightened sensitivity around energy-related capital deployment during a period of political realignment.
The Market’s Quiet Push Toward Decarbonization
While regulatory pressure and climate coalitions have taken a backseat in the current political climate, market forces continue to guide financial institutions toward decarbonization. The emissions footprint of a bank’s lending and investment portfolio is hundreds of times greater than its direct emissions from office operations or business travel. For this reason, capital allocation to high-carbon sectors remains a critical area of scrutiny for both investors and climate-focused stakeholders.
BloombergNEF recommends that, to align with the 1.5 degrees Celsius warming limit, banks should allocate four dollars to green projects for every one dollar directed toward fossil fuels. Despite some progress, most banks are still far from reaching this ratio. However, the significant drop in fossil fuel financing in 2025 may represent early momentum in that direction.
The trend raises questions about whether market logic is now doing the work previously expected of public climate frameworks. In the absence of binding commitments, banks appear to be making economically rational decisions that happen to align with decarbonization objectives. This includes a reduction in support for new oil and gas development, tighter lending standards for carbon-intensive projects, and a rebalancing of portfolios toward sectors with better long-term return profiles and lower environmental risk.
The Science Based Targets initiative, which sets global standards for corporate climate goals, published new guidelines in July on how financial institutions can credibly pursue net zero strategies. One of its core recommendations is for banks to end financing of companies involved in new oil and gas exploration and production by 2030. This guidance is less strict than the group’s earlier stance, which had called for an immediate end to such financing.
Still, the guidelines triggered renewed debate over the role of banks in driving or supporting systemic energy transitions. Lisa Sachs, director of the Columbia Center on Sustainable Investment, argues that the financial sector’s primary function is to generate returns, not to lead economic transformation. She described SBTi’s approach as overly optimistic about the influence banks can exert on broader industrial and energy systems.
In contrast, SBTi maintains that banks hold catalytic power through their lending practices. A spokesperson for the organization stated that financial institutions are uniquely positioned to steer capital toward solutions that reduce emissions and support long-term sustainability, particularly in the energy sector.
Whether major US banks will voluntarily adopt SBTi’s new guidelines remains uncertain. Without regulatory enforcement or shareholder pressure, there is little incentive to align lending policies with these recommendations. However, the recent decline in fossil fuel financing suggests that investor demand for cleaner portfolios and increased financial risk from carbon-intensive assets may already be moving the industry in that direction.
Strategic Implications for Oil and Gas Operators
For oil and gas professionals, the shift in capital availability has significant implications. As access to project finance becomes more selective, especially for high-cost, long-cycle developments, operators may need to reconsider their strategic approaches. Financing for new infrastructure in remote or environmentally sensitive regions will face increased scrutiny, not only from regulators but also from financial institutions seeking to manage reputational and balance-sheet risk.
Short-cycle assets, particularly in US shale regions like the Permian Basin and the Eagle Ford, remain more attractive to investors due to their flexibility and faster returns on investment. Even so, companies operating in these regions are likely to face tighter lending criteria, greater disclosure requirements, and increased investor focus on emissions performance and capital efficiency.
As energy markets continue to evolve, oil and gas firms will be expected to demonstrate stronger environmental risk management, clearer decarbonization pathways, and more disciplined capital allocation. In this environment, traditional fossil fuel financing models may give way to hybrid approaches involving a mix of debt, equity, and strategic partnerships, including with clean energy developers.
Banks will continue to play a central role in defining how and where capital flows. Even without binding climate mandates, they are responding to changing economic signals that favor lower-carbon investments. This silent recalibration of capital markets may ultimately prove more powerful in shaping the future of energy finance than formal alliances or political narratives.
CONCLUSION
Wall Street’s retrenchment from fossil fuel financing in 2025 reveals a broader shift driven by market fundamentals rather than climate policy or political alignment. Despite public departures from net zero alliances and a more fossil-friendly stance from the federal government, lending data points to a sustained contraction in capital flowing to carbon-intensive sectors.
This transition reflects a confluence of factors, including rising financial risk, shifting investor expectations, and increased competition from lower-carbon alternatives. For oil and gas professionals, adapting to this new capital landscape will require strategic agility, enhanced emissions transparency, and a forward-looking approach to project development.
The market may not be speaking in the language of climate action, but its signals are unmistakable. Risk-adjusted returns are increasingly favoring cleaner, more efficient energy investments. Wall Street is listening, and the oil and gas industry must respond accordingly.
