Greenlaundering is emerging as a critical and troubling issue in the fight against climate change, representing a sophisticated form of deception that allows banks and fossil fuel companies to project a green image while continuing to finance environmentally destructive activities. This increasingly prevalent tactic undermines global efforts to divest from fossil fuels and threatens both climate stability and the integrity of the financial system.
What Is Greenlaundering and Why Is It a Big Deal?
Greenlaundering can be described as the covert concealment of fossil fuel financing by banks through the use of complex, opaque financial structures, particularly subsidiaries located in secrecy jurisdictions—friendly tax havens with weak transparency laws.
Unlike greenwashing, which is largely about public-facing misinformation or exaggerated environmental claims, greenlaundering operates behind a veil of financial secrecy, making it difficult for regulators, investors, activists, and the public to trace where money is truly going. This hidden flow of capital continues to funnel billions of dollars into oil, gas, and coal industries, despite many financial institutions’ public commitments to environmental responsibility and climate action.
Banks and fossil fuel companies exploit secrecy jurisdictions to channel funds through subsidiaries that appear disconnected on paper from the parent companies involved in expanding fossil fuel extraction and infrastructure.
For example, a bank may publicize a policy pledging no Arctic oil drilling funding yet quietly finance a lesser-known subsidiary of a larger group actively engaged in Arctic drilling. This creates a “hall of mirrors” effect, where layers of subsidiaries and opaque ownership blur and hide the real sources and destinations of funding.
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The Mechanics of Greenlaundering
The phenomenon depends heavily on the existence of secrecy jurisdictions—special jurisdictions or tax havens that facilitate financial opacity. These jurisdictions have lax transparency requirements, allowing the identities of beneficial owners and detailed financial transactions to remain hidden from public scrutiny. Fossil fuel companies deliberately set up subsidiaries in such places to attract funding from banks that might otherwise appear to avoid financing fossil fuel extraction directly.
Banks also craft exclusion policies that contain loopholes. They often exclude financing “directly” related to fossil fuels but fail to account for financing flowing through subsidiaries in these secretive jurisdictions. This gap allows banks to meet regulatory requirements and public expectations superficially, while still enabling lucrative fossil fuel investments behind the scenes.
Impact on Climate Justice and the Environment
Greenlaundering fundamentally challenges the work of climate justice advocates who push for divestment from fossil fuels. It misleads the public and policymakers by obscuring the true extent of fossil fuel financing, thereby weakening pressure on financial institutions to alter their practices genuinely. It stalls progress on reducing carbon emissions because the real flow of funds continues unabated, fueling destructive fossil fuel developments that perpetuate greenhouse gas emissions and environmental degradation.
Moreover, this deception extends to climate reporting. Banks often boast about reducing direct emissions or limiting investments in fossil fuels, but their reports typically overlook or under-report so-called “scope 3” emissions. Scope 3 emissions refer to indirect emissions produced by the companies they finance, beyond the emissions a bank would cause directly. These emissions can be significant, representing much of the true environmental impact linked to financial activities. Poor disclosure of such emissions means stakeholders have an incomplete and misleading understanding of environmental footprints and risks.
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How Greenlaundering Puts the Global Financial System at Risk
Greenlaundering is not just an environmental issue—it is a significant financial systemic risk. Central banks and financial regulators rely heavily on transparent and accurate data to assess the health and stability of banks and the financial system. When large banks hide their true exposure to fossil fuels through complex subsidiaries, central banks receive a false sense of security about financial risks.
The risk lies in the transition away from fossil fuels, which is essential to limit global warming. If the world shifts rapidly toward renewable energy, fossil fuel assets could quickly lose value. Banks with hidden, undisclosed fossil fuel investments might face sudden losses, causing instability in the financial markets. This “carbon bubble” could burst suddenly, leading to a chain reaction of bank failures, investor panic, and broader economic disruption.
A recent global study of the 60 largest banks found that approximately 68% of their fossil fuel financing goes through subsidiaries located in secrecy jurisdictions. This large proportion of hidden fossil fuel exposure makes it difficult for regulators and central banks to gauge the real risk within the financial system accurately. Without transparency, central banks are unable to prepare adequately for the potential fallout of a rapid energy transition, leaving the economy vulnerable.
Gaps in Reporting and Regulation Facilitate Greenlaundering
One of the biggest challenges enabling greenlaundering is the weakness and inconsistency of reporting requirements worldwide. While some regions, like the European Union, have begun implementing regulations such as the Corporate Sustainability Reporting Directive (CSRD), these are often incomplete or inadequate to address the complexities of multinational banking and fossil fuel subsidiary structures.
There are several reasons why reporting gaps persist:
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Banks are not required to fully disclose financing that occurs through subsidiaries or entities under their control but located in foreign jurisdictions.
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The diversity of regulations across countries creates loopholes that companies exploit by routing money through locations with minimal reporting requirements or lax enforcement.
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Scope 3 emissions, which provide a fuller picture of environmental impact, are often excluded or only partially reported, leading to underestimation of real carbon risks.
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Publicly available data on fossil fuel financing via subsidiaries is often incomplete or obscured by confidentiality and corporate secrecy.
This regulatory patchwork allows greenlaundering to flourish, making it almost impossible for independent watchdogs, civil society, and even governments to track how capital flows and for what purpose fully. It hinders ongoing efforts to push banks and companies to stop financing fossil fuels and shift investment toward cleaner alternatives.
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Consequences Beyond Climate: Undermining Trust and Governance
Greenlaundering damages trust in financial and governmental institutions. When the public learns that banks are secretly financing polluting industries despite their green pledges, it generates cynicism and erodes confidence in climate commitments. This undermines democratic processes and public support for meaningful climate policies.
Furthermore, greenlaundering benefits powerful fossil fuel interests at the expense of broader society. By securing cheaper financing and favorable conditions through secrecy jurisdictions, fossil fuel companies maintain and expand operations that contribute heavily to climate change. This financial strategy deepens inequalities by consolidating wealth and influence within fossil fuel networks while slowing down the just transition to sustainable economies.
What Needs to Change to End Greenlaundering?
Ending greenlaundering requires a multi-pronged approach focusing on transparency, regulatory reform, and accountability:
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Improved Transparency and Reporting: Global financial regulations must mandate full disclosure of all fossil fuel financing, including through subsidiaries and offshore entities. Reporting must also include scope 3 emissions to reveal indirect environmental impacts.
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Stronger International Cooperation: Since greenlaundering mainly exploits differences in international tax and transparency laws, coordinated global action is essential. Measures should focus on closing secrecy jurisdiction loopholes and increasing information sharing among regulators worldwide.
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Rigorous Enforcement: Authorities should increase the scrutiny of banks’ financing practices, ensuring exclusion policies are binding and comprehensive, covering all subsidiaries and affiliates.
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Central Bank Vigilance: Central banks must integrate climate risks explicitly into their financial supervision and stress-testing frameworks, and actively seek data to uncover hidden fossil fuel exposures.
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Empowering Civil Society and Researchers: Improved data availability will enable more effective public pressure and advocacy against fossil fuel financing, supporting the push for meaningful climate action.
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Greenlaundering represents one of the most dangerous but least visible challenges in the fight against climate change. By cloaking the true scale of fossil fuel financing in financial secrecy, it threatens not only environmental sustainability but also global economic stability. Banks and fossil fuel companies exploit secrecy jurisdictions and reporting gaps to maintain lucrative dirty energy investments while promoting a false image of green responsibility.
Tackling greenlaundering demands urgent, coordinated global action to improve transparency, close loopholes, and hold financial actors accountable. The stakes are high: failure to confront this hidden crisis risks exacerbating climate damage, imperiling financial systems, and betraying the trust of societies striving for a sustainable future.
