Castlefield Stock Story - UniCredit

The extractive industries (mining plus oil & gas) rely on finance from banks to keep digging and drilling. The Fossil Fuel Finance Report, commonly known as Banking on Climate Chaos, is an annual publication which analyses these industries and tries to measure how much cash banks invest into fossil fuel extraction. The 2025 report was published recently.[1]

The main finding of the latest report is that, in the year under review, despite adopting policies on Net Zero and making other climate commitments, global banks backtracked on many of their climate pledges and actually increased their fossil fuel financing, including investing more cash into new fossil fuel extraction projects. The report claims that the world’s 65 biggest banks have committed a colossal $7,900,000,000,000 since 2016 to support the fossil fuel industry.

Even though some of their activities might not deserve plaudits, banks are central to a healthy economy, providing finance to businesses and individuals to help them invest for the future while, at the same time, facilitating financial transactions and offering a safe place for people to store their wealth. Banks are attractive investments because they can turn money into more money without really needing to make or sell anything.

banks are central to a healthy economy, providing finance to businesses and individuals to help them invest for the future

After the global financial crisis (GFC) of 2007-2009, a raft of new regulations was probably rightly imposed on the banking sector. These days, they must maintain certain minimum capital levels and are subject to increased government oversight. Larger institutions undergo "stress testing" to determine their ability to survive another crisis.

Also, banks can be susceptible to economic downturns, with profit margins sensitive to changes in interest rates. Nevertheless, they remain a safer haven than many other sectors and this is often reflected in a reliable dividend stream, greatly valued by lots of investors.

At Castlefield, we have a relatively small exposure to banks, but they are an important part of any well-diversified portfolio. Chosen carefully, they are profitable businesses with the power to generate attractive investment returns while also benefiting society.

We own shares in the Spanish giant Banco Santander and we also invest in Milan-based UniCredit SpA, a leading pan-European group which offers a broad range of financial services.[2] We hold shares in UniCredit in our CFP Castlefield Thoughtful European Fund. Established in 1870, UniCredit operates across Italy and Germany as well as Central and Eastern Europe (notably Bulgaria, Croatia and Czechia.) Through its range of products and services, UniCredit aims to facilitate economic growth and support financial stability across its markets.

In the Fossil Fuel Finance Report, seven of the top ten fossil fuel financiers are American or Canadian, while UniCredit is outside the top 30. Given that it’s hard to find a major bank that isn’t exposed to the extractive industries, UniCredit’s performance is satisfactory. The bank has committed to phasing out coal financing by 2028, although we still await a clear plan for addressing conventional oil and gas financing.

Earlier this year, we spoke to the Investor Relations team at UniCredit.[3] We wanted more detail on their fossil fuel lending and their plans to reduce their exposure. It’s clear that the company has thought about the issue and has set targets to reduce its exposure to the extractive industries and it’s having some success in doing so.

The bank has committed to phasing out coal financing by 2028

Supporting a sustainable future is an important goal for UniCredit. In 2010, the bank set up the UniCredit Foundation[4] which supports various initiatives in education for young Europeans, such as combatting early school leaving, smoothing the school-to-work transition and widening access to higher education.

Since we invested in the company, UniCredit shares have performed extremely well and have made a good contribution to the performance of our European Fund. Looking forward, the bank should benefit from regional economic recovery and growing demand for credit in Europe.

The bank’s diversified revenue streams—spanning retail, corporate, and investment banking—provide a solid foundation, while digital transformation and cost efficiency measures have improved operational performance. The board has worked hard in recent years to unlock what it sees as trapped potential in the group. Recent strategic initiatives have centred on improving asset quality and delivering structural reforms which should support long-term profitability and earnings growth.

Written by David Gorman 

Information is accurate as at 11.07.2025. Opinions constitute the fund manager’s judgement as of this date and are subject to change without warning. The officers, employees and agents of CIP may have positions in any securities mentioned herein. This material may not be distributed, published or reproduced in whole or in part. With investment, capital is at risk.