Climate finance gets personal: people are realizing that their banking decisions could make or break our planet
In the six years following the adoption of the Paris Climate Agreement, the world’s 60 largest banks have provided a staggering $4.6 trillion in financing for fossil fuels. In 2021, the year that many of these banks pledged to achieve net zero ‘financed emissions’ (the amount of carbon pollution associated with assets under management), banks spent nearly three-quarters of a trillion dollars to further oil, gas, and coal development. It goes without saying that if this trend continues, consumer banks will lock in sufficient greenhouse pollution to take us well past the 1.5°C redline in global temperature rise.
The role of banks and financial institutions in driving the climate crisis has been known for a while. Rainforest Action Network, Banktrack and the Sierra Club have published annual reports tracking the banking sector’s role in financing climate change for almost a decade. Every year, the Banking on Climate Chaos report shows that the “Dirty Dozen” — the 12 most harmful banks in the world (see above) — are responsible for an average of $400B in annual fossil fuel investments. And according to the 2022 report, some banks like Wells Fargo and JP Morgan Chase, along with almost all of the major Canadian banks, have actually increased their spending!
To put this in context, the 15 worst banks are now responsible for nearly HALF of all global funding for fossil fuels (the new IEA World Energy Investment report finds roughly $900B in fossil fuel investing in 2021). Without them, the fossil fuel industry as we know it today would collapse, making way for cheaper, cleaner renewable energy projects. And where do the banks get the funds to create all this climate chaos? Well, from us consumers of course!
I’ve been tracking the topic of personal climate finance for more than a decade and have been part of a few public campaigns to get people to pull their money out of fossil banks. None have really taken off, but this year I sense a big shift in the zeitgeist. People have woken up to the sickening reality that their bank deposits, and their retirement savings, are literally killing the planet…
It doesn’t matter if you drive an electric vehicle, recycle all your plastics, or offset your air travel emissions. If you have a cash balance at one of the 60 banks listed in the Climate Chaos report, your hard-earned dollars are partially responsible for the disruption of our global climate system.
Money deposited into savings accounts is the most lethal form of climate cash. As a rule of thumb, in the U.S. 90% of these assets can be used by banks to underwrite huge investment deals in ExxonMobil, for example, which is working to develop new oil projects in countries like Guyana, one of the most densely forested places on Earth.
This realization seems to be sweeping social media. Banktrack recently launched the “Fossil Banks No Thanks” campaign targeting European banks. In the past year, we’ve seen activists shutting down traffic at the JP Morgan Chase headquarters in Manhattan, NASA scientists arrested after chaining themselves to a bank entrance, and social media influencers calling out the toxic relationship between our cash and the climate crisis (I highly recommend watching Emerson Brophy’s musical number called “Banks to Boycott”):
The pressure has been mounting on banks to heed the calls of their eco-conscious customers, and it’s starting to work. The Net Zero Banking Alliance (NZBA) representing 115 major banks and almost 40% of global banking assets, recently strengthened its ‘Race to Zero’ requirements for membership. A large coalition of NGOs have called for compliance to be mandatory, restricting their financing of fossil fuel projects. The campaign group ShareAction has called out major European banks for falling short on their climate commitments, and it’s now providing a ranking of the best and worst banks for the environment. To date only a few banks have committed themselves to environmental and social welfare, like Beneficial State Bank in the U.S. and Co-operative Bank in the UK (check out its amazing ad campaign below).
But that is changing fast. Lloyds Bank announced in October it will no longer provide direct financing to fossil fuel projects as part of its new climate policy. And not to be outdone, HSBC the world’s seventh largest bank, just announced in December that it will cease oil & gas funding. The Netherlands’ ING bank and Spain’s BBVA bank are also drawing up policies to end direct financing of new oil & gas extraction projects.
This seismic shift in banking policy may be due in part to the pressure from an array of climate-friendly fintech start-ups like Ando and Atmos in the U.S. as well as new debit card products like Aspiration and Bank of the West’s 1% for the Planet account, aimed specifically at millennial consumers who want a bank that aligns with their environmental and social values. The risk to legacy banking institutions is quite significant..
In the U.S. alone, banks are sitting on approximately $1.1 trillion in consumer savings deposits and another $4.6 trillion in corporates savings. Canadians have $300 billion in personal savings, and Europeans have amassed over $1 trillion in cash. These deposits are relatively easy to move, and with consumers around the world waking up to the power of their banking decisions to either make or break the climate, I predict we’ll see a mass migration of funds out of the Dirty Dozen, and into banks that are putting all that capital to work for the benefit of the planet.
Bank accounts are just the beginning. In OECD countries, there are another $56 trillion in retirement savings held in 401(k)s, pension funds and other accounts, $40 trillion of which are managed for U.S. retirees. Three American asset management firms control a whopping $22 trillion on behalf of consumer and institutional investors — BlackRock (with $10 trillion), Vanguard (with $8 trillion) and State Street (with $4 trillion).
Blackrock and State Street joined the Net Zero Asset Managers initiative (NZAM), which means at least in principle they are agreeing to reduce their financed emissions to zero by mid-century. But they have been known to be some of the biggest backers of oil & gas projects. For this reason they have been targeted by climate activists. Earlier in the year, faith leaders stormed Blackrock’s lobby in New York City. Note: Vanguard had also joined NZAM but just pulled out, caving into pressure from conservative politicians.
In the U.S. the pressure is on for mutual funds to clean up their act. Americans have the majority of their retirement savings in mutual funds, and individuals are starting to push their employers to offer climate-friendly 401(k) options. Our own organization just moved its retirement plan to Carbon Collective, which offers a completely fossil-free retirement plan. While such plans are still rare, they are growing rapidly. And just a few weeks ago a new rule by the Biden administration will finally ease restrictions on environmental and socially conscious investing products, encouraging asset managers like Blackrock and Vanguard to offer “green” retirement options. This will unlock the floodgates, channeling trillions to climate-friendly mutual funds.
To help individual investors, the nonprofit As You Sow offers an interactive tool called Invest Your Values, which examines the holdings of thousands of mutual funds and scores them based on their environmental and social impacts as well as their financial returns. Another research firm, Etho Capital goes deep in tracking the carbon emissions of over 10,000 publicly listed companies, including often hidden Scope 3 emissions (aka supply chain emissions). They offer an “Etho Climate Leadership Index” available as an ETF. In a recent analysis, their index has outperformed a listing of prominent fossil-dependent companies (which they call “Laggards”) by a staggering 8% per annum over a 5-year investment period.
Gitterman Asset Management, one of the leaders in the climate investing space, released a report in 2021 with ESG data provider Entelligent called the Great Repricing, which for the first time correlates physical climate risks with capital market exposure across most asset classes. The report maps out a great transition that is about to occur in capital markets — as once profitable “blue chip” companies become too risky due to their fossil fuel dependency, while new opportunities in clean energy and climate tech emerge as big winners. (Check out Jeff Gitterman’s show on FintechTV for interviews with some of the world’ smartest climate investors).
For those that have the bulk of their retirement savings in pension funds, it’s certainly much harder to influence investment policies, but a new campaign in the UK has carved out a pathway for individual pensioners to make a difference. The Make My Money Matter campaign was launched for the purpose of gathering public influence to force change in the retirement savings industry. As Campaign Director David Hayman says, “If you have a pension, you have power. So much power that greening your pension is 21x more effective at reducing your carbon footprint than giving up flying, going veggie, and switching your energy provider combined.”
The public was woken up to the powerful role we all can play in solving the climate crisis through our personal finance decisions. As I detailed in 6 reasons why we can be optimistic about solving the climate crisis, the economic tides have turned against the fossil fuel industry. Now we just have to cut off the flow of finance, preventing new polluting projects from getting funded in the first place. It turns out that decision is largely in our hands.
