Finance and Climate
“Fossil fuel financing from the world’s 60 largest banks has reached USD $5.5 trillion in the seven years since the adoption of the Paris Agreement”, according to the report Banking on Climate Chaos (2022). It was published by a group of environmental and campaigning organisations, and its topics include the commitments of banks to fossil fuel finance, their policies, and fossil fuel expansion and trends. The group’s website lists the twelve banks which have done most to finance fossil fuels globally and data are provided for sixty banks with the sums involved for each year from 2016 to 2022. The policies of the banks are summarised in terms of projects, expansion, and phase-out. The funding data can also be searched for each of the several hundred companies supported. A graphic shows the funding flows from ten key banks to twenty top fossil fuel companies. Data on financing are also given for sectors such as tar sands, Artic oil and gas, fracking, and coal mining. An Oil and Gas Policy Tracker and a Coal Policy Tool are provided.
Reclaim
Finance, which describes itself as a non-governmental research and campaigning
organization, regards finance
as “a critical lever in the fight against climate change” but sees mainstream
finance as remaining “at odds with the objectives of social and climate justice”.
It aims to “follow and analyze the activities of financial actors to … expose
their real impacts”. A range of online articles covers topics including asset
management, corporate lobbying, banks and the fossil fuel majors, financing
coal retirement, the fossil fuel policies of insurers, and the European Central
Bank’s asset purchases. (Reclaim Finance 2023).
A report
from Project Drawdown concentrates on how money deposited by individuals with
financial institutions in the USA is used to undermine or to accelerate efforts
to reduce the effects of climate change (Drawdown, 2023). It points out that “cash
does not sit idly in the bank accruing interest” but is used to “finance
everything from new businesses, to construction projects, to new energy
(including fossil-fuel) development” and claims that “banks in the United
States lend as much as 20–30% of their portfolio to carbon-intensive sectors
driving climate change”. The report points out how savers can ensure that banks
direct their money to projects such as “renewable energy, sustainable
agriculture, green buildings, public transportation, healthy ecosystems,
flourishing communities, and other climate-friendly enterprises.”
The median
balance in a day to day personal bank account in the USA in 2022 was said to be
US$8,000, and moving this sum from a “carbon-intensive” bank to a
“climate-responsible” bank would achieve “a larger annual reduction in indirect
emissions than the direct annual emissions reductions that would be achieved by
adopting an all-vegan diet, and two times the annual emissions reduction impact
of adopting a vegetarian diet.” The effect of many people switching accounts in
this way can be a signal to the global market, with its power to tilt the
entire financial system. The report makes clear that it “does not provide or
constitute financial advice” and proceeds to consider terms and topics. Few U.S.-based
banks comprehensively report the greenhouse gas emissions generated by their
lending and investing activities, termed their “financed emissions”. Since
these are typically orders of magnitude greater than their direct emissions,
understanding them is essential. Direct emissions are greenhouse gasses from sources
under the direct control of an organisation, such as heating its buildings; indirect
emissions come from activities, purchases, or decisions not under direct
control such as goods and services provided by others; and financed emissions “are
a subset of indirect emissions that are generated by financial institutions
when they invest and loan money to activities and industries.”
Analysis was
based on a subset representing the two broad categories of carbon-intensive
banks and climate-responsible banks. The financed emissions of carbon-intensive
banks were based on 11 U.S.-based banks that lend to carbon-intensive sectors
(energy production, utilities, mining, and large-scale manufacturing). They are
JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, US Bank, Truist,
Goldman Sachs, Morgan Stanley, PNC, Capital One, and Citizens Bank. The financed
emissions of U.S.-based climate-responsible banks were based on Amalgamated
Bank, Beneficial State Bank, Clearwater Credit Union, and Sunrise Bank. These
are banks that do not lend to or underwrite fossil-fuel projects and companies
(unless direct finance for a green project), have limited exposure to other
carbon-intensive sectors, and prioritize lending to climate solutions.
The Key
Findings section of the report opens with a warning that its banking emissions
figures are estimates rather than precise accounting and continues by stating
that the “dollar you deposit in a bank has an associated carbon footprint, and
this footprint will vary depending on how the bank lends and invests that
dollar.” As an example, every US$1,000 in savings with one of the eleven largest
U.S.-based banks “is roughly equivalent to the direct emissions generated by
flying from New York to Seattle every year.” Account holders with one of the
carbon-intensive banks “may be indirectly lending up to 20–30%” of their money
to the industries most responsible for fuelling the climate crisis and moving
to a climate-responsible bank could reduce the greenhouse gas emissions it
generates by an average of 76%. The four actions recommended to the report’s
readers are to assess their footprint and evaluate their bank; engage their
bank by making known their views; move their money if necessary; and spread
awareness of the situation.
The UK
financial sector and its global emissions are the subject of a report by
Greenpeace (2021). It assessed “the size of the global carbon footprint that is
financed by some of the largest and most systemically important entities in the
UK’s financial sector” calling this carbon footprint the UK’s ‘financed
emissions’. The analysis focussed on banks and asset managers in the UK
financial sector and produced estimates of 415 million tonnes CO2 e associated
with banks and 390 million tonnes CO2 e associated with asset managers. The
total was said to be “almost 1.8 times the UK’s domestically produced emissions.”
The recommendations made by Greenpeace in the report were set in the context of
the Climate Change Act which commits the UK government to achieving a net-zero
economy by 2050. The Financial Conduct Authority and the Prudential Regulation
Authority, the two key regulatory bodies, were seen as reluctant to mandate
climate risk disclosures, preferring to rely on the government to introduce
appropriate legislation.
An example
of a statement on climate policies from the banking sector is provided by Lloyds
Banking Group in its climate report “Financing a green future” which includes sections
on supporting the transition to a green economy, reducing financed emissions,
and progress towards meeting the recommendations of the Task Force on
Climate-related Financial Disclosures (Lloyds 2021).
Several UK organisations have recognised the concern which account holders feel over the way in which their money is used and have offered guidance. Which? Published a recent article on Britain's greenest banks (Which? 2023). The organisation “examined the environmental policies of 13 of the UK’s leading current account providers. Only three earned our Eco Provider badge.” The Co-operative Bank, Nationwide and Triodos were said to have “no exposure to fossil fuels in their banking activities.” The Co-operative Bank “sets high ethical standards for the businesses it offers services and finance to, most of which are small and medium sized” and “excludes firms involved in the exploration, extraction or production of fossil fuels, and the unsustainable harvest of natural resources”. Nationwide is the world’s largest building society, primarily a funder of residential mortgages, but also offers banking services. Triodos Bank describes itself as providing banking and financial services “for individuals and organisations who want to change the world for the better” and claims transparency by publishing details of every organisation it finances on its website. The same trio is also the choice of tred (2022), Hardman (2023) and many others. ZeroSmart (2022) lists the most sustainable banks in the UK as The Co-operative Bank, Triodos, Monzo and Starling. It lists those to avoid on the grounds of ethics and environmental action as Barclays, HSBC – including First Direct (HSBC brand) and M&S Money (50% HSBC), NatWest Group – including NatWest, RBS, and Coutts, Lloyds Banking Group – including Lloyds, Halifax, and the Bank of Scotland, Santander – including Carter Allen, Tesco and Citigroup.
References
Banking on Climate Chaos, 2022, consortium publication, online, accessed 4
January 2024
https://www.bankingonclimatechaos.org/
Drawdown,
2023, Saving (for) the Planet: The Climate Power of Personal Banking, Project
Drawdown, online, accessed 29 December 2023
https://drawdown.org/publications/saving-for-the-planet
Greenpeace,
2021, The Big Smoke: the global emissions of the UK
financial sector, Greenpeace, online, accessed 29
December 2023
https://www.greenpeace.org.uk/resources/big-smoke-uk-finance-report/
Hardman, B.,
2023, Who Are The Most Ethical Banks UK 2023? Tiny Eco Home Life, online,
accessed 5 January 2024
https://www.tinyecohomelife.com/most-ethical-banks-uk/
Lloyds,
2021, Financing a green future, Lloyds Banking Group, online,
accessed 29 December 2023
Reclaim
Finance, 2023, Reclaim Finance, online, accessed 9 January 2024
https://reclaimfinance.org/site/en/who-are-we/
tred, 2022, The
best green and sustainable banks in the UK, tred, online,
accessed 5 January 2024
https://tred.earth/the-best-green-and-sustainable-banks-in-the-uk/
Which? 2023,
Which? reveals Britain's greenest banks, Which, online,
accessed 5 January 2024
https://www.which.co.uk/news/article/which-reveals-britains-greenest-banks-afd5U5u3w0Pg
ZeroSmart, 2022,
Most Sustainable Banks in the UK, ZeroSmart, online,
accessed 5 January 2024
https://www.zerosmart.co.uk/post/most-sustainable-banks-in-the-uk
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