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

https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2021/q4/2021-lbg-climate-report.pdf

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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