One of the best things an average person can do for the climate: switch banks.
Responsible investing gets a lot of attention because there’s a lot of money to be made to convince do-good investors to buy a new investment product, even though there’s plenty of evidence to show that ESG and other Responsible investment approaches fail to deliver on their promises of draining money from the extractive economy. What doesn’t get enough attention is responsible banking, which has much more potential to force the economy away from fossil fuels, the main driver of carbon emissions that cause climate change – and to force this change quickly. We haven’t heard much about responsible banking because hardly any of the big banks engage in this practice and they don’t want customers to know how their money is being used.
The oil and gas industry can only function with large investments that fund exploration and the creation of the infrastructure needed to keep oil and coal burning. That funding, which stood at $742 billion in 2021, comes from the world’s biggest banks, according to the Banking on Climate Chaos report, published by a consortium including Sierra Club and Rainforest Action Network. US banks continue to be the worst group, with the world’s four largest fossil fuel lenders (JPMorgan Chase, Citi, Wells Fargo and Bank of America) all based in the US, joined by Morgan Stanley and Goldman Sachs in the top 14. Together, these six banks provided 29% of identified fossil fuel financing in 2021. (Royal Bank of Canada, UnionBank, Barclays and Mizuho are close behind them.) While some of the big banks have committed to invest in renewable energy and regeneration projects, few have actually disengaged from fossil fuels or delivered on the promises they have made, and many have actually increased their funding of oil and gas projects since the Paris Agreement in 2016.
Customers don’t seem to understand that their own money is what is funding these banks’ investments in fossil fuels. If you deal with one of the big banks, the money in your deposit accounts is available for the banks to use as they wish, and many of them send it to the worst offenders of the climate crisis.
And the banks pay next to nothing. While some shareholder activists have pushed major banks to divest from fossil fuels, these efforts have not been successful. And while bank customers seem to be paying little attention, right-wing vested interests have certainly noticed.
Conservative states like Texas, Kentucky, Tennessee, Louisiana, Oklahoma, Indiana and West Virginia are enacting laws to punish banks that divest from fossil fuels, even though none of the banks they target has really divested or even approached it. We should expect more attempts like these to force banks to keep funding the main driver of climate change.
If enough customers leave banks that finance fossil fuels – and make it clear why they are leaving – it will show bank CEOs that there is a price to pay for financing climate change. Banks might not even need shareholder incentive to divest, as the business case would be clear.
Several websites can help customers find banks that do not support the fossil fuel industry. Green America’s Break Up with Your Mega-Bank campaign offers tools for finding a community development bank or credit union that avoids fossil fuels. Bank for Good allows users to search for greener banks based on a wide range of features and services. The Stop the Money Pipeline campaign provides a checklist for switching banks. And BankTrack offers information on a wide range of major bank activities around climate, human rights and more.
We could soon see SEC rules requiring banks to disclose the climate impact of all their investments, and then we can expect to see more comprehensive tools to help consumers know where their money is really going.
If you’re dealing with a major bank, the best thing you can do for the climate is to withdraw your funds as soon as possible and close your accounts, and let them know why you’re doing it. Changing banks is a pain, but this one-time act, done now, is more powerful than any single act the average investor can take to address the climate crisis.
More writers at Bloomberg Opinion:
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• Gen Z thinks “the money will come back”. Are you OK ? : Erin Lowry
• The oldest trees in the world can survive anything but humans: Faye Flam
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Tanja Hester is the author of “Wallet Activism” and “Work Optional,” and host of the “Wallet Activism” podcast.
More stories like this are available at bloomberg.com/opinion