Are Banks the Silent Climate Killers?

Dear EarthTalk: How come banks play a disproportionate role in increasing greenhouse gas emissions, and what can we do to reform this?

—Philip, C., New York, NY

Banks play a vital role in the global economy. By financing industrial activities and investing in infrastructure projects, they are at the forefront of stimulating economic growth. However, through their investments in fossil fuel industries, banks like Chase, Wells Fargo, and Bank of America are also responsible for financing greenhouse gas emissions.

Carbon emissions from banks can be traced back to high-carbon portfolios in fossil fuel sectors. According to Whistleblowers.org, the world’s 60 largest commercial banks have committed more than $3.8 trillion to fossil fuels through lending and underwriting. By supporting and investing in companies that extract and produce oil, gas, and coal, banks are helping these companies grow, independent of the global transition to a greener economy.

What can banks do to change this? First, they need to shift their portfolios away from carbon-intensive sectors and toward sustainable projects. In doing so, banks can invest in sectors that reduce carbon emissions. In addition, green bonds, fixed-income financial instruments used to finance climate-positive projects, and climate funds, financial mechanisms that support low-carbon projects and initiatives, can be used to provide capital specifically targeted to environmentally friendly projects.

Banks can also reduce their greenhouse gas emissions by adopting ESG (environmental, social and governance) criteria, a screening technique that judges companies based on their relationship with their social and ecological environment. By applying these criteria to potential investments, they can steer towards companies that reflect environmentally friendly values. Adopting ESG criteria can help banks reduce their carbon footprint and address other broader social issues.

Banks can easily improve their transparency and accountability. By disclosing the carbon footprint of their investment portfolios as well as their emissions reduction targets, they can demonstrate their commitment to a carbon-neutral future. Frameworks such as the Task Force on Climate-related Financial Disclosures can be used to provide guidelines for reporting and stakeholder assessment, as well as to compare the emissions of different banks. Greater transparency makes it possible to track banks’ progress in reducing greenhouse gas emissions.

Readers can study their bank’s carbon footprint to identify “greenwashing,” a technique used to misrepresent a company as environmentally friendly. Search their websites for impact reports to understand their ethics and investments. Look for external green certifications and use resources like Bank Green, which conducts environmental analyses of banks. By supporting greener banks, you can contribute to transparency and accountability. Through such actions, you can influence the financial sector’s transition to a low-carbon future.

CONTACTS

EarthTalk® is produced by Roddy Scheer and Doug Moss for the 501(c)3 non-profit organization Let’s talk about the Earth. For more information, visit https://emagazine.com. To donate, visit https://earthtalk.org. Send your questions to: [email protected].