Are Banks destroying our Earth?
Banks are linked to funding biodiversity destruction through investments in the fossil fuel industry. Georgie discusses more...
Are banks destroying our Earth? Illustration by Marian Femenias-Moratinos.
What is the link between banks and environmentalism? Banks don’t produce or sell anything tangible, don’t emit huge amounts of emissions from their local branches, don’t farm land or overfish oceans. So what’s the link? The link is the thing that banks revolve around: money. We know that banks act as agents for securing and managing our money, but most of us are blind to what banks do with that money. Since financial institutions are business and not storing our money out of the goodness of their hearts, they use it to make calculated investments to turn a profit. Unfortunately, since profits, not ethics, are the goal here, many of the methods used to profit are problematic. The fossil fuel industry has the potential to be extremely profitable and has been a keen focus of investment for banks around the world. Since the Paris Agreement, the world’s largest investment banks have invested more than $3.8trillion into the fossil fuel industry. From a financial perspective, this is extremely lucrative, but the ethical and environmental repercussions of these investments are truly devastating.
Where is our money going? Photo by Micheile Henderson, Unsplash.
Tar Sands, Alberta. Image from Howl Arts Collective, Flickr.
Investing in these industries means giving them the funding they need to grow. In a world where money is power, the fossil fuel industry is getting a lot of its power from the banks and the growth of this industry has led to environmental destruction. Such investments include Arctic oil (of which Barclays bank was the largest financer in 2019), fracking (JP Morgan Chase, Wells Fargo and Bank of America financed £241.53 Bn between 2015 and 2019), coal and coal mining (favoured by the top four Chinese banks), and tar sands (infamously financed primarily by Canadian banks). These investments are linked to burning fossil fuels, which contributes to climate change and its many environmental, economic, political and social effects. Drilling for Arctic oil has serious impacts on wildlife (such as noise disturbances and biodiversity loss) and has devastating effects when spills occur. Implications of fracking include increased earthquakes, water and air pollution. Coal mining is dangerous for the health of the miners and results in ground, water and air pollution, massive deforestation, and biodiversity loss. The Canadian tar sand industry causes deforestation, water contamination, tar sands spills, biodiversity loss and more.
’Green finance’ is a financial activity that ensures better environmental outcomes. Image from Andrew Gustar, Flickr.
Here I stopped to realise that I knew nothing about my bank and where they invest my money. For one of the biggest, most popular banks in the UK, they kept their activities very quiet. I decided to look into their investments, the role they played in funding the fossil fuel industry and their environmental reports. Immediately, I was disappointed, although not entirely surprised.
Using Banktrack, which keeps a close eye on where banks decide to place their financial power, I found my bank and the impacts that it is having. My bank provided “nearly USD 26 billion to the fossil fuel industry since the Paris agreement”. Between 2018 and 2019, my bank was one of the European banks “with the biggest percentage increase in fossil financing, raising its support from USD 5.1 billion to nearly USD 9 billion”. When I had researched my bank’s sustainability and climate change impact reports, I got the impression that it wasn’t just decreasing its negative impact on the environment but was actually contributing positively. The 2020 annual report of my bank emphasizes ceasing the provision of “products or services for new Coal-Fired Power Plant (CFPP) projects and taking on new clients with existing CFPPs”, as well as the vague suggestions of green finance (investments in activities that benefit the environment such as renewable energy and sustainable products or services). The report lacks any acknowledgement of the continued financing of already existing CFPP projects or fossil fuels in general. Nor does the report specify any of the green investments… we are supposed to trust that these goals of green financing outweigh the bank’s destructive investments.
It’s clear that banks have a lot of power and impact on our environment, and that the appropriate level of accountability for these irresponsible investments does not appear to exist. How do you achieve that accountability?
Transparency is the first step. When it comes to transitioning to a sustainable economy, knowledge is power. The collecting, managing and analysing of data is fundamental in curating a strategy to decrease environmental impact. How can you know where to reduce damage without knowing what or where those damages are? Banks must provide full transparency of their environmental impact. Some organisations work towards this, such as the Carbon Disclosure Project (CDP), formed by a group of investors who wanted to invest in companies that disclosed their environmental impact. Companies around the world report to the CDP, disclosing the relevant environmental information, and are graded accordingly. This encourages companies to think about the impact they have on the environment. Impressing investors is an incentive for companies to step up to their environmental responsibilities. But voluntary reporting and transparency is only a starting point.
Portfolio Earth, an initiative to tackle the finance industry’s impacts on our planet, took this a step further by grading a bank’s biodiversity efforts out of a score of 100, with 46 points to commitments and 54 points to exclusions. Commitments refers to a bank prioritising sustainability in governance or impact measurement systems. Exclusions refers to the actions banks take to exclude corporate activities with large biodiversity impacts such as deforestation. The results? Disappointing. All banks examined scored less than 40/100. The biggest take away was that none of the banks had “developed sufficient systems to measure and monitor the impacts of their lending activities on biodiversity”. Without the appropriate structure in place, it is near impossible for banks to make improvements.
It is not enough to hope that banks voluntarily collect, disclose and manage their environmental impacts - incentives and penalties are needed to make this a reality. Compulsory disclosure is a good start but can be a messy business. Since businesses are not typically built with sustainability at their core, they often struggle to provide the relevant information, so governments need to be clear about methods and standards for reporting, helping with this sometimes unclear task.
After discovering the damage that my bank and other UK banks were doing, I needed to make a change. I can’t justifiably talk about how irresponsible these banks are if I am still contributing. I have to put my money where my mouth is and throw my financial weight behind something I believe in. This is the power of consumer demand; communicating to your banks that they are failing you because their standards are simply not good enough. So, I have changed my bank.
Unfortunately, the finance industry is knee-deep in fossil fuels, deforestation and biodiversity loss. At first, I was hard-pressed to find a bank that wasn’t entangled in environmental loss in one shape or form. Nationwide, for example, may not be environmentally perfect, but also does not invest in fossil fuel extraction. It is not susceptible to shareholder pressures, which is a big factor in financing fossil fuels. Other options include using independent banking apps such as Monzo or Starling which aren’t as deeply entrenched in fossil fuels as leading banks. Ethical Consumer ranked Monzo as one of the more ethical banking services to use.
Put your financial weight behind something you believe in - the power of consumer demand. Image from Flickr.
There are ethical banks out there, funding projects that respect and focus on the environment. Image from Matthew Smith, Unsplash.
I want to do more than support a bank that doesn’t invest in fossil fuels. I want my bank to invest in green and ethical businesses and charities. Triodos Bank, founded in the Netherlands in 1980, commits to “only finance companies that focus on people, the environment or culture”. Unlike other banking institutions, their investments exclude fossil fuels, fast fashion, weapons and ammunition or tobacco. The Ecology Building Society only provides mortgages for projects that “respect the environment and support sustainable communities”.
With this in mind, I decided to go with Triodos. Pulling my money out of an unethical and environmentally damaging bank clears my consciousness of one more thing as a consumer. The financial industry is often intimidating and ominous, appearing to use its power more for profits than good. It’s easy to forget our power as individuals; the power of consumer demand. I invite you to learn more about the impact of your bank on the environment and to consider divesting your money from fossil fuel banks.
Thank you to Marian Femenias-Moratinos for their beautiful illustration. You can find more of their work on their Instagram @marianfmoratinos and website.
Georgie Power
Georgie Power recently completed an MSc in Climate Change in Dublin City University, studying the environmental, economic, political and social implications of climate change. In working with the Carbon Disclosure Project, helping companies around the world manage and report their carbon emissions, she learned of the role that corporations have in the transition to a sustainable and ethical economy. Now, she works as a climate change author, focusing on her passions for sharing solution-based information for environmental issues and the social, political and economic influences they have on our world. You can find her on Instagram @easy.beinggreen.