Your bank plays a role in climate change through its loans and other actions. But is your bank having a positive environmental impact? It can be hard to tell.
Through their messaging, banks sometimes paint a greener picture of their impact on the climate than their holdings or other factors indicate, a process known as “greenwashing.”
If your decision about where to bank depends on an institution’s approach and position on climate change, here’s how to tell if a financial institution might be greenwashing.
Why does greenwashing matter?
Holding banks accountable for exaggerating their positive claims is an important way of putting pressure on them to do a better job of climate change. And if you want to do more, support a bank that ditches fossil fuels and supports effective climate solutions.
Greenwashing can do “one of two things: either it directs the investment it wants to come into [climate] solutions away from it or makes people feel sick of the space altogether and that this is hopeless,” says Zach Stein, co-founder of Carbon Collective, an investment advisory firm that creates portfolios that focus on curbing climate change. .
What is greenwashing in banking?
green wash it is a misleading or even false message about a company’s climate benefits or commitments, whether in annual reports, advertisements or elsewhere. There is no standard definition of environmentally sustainable banking, which means that banks can establish their own definitions or methodologies to describe their impact.
The ways that banks lend, invest and underwrite loans are “the things that have the most exponential impact” for the planet, not “paperless statements and low-energy buildings,” says Paul Moinester, co-founder and CEO of The Outdoor Policy Outfit. , a think tank aimed at building systemic solutions to environmental problems.
And there is a clear pole star: the world needs to bring carbon emissions to net zero by 2050 to limit the rise in global temperatures to an increase of 1.5 degrees Celsius, according to the 2015 United Nations Paris Agreement and its 2021 update. The goal is designed to prevent the worst effects of climate change. The International Energy Agency, aligned with the mission, advocates two clear actions in its 2021 report:
There are no new investments in fossil fuels.
Invest in climate solutions, especially green energy.
For banks committed to climate action, “you have to do both. If you don’t, we argue you’re greenwashing to some extent,” says Stein of investment firm Carbon Collective.
4 ways to identify greenwashing in banking
1. Carefully read your bank’s impact reports
Search online for your bank’s name plus “impact report” or “ESG report.” ESG (environmental, social and governance) is a common framework for ethics-driven finance, such as ESG investing. The largest US banks often have lengthy annual reports and web pages detailing their impact. Smaller banks may not always keep reports online, so check their recent news updates or which green networks they belong to (skip down for more).
For national banks, “we look at how clear they are [their] statements about decarbonizing their investments, specifically phasing out fossil fuels,” says Stein.
Look at your summaries and be wary of vague verbs like “mobilized”, “deployed” or “facilitated” funding. The role or specific steps of the bank to achieve its commitment may not be clear. And if a bank has created targets or methodologies to reduce carbon emissions, are they based on a third-party standard to improve accountability? Are the emission reductions directed at your investments or at your buildings? Investments have a greater impact.
2. See if your bank finances fossil fuels
Greenwashing at big US banks can include supporting fossil fuels and undertaking political efforts such as lobbying or contributing against climate change, the latter being more difficult to investigate, says Sierra’s Adele Shraiman Club, representative of its fossil fuel financing campaign.
When investigating a bank’s links to oil, gas, and coal companies, two main resources stand out: the annual report fossil fuel financial report by non-profit organizations Rainforest Action Network and Sierra Club, among others, and a bank tracking tool by the independent organization BankTrack.
The report shows the 60 largest financial institutions in the world that are responsible for the expansion of fossil fuels through loans or other means of support, such as the subscription of bonds and shares. BankTrack provides a directory where you can search for a fossil fuel related bank or business.
The four the largest banks in the US they are also the world’s largest financiers of fossil fuels, with a dozen other US banks listed in the report. Just because banks like Chase and Citibank contribute billions to green projects and say they support a low-carbon future doesn’t mean they’re environmentally friendly.
But the banks keep up their climate efforts.
“We are also taking pragmatic steps to meet our 2030 emissions intensity reduction targets in oil and gas, electric power and auto manufacturing, while helping the world meet its energy needs safely and affordably,” he said. a JP Morgan Chase spokesperson in an email.
“As part of our commitment to reach net zero by 2050, we have set targets for 2030: for the power sector, a 29% absolute reduction in financed emissions and for the power sector, a 63% reduction in emission intensity. portfolio issues… [in addition to] working with our clients on their low-carbon transitions,” a Citi spokesperson said in an email.
3. Check for external certifications, or lack thereof
Financial institutions most committed to driving positive environmental impact tend to obtain third-party certifications or join networks focused on climate action. Check the bank’s website, either at the bottom or on the About Us page, for designations including Certified B Corporation, Global Alliance for Banking on Values membership, Fossil Free Certified, and Green America Certified.
Another mission-driven movement, 1% for the Planet, requires a company to give the equivalent of 1% of total annual sales to certain environmental nonprofits. However, this certification does not mean that a bank is ditching oil or gas projects. Bank of the West, for example, has this designation and is owned by parent bank BNP Paribas, which provides billions of dollars in financing to fossil fuel companies, according to the Rainforest Action Network report.
4. Research easy “feel good” tactics
Some financial institutions may describe account features with exaggerated or difficult-to-prove environmental impacts. Non-bank fintech firm Aspiration, in partnership with a bank, offers a “reforest as you shop” debit card, meaning a portion of each purchase that is rounded up is used to plant a tree. The nonprofit news site ProPublica discovered in November 2021 that Aspiration recently claimed to plant more than 35 million trees in one year, but this figure included trees that had not yet been planted.
“As we make clear to our customers, planting trees at this scale in the right way with survivability, permanence and benefits to local communities in mind takes time, up to 18 months but typically less,” said the CEO. and Aspiration co-founder Andrei Cherny. in an emailed statement.
“As of June 30, more than 76 million trees have been planted in the ground through Aspiration in less than two years. This almost certainly makes Aspiration the largest private sector sponsor of reforestation in the world,” said Cherny.
Carbon offsets and other gray areas
Carbon offsets are activities such as tree planting that aim to remove carbon dioxide from the air. A company can create emissions and buy enough offsets to call itself carbon neutral.
But historically, the market for buying offsets hasn’t had much regulation, and grassroots organization Greenpeace International considers it an “accounting trick.” The Commodity Futures Trading Commission is also looking into them, stating at a June 2022 meeting that “carbon offsets are only a tool to mitigate emissions and should only be used when all other means have been exhausted.”
Aspiration’s Protect the Planet program says it makes every gas purchase carbon neutral thanks to carbon offsets. But the program creates an incentive to stay in the status quo of driving gas-powered cars instead of encouraging people to make the more impactful leap to electric vehicles, says Stan Dupre, a founding board member of the independent environmental think tank. 2nd Investing Institute. Ando is another banking tech firm touting carbon offsets as a consumer benefit, albeit to a lesser extent than Aspiration.
“You may wish everyone drove an electric vehicle or took a bus or bike to work every day, but that’s not the world we live in. The climate crisis is now, not in 2040 or 2050, and we must take the positive steps you can take right now. We don’t have time to wait for purity,” Cherny, CEO of Aspiration, said in an emailed statement.
Another complex area is the financing of clean energy projects by fossil fuel companies. Bank of the West has said more than 82% of its parent bank’s power generation projects were for renewable energy, including at major oil companies. But a peer review to study in the scientific journal PLOS recently concluded that the greenwashing accusations against four oil companies are well founded.
Support climate solutions
Some banks and credit unions (the counterparts of nonprofit banks) have renewable energy programs. For example, Climate First Bank and Clean Energy Credit Union offer loans for electric vehicles and solar panels. And look for other local community banks and credit unions, especially socially responsible institutionsthat support sustainable housing or other projects.
“The smaller the banks, the more environmentally friendly they are just because most of their investments tend to be localized,” says Moinester of The Outdoor Policy Outfit.
“All of our cash, all of our investments, have power,” says Sophie Halpin, certified responsible and sustainable investing counselor and financial advisor at Back Cove Financial.
“And we can send a clear message to companies that they need to do better.”