Your bank plays a role in climate change through its loans and other actions. But does your bank have a positive environmental impact? It can be difficult to know.
Through their messaging, banks sometimes paint a greener picture of their climate impact than their holdings or other factors indicate, a process known as “greenwashing.”
If your decision on where to bank depends on an institution’s approach and stance on climate change, here’s how to tell if a financial institution might be greenwashing.
Why is greenwashing important?
Making banks responsible for overstating their positive claims is an important way to incentivize them to better address their role in climate change. And if you want to do more, support a bank that divests from fossil fuels and supports effective climate solutions.
Greenwashing can do “one of two things: it either directs investments that want to go into [climate] solutions away from it or it makes people completely jaded by the space and it’s not solvable,” says Zach Stein, co-founder of Carbon Collective, an investment advisory firm that creates portfolios focused on the fight against climate change.
What is greenwashing in the banking sector?
Greenwashing 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 green banking, which means banks can define their own definitions or methodologies to describe their impact.
The ways banks lend, invest and take out loans are “the things that have the most exponential impact” for the planet, not “paperless statements and energy-efficient buildings,” says Paul Moinester, co- founder and executive director of The Outdoor Policy Outfit. , a think tank aimed at building systemic solutions to environmental problems.
And there’s a clear pole star: the world must bring carbon emissions to net zero by 2050 to limit global temperature rise to a 1.5 degree Celsius rise, according to the 2015 Paris Agreement United Nations and its 2021 update. The aim is to prevent the worst effects of climate change. The mission-aligned International Energy Agency calls for two clear actions in its 2021 report:
- No new investments in fossil fuels.
- Invest in climate solutions, especially green energy.
For banks committed to climate action, “you have to do both of these things. If you’re not, we argue you’re doing some degree of greenwashing,” 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 the name of your bank followed by “impact report” or “ESG report”. ESG – environmental, social and governance – is a common framework for ethics-driven finance, like ESG investing. The largest US banks typically have lengthy annual reports and web pages detailing their impact. Smaller banks don’t always maintain online reports, so check their latest updates or which green networks they belong to (more on that later).
For the national banks, “we are looking for clarity [their] statements about decarbonizing their investments, particularly by moving away from fossil fuels,” Stein says.
Look at their summaries and beware of vague verbs such as ‘mobilized’, ‘deployed’ or ‘facilitated’ funding. The specific role of the bank or the steps to achieve its commitment may not be clear. What if a bank created carbon reduction targets or methodologies, are they based on a third-party standard to reinforce accountability? Are the emission reductions aimed at their investments or their buildings? Investments have a greater impact.
2. Check if your bank finances fossil fuels
Greenwashing at major U.S. banks can include supporting fossil fuels and carrying out political efforts such as lobbying or helping to fight climate change, the latter of which is harder to research, says Sierra’s Adele Shraiman Club, representative of its fossil fuel fundraising campaign.
The report features the world’s 60 largest financial institutions responsible for expanding fossil fuels through loans or other means of support, such as bond and equity underwriting. BankTrack provides a directory where you can search for a bank or a transaction related to fossil fuels.
The fourth major american banks are also the world’s largest financiers of fossil fuels, and another dozen U.S. banks are on the report’s list. 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 are maintaining their efforts for the climate.
“We are also taking pragmatic steps to meet our 2030 emissions intensity reduction targets in the oil and gas, power and auto manufacturing sectors, while helping the world meet its needs. energy in a safe and affordable way,” a JP Morgan Chase spokesperson said in an email.
“As part of our commitment to reach net zero by 2050, we have set targets for 2030 – for the energy sector, an absolute reduction of 29% in financed emissions and for the electricity sector , a 63% reduction in portfolio emissions intensity… [in addition to] working with our customers on their low-carbon transitions,” a Citi spokesperson said in an email.
3. Check for external certifications – or lack thereof
The financial institutions most committed to having a positive environmental impact tend to obtain third-party certifications or join networks focused on climate action. Check the bank’s website, bottom or on an About Us page, for designations such as Certified B Corporation, Global Alliance for Banking on Values, Fossil Free Certified, and Green America Certified.
Another mission-driven movement, 1% for the Planet, requires a company to donate the equivalent of 1% of its total annual sales to certain environmental charities. However, this certification does not mean that a bank is divesting from gas or oil projects. Bank of the West, for example, has this designation and is owned by parent bank BNP Paribas, which contributes billions of dollars to finance fossil fuel companies, according to the Rainforest Action Network report.
4. Study easy tactics to feel good
Some financial institutions may describe account characteristics with environmental impacts that are difficult to prove or exaggerated. Non-banking fintech company Aspiration, in partnership with a bank, offers a debit card where you “reforest while you shop,” meaning a small amount of each purchase can be earmarked for reforestation. The non-profit news site ProPublica discovered in November 2021, Aspiration recently claimed to have planted over 35 million trees in a year, but this figure included trees not yet 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 generally shorter,” said Andrei Cherny, CEO and co-founder of Aspiration. in an emailed statement.
“As of June 30, more than 76 million trees have been planted in the ground thanks to Aspiration in less than two years. This almost certainly makes Aspiration the largest private sector reforestation sponsor in the world,” Cherny said.
Support climate solutions
Some banks and credit unions (non-profit counterparts to banks) have renewable energy programs. For example, the Climate First Bank and the Clean Energy Credit Union both offer loans for electric vehicles and solar panels. And look to 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, simply because the majority of their investments tend to be localized,” says Moinester of The Outdoor Policy Outfit.
“All of our money, all of our investments, hold the power,” says Sophie Halpin, Certified Sustainable and Responsible Investing Advisor and Financial Advisor at Back Cove Financial.
“And we can send a clear message to businesses that they need to do better.”