Your bank contributes to climate protection through its lending and other measures. But does your bank have a positive impact on the environment? It can be hard to know.
Through their messaging, banks sometimes paint a greener picture of their climate impact than their holdings or other factors suggest, a process known as “greenwashing.”
If your decision on where to bank depends on an institution’s approach and position on climate change, here’s how to determine if a financial institution may be greenwashing.
Why is greenwashing important?
Holding banks accountable for exaggerating their positive claims is an important way to pressure them to better play their role in climate change. And if you want to do more, support a bank that is moving away from fossil fuels and supporting effective climate solutions.
Greenwashing can “do one of two things: Either it directs investments that people want to go into [climate] Avert solutions from it, or people feel completely jaded to the space and that this is unsolvable,” said Zach Stein, co-founder of Carbon Collective, an investment advisory firm that creates portfolios focused on mitigating climate change.
What is greenwashing in banking?
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 environmentally sustainable banking, meaning banks can set their own definitions or methods of describing their impact.
The way banks lend, invest and underwrite is “the most exponentially impactful thing they do” 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 that aims to develop systemic solutions to environmental problems.
And there’s a clear North Star: The world needs to net-zero carbon emissions by 2050 to limit the rise in global temperatures to a 1.5-degree Celsius rise, according to the United Nations’ 2015 Paris Agreement and its 2021 update. Aims to prevent the worst effects of climate change. The International Energy Agency, which is based on the mission, advocates two clear measures in its 2021 report:
No new investments in fossil fuels.
Investing in climate solutions, especially green energy.
For banks that are committed to climate protection, “you have to do both. If not, we argue that you are greenwashing to some extent,” says Stein of investment firm Carbon Collective.
4 ways to spot greenwashing in banking
1. Read your bank’s impact reports carefully
Search online for your bank’s name and “impact report” or “ESG report”. ESG – environmental, social and governance – is a common framework for ethically driven finance like ESG investing. The largest US banks typically have lengthy annual reports and websites detailing their impact. Smaller banks may not always keep reports online, so check their latest news or which green networks they belong to (more on that later).
At the national banks, “we look at how clear they are [their] Statements on the decarbonization of their investments, particularly the removal of fossil fuels,” says Stein.
Look at their summaries and be wary of vague verbs like “mobilized,” “provided,” or “facilitated” funding. The Bank’s specific role or the steps taken to achieve its commitment may be unclear. And if a bank has created targets or methods to reduce carbon emissions, are they based on a third-party standard to improve accountability? Are the emissions reductions targeted at their investments or their buildings? Investments have a greater impact.
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2. Check if your bank funds fossil fuels
Greenwashing at major U.S. banks can include support for fossil fuels and political efforts like lobbying or contributing to climate change, the latter of which is more difficult to investigate, says Adele Shraiman of the Sierra Club, a fossil fuel finance campaign representative.
When examining a bank’s ties to oil, gas and coal companies, two main sources stand out: the annual fossil fuel financial report by nonprofit organizations Rainforest Action Network and Sierra Club, and a bank tracking tool by independent organization BankTrack.
The report shows the 60 largest financial institutions worldwide that are responsible for the expansion of fossil fuels through lending or other means of support such as underwriting bonds and shares. BankTrack provides a directory where you can search for a fossil fuel-related bank or business.
The four largest US banks are also the largest global lenders to fossil fuels, and another dozen US banks make the report’s list. Just because banks like Chase JPM,
and Citibank C,
Contributing billions to green projects and saying they support a low-carbon future doesn’t make them green.
But the banks stand by their climate efforts.
“We are also taking pragmatic steps to meet our 2030 emissions intensity reduction targets in oil and gas, power and auto manufacturing, while helping the world meet its energy needs safely and affordably,” said a spokesman for JP Morgan Chase in an email.
“As part of our commitment to reach net-zero by 2050, we have set targets for 2030 – for the energy sector, a 29% absolute reduction in financed emissions and for the energy sector, a 63% reduction in portfolio emissions intensity… [in addition to] We’re working with our customers on their low-carbon transitions,” a Citi spokesman said in an email.
Read: “Net zero” promises can amount to greenwashing. This is the better way to reduce deadly CO2 emissions
3. Look for external certifications – or lack thereof
Financial institutions that are most committed to making a positive environmental impact typically seek third-party certification or join networks focused on climate action. Look for designations such as “Certified B Corporation”, “Global Alliance for Banking on Values Membership”, “Fossil Free Certified” and “Green America Certified” either at the bottom of the bank’s website or on an “About Us” page “.
Another mission-driven movement, 1% for the Planet, requires a company to donate the equivalent of 1% of total annual sales to specific environmental nonprofits. However, this certification does not mean that a bank is divesting itself of gas or oil projects. For example, Bank of the West has this designation and is owned by parent bank BNP Paribas BNP,
which contributes billions of dollars to fund fossil fuel companies, according to the Rainforest Action Network report.
4. Examine simple “feel good” tactics
Some financial institutions may describe account features with an environmental impact that is difficult to verify or exaggerated. Non-bank financial technology company Aspiration, in partnership with a bank, is offering a debit card that lets you “afforest as you shop,” meaning a small amount of each purchase can go toward afforestation. The nonprofit news site ProPublica discovered in November 2021 that Aspiration recently claimed to have planted over 35 million trees in a year, but that number included trees not yet planted.
“As we make clear to our customers, planting trees of this scale takes time – up to 18 months, but typically less, taking into account viability, durability and benefits to local communities,” said Andrei Cherny, CEO and co-founder of Aspiration in an email statement.
“As of June 30, over 76 million trees have been planted into the ground through aspiration in less than two years. This almost certainly makes Aspiration the world’s largest private sponsor of reforestation,” said Cherny.
Read: So much “greenwashing” can eat away at corporate profits
support climate solutions
Some banks and credit unions (nonprofit equivalents of banks) have renewable energy programs. For example, Climate First Bank and Clean Energy Credit Union both offer electric vehicle and solar panel loans. And look at other local community banks and credit unions, especially socially responsible institutions supporting sustainable housing or other projects.
“The smaller the banks are, the greener they are just because the majority of their investments tend to be made locally,” says Moinester of The Outdoor Policy Outfit.
“All of our cash, all of our investments have 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 companies that they need to do better.”
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Spencer Tierney writes for NerdWallet. Email: spence[email protected] Twitter: @SpencerNerd.