Companies that care about climate change, need to care about their banking

Climate scientists are increasingly unable to explain an unprecedented spike in global temperatures. Staid scientific institutions are using phrases like “off the charts” to describe just how hot the world’s oceans have become. The World Meteorological Society has announced that 2023 was the warmest year on record.

Meanwhile, at a recent oil and gas conference in Houston, the head of the world’s largest oil company told a packed room that the world “should abandon the fantasy of phasing out oil and gas.”

These are good reasons why the world should pay attention to a new report, out this week, that might just hold the secret to getting the U.S. financial industry to finally take the climate crisis seriously.

For years, big corporations ― from tech companies like Amazon and Microsoft to retailers like Walmart and Costco ― have viewed decarbonization of their supply chains as a critical part of their work to achieve their various climate promises. Pushing building managers, data supply centers and utilities to provide renewable energy has become an integrated part of the corporate decarbonization toolkit, something understood and supported by corporate sustainability teams around the world.

However, as the new Carbon Bankroll report reveals, many of these companies have been overlooking their largest source of emissions of all: their money.

The main way that a large company’s financials drive up its emissions is through its choice of bank. When a big company puts money in the bank, the cash doesn’t just sit idly in the account, waiting for payday. Banks can use up to 90 percent of the money they hold in deposits to provide loans to companies across the economy. That means if you’re, say, Google, and you have a few billion dollars with Citigroup or Chase or Wells Fargo or Bank of America, the world’s four largest funders of fossil fuels, they are almost certainly using a chunk of that money to finance new coal mines, new oil pipelines and new deep sea drilling operations―all of which cause huge amounts of greenhouse gas emissions and are incompatible with global climate goals. 

This represents a colossal oversight from corporate America. According to Carbon Bankroll, the emissions enabled by the largest banks and asset managers in the U.S. are so substantial that, if they were a country, they would be the third-largest emitting country in the world, behind only China and the U.S. For many companies in the world, the emissions enabled by their cash and investments are larger than all their other emissions combined.

So, what should companies that want to reduce their financed emissions do? Some are already leading the way. In 2021, Seventh Generation became one of the first companies to voluntarily measure and disclose its cash emissions. Atlassian no longer uses investment vehicles that include companies that get more than 10 percent of their revenue from fossil fuel extraction and development. Patagonia’s treasury director, Charlie Bischoff, has been pushing its banking partners to align with climate goals.

In the UK, large institutional clients of banks are going even further. Oxfam and Christian Aid, two of the country's largest charities, cut ties with Barclays over its refusal to end financing for fossil fuels. Cambridge University is exploring options to move away from Barclays, owing to the bank’s financing of the oil and gas industry.  

Awareness among the general public of the role corporate America can play in pushing Wall Street to clean up its act is also growing. In January, advocates delivered a petition signed by 40,000 people to Costco’s HQ outside Seattle, calling on Costco to dump its co-branded credit card partner, Citigroup, owing to the bank’s financing of fossil fuel expansion. The following day, at the company’s annual general meeting, shareholders asked the CEO for a response. He claimed that Costco is already talking to Citi about its climate impact. And who knows, with an annual revenue of over $240 billion, maybe if Costco―and its peers―really do start talking, Wall Street might just have to listen.

Alec Connon is the coalition co-director for Stop the Money Pipeline, a network of more than 200 organizations working to end financing for fossil fuels.