If the Government Won’t Act on Climate, Maybe Banks Will

Gun-control activists want to use financial levers to curtail firearm sales. Can we do the same for carbon emissions?

Credit: Raymond Biesinger

The first serious call for American action on climate change came in 1988, when climatologist James Hansen warned Congress of a catastrophe approaching in slow motion. The government took nearly 30 years to respond. The Clean Power Plan, our first carbon-specific power plant regulation, was announced in 2015, and even that small piece of progress is now in danger.

The federal government’s efforts to slow climate change have always moved at a glacial pace. After all, it doesn’t take much to paralyze Washington; a few senators, an intransigent agency head, a handful of Supreme Court justices, or a well-funded lobby group can do the trick. You might even say our government—a finely tuned gridlock machine—is incapable of decisive action on most issues of significant public controversy.

Thankfully, the government is not America’s only rule maker, nor its only change maker. Plenty of other institutions maintain heavy leverage over the country’s direction. Take banks. Many societal ills—oppression, pollution, violence—rely on a steady flow of money in one form or another. Banks can choke off that cash flow and thereby act as mini-governments, especially when they act in concert.

The most famous example of cash-starving an injustice to death was the 1980s divestment from South Africa. Politically, the United States’ response to apartheid was an embarrassment. The Reagan administration did little to support Nelson Mandela and the African National Congress in their fight for freedom and equality. But when the federal government demurred, individual and institutional investors gradually withdrew American money from South Africa. Whether divestment was responsible for ending apartheid remains hotly debated, but it certainly made an impact.

In a more modern controversy, gun-control activists are again placing their faith in the power of financial levers. Following the killing of 17 people at Marjory Stoneman Douglas High School in Parkland, Florida, on February 14, 2018, gun-control advocates called for banks to do what the government will not: set rules for the sale of firearms. Writing in the New York Times, Andrew Ross Sorkin pointed out that PayPal, Square, Stripe, and Apple Pay had already banned the use of their products in the purchase of firearms. What if the big banks, like JP Morgan Chase and Wells Fargo, followed suit, at least refusing to allow their credit cards to be involved in the sale of assault weapons? By effectively limiting automatic rifle sales to cash transactions, they would not only marginalize such weapons but also advance a measure that most Americans support.

Environmental activists are now pondering the same question: Can banks move the needle on climate change? The financial sector’s best moves here aren’t as obvious as they were in the South Africa divestment, or as they might be in supporting gun control. Climate change isn’t a country, so we can’t simply stop transacting with it, nor is it limited to a discrete set of transactions. Virtually every financial deal contributes carbon emissions to the planet in some way.

But some strategies are available. For example, major institutional investors, like banks, universities and pension funds, could withdraw their money from fossil fuel companies. It would be similar to what happened to South Africa in the 1980s. Bill McKibben, founder of the climate change advocacy group 350.org and the public face of fossil fuel divestment, acknowledges the shortcomings of this tactic—even a consortium of large investors wouldn’t be big enough to significantly alter the share price of, say, ExxonMobil. But McKibben is playing a long game.

“[A]s the country’s colleges, cities, and denominations begin to cut their ties, we’ll start to revoke the social license of these firms,” writes McKibben. He likens this public status change to what happened to the tobacco companies, which went from untouchable corporate behemoths to pariahs in the span of a few years during the 1990s.

Another sphere where banks have significant influence over carbon emissions is the financing of new fossil fuel infrastructure. Banks could limit their involvement in any project that locks in our reliance on coal and oil for decades into the future. Some financial institutions have already made strides on this front. BNP Paribas has promised to “no longer do business with companies whose principal business activity is the exploration, production, distribution, marketing, or trading of oil and gas from shale and/or oil from tar sands”—two of the planet’s dirtiest and most destructive fossil fuels.

The challenge with this tactic is that, without extremely specific commitments, greenwashing becomes an issue. A bank might seize the opportunity to improve its image by trumpeting its goal to go carbon neutral in its own internal operations, or pledging a certain amount of funding to new renewable energy infrastructure. Those are both positive moves, but they’re easily offset by deals to build coal- or oil-combusting facilities. Without a firm commitment to end such investments, like the one made by BNP Paribas, it’s difficult to assess an individual bank’s contribution to climate action.

BlackRock and JP Morgan Chase, two of the world’s largest banking and investing firms, both have policies to address climate change. But they’re still working with companies drilling for oil in sensitive parts of the Amazon rainforest. Two Democratic senators, Sheldon Whitehouse and Brian Schatz, recently wrote to the two banks asking for an explanation of these investments. It remains an open question whether the companies, and many other large financial institutions in the United States and around the world, are ready to become part of the climate change solution.

Pressure is mounting. Last year, the socially conscious investment manager Boston Common joined with the shareholder activist group ShareAction and sent a letter to the world’s largest banks demanding policies that would severely limit funding for fossil fuel infrastructure. Calls like these tend to receive heavy press coverage. Many advocacy groups, like the Rainforest Action Network, are producing regular bank report cards, naming and shaming the financiers behind the fossil fuel industry.

It’s too early to say whether and how much the financial sector will accelerate our transition to renewable energy, but it doesn’t hurt to ask. It’s depressingly certain that the current federal administration will do virtually nothing to mitigate climate change. Banks are the obvious surrogate for an actual government. They call it the almighty dollar for a reason.

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