Ask a few people what they know about banks, and this is what they’ll say:
“Not a lot, to be honest.”
Next, ask a few hundred people about banks and climate, and you’ll discover this: Nearly 4 in 5 people in the US report they are “passionate” about climate change.
Americans are on to something—even if they don’t know about the relationship between climate change and how banks work.
Here’s one way to think about how banks work. Think about socks. For around $17, you can buy a nice pair of socks, or you can buy a nice pair of sustainable socks. Both pairs work basically the same. But if you think sustainably and spend your money on socks made from plastic pulled from the ocean? Then you’re giving your money to a company that will use it to clean up the ocean. All things being equal, it’s better to use your money to help out the planet.
So, What Do Banks Have to Do with Climate Change?
Banks are like socks. Just as a sock company can use your money either to protect the ocean or just make average socks, banks use the money in our checking account—and they can use it in lots of different ways. Our money in the bank gets lent out to practically every economic activity you can imagine: home construction, new restaurants, solar panels, college educations, wedding rings, growing barley, raising dairy cows—you name it.
That’s the point of the run-on-the-bank scene in the movie It’s a Wonderful Life, when Jimmy Stewart tells the bank’s panicked customers, “You’re thinking about this thing all wrong, as if I had the money back in a safe. The money’s not here.
The Money Banks Lend Out Comes from You
Nothing’s changed in banking. Your money is still not in the safe, it’s out in the world building things like homes, small businesses, and wind turbines. The more your bank spends on financing the transition to a net-zero future, the better off we all are.
Customers’ deposits give banks a deep pool of funds to lend to clean energy and sustainable industries and activities. That money plays a critical role in building a more sustainable future.
“Finance is a huge lever, and possibly the most important lever, for the low-carbon economic transition if we use it correctly,” says Cooper Wetherbee, an analyst with the think tank Climate Policy Initiative (CPI).
Banks appear to be moving in the right direction, although not as quickly as some climate activists would like. The use of green bonds, which fund projects with positive environmental or climate benefits, is on the rise. Green bond issuance topped $520 billion in 2021, a 75 percent increase from 2020. Meanwhile, more than 100 large global banks have joined the Net-Zero Banking Alliance (NZBA), committing their investment and lending portfolios to reach net-zero emissions by 2050.
“When it comes to buying clothing, 59 percent of Americans say they consider sustainability… But, just two in 10 Americans take into account their bank’s stance on sustainability.”
When it comes to buying clothing, 59 percent of Americans say they consider sustainability… But, just two in 10 Americans take into account their bank’s stance on sustainability. Depositing your money in sustainable banks should only help accelerate the transition to a sustainable future. Where you put your money matters. It’s not going to sit in a safe; it could go out and finance good things for our future. Like the socks you spend your money on, the bank you choose can help the planet. Only, your bank can have a much bigger impact on our world.
2 Questions to Ask Your Bank If You Want to Stop Climate Change
With more than 4,000 banks in the United States, we certainly don’t lack choices. If you’re going to look for a climate-friendly bank, here are a few questions to ask:
What do you finance to fuel positive change?
Look to see if your bank is financing the transition to clean energy and using its role in society to help preserve the planet.
Are you committed to globally recognized climate targets?
While not every international treaty or goal is a household name, like the Paris Agreement, forward-looking banks play a key role in developing and participating in an array of policies, agreements, and standards that support the global energy transition. Ask your bank if they are involved and how. One path for banks is the Science Based Targets initiative, which provides tools for financial institutions to align lending and investment activities with the Paris Agreement.
A bank’s investments in the transition to a net-zero economy are just one measure for choosing where to deposit your money. When choosing a bank you’ll feel good about, be aware there are, for example, Black-owned banks, socially conscious banks, and certified B Corp banks that are independently evaluated on their social commitment.
Whether you’re buying socks or putting your money in the bank, you owe it to yourself and the planet to think sustainably about what your money can do. When it comes to buying clothing, 59 percent of Americans surveyed say they consider sustainability, and 73 percent consider sustainability when buying food or drinks. But, just two in 10 Americans take into account their bank’s stance on sustainability.