Can banks save the planet?

The communities around Hartman Park — with families predating Valero Energy and the other refineries in the area by nearly 100 years — face the scents, because they have no choice. They also track the pollution daily using retrofitted vans donated to the community after Hurricane Harvey.

Elderly populations and individuals with asthma are recommended to wear a mask if they find the smells overwhelming or sickening.

On the horizon behind the playground where the kids are told it is safe to play perches Texas' largest revenue generator: oil refineries. Advocacy groups in Manchester, such as the likes of T.E.J.A.S led by founder Juan Parras, work to keep more refineries from popping up near the neighborhood and mitigate the health risks already cropping up around the community from air and water pollution.

They call out the oil companies to change.

"We are a sacrifice zone," Parras told the group of journalists, gesturing to the refineries behind the playground. "We want justice, we want environmental justice."

If any change happens, it may be because of something that isn’t readily visible in the channel: the flow of money that keeps the refineries going. Expects in sustainable finance are now targeting the financial institutions that supply the loans and bonds that fund the oil industry.  

As one investment group points out, "long-term bank loans are an important source of financing for the construction of refineries."

The oil industry runs on credit, and that means the institutions that supply it keep the oil companies in business.  

In only five years, the world's 60 largest banks financed $4.6 trillion in fossil fuels, starting from when the Paris Agreement in 2015, according to a 2022 Banking on Climate Chaos report.

"Hundreds, if not thousands, of very large financial institutions — often backed by governments — are financing fossil fuels. If we’re going to counteract that, we need a climate-focused, mission-driven financial institution," said Jeff Schub, the executive director of nonprofit green banks incubator and advocacy organization Coalition for Green Capital.

The institutions with the most influence to drastically change the trajectory of climate change — and get the world to the Paris Climate Agreement's goal of 1.5 degrees Celsius — are the ones still investing in it. One can look at Manchester, Texas or even New Haven, Connecticut as examples, microcosms of the issue on a global scale.

A third of the population trusts its bank a great deal or quite a lot, according to Gallup. Similarly, a separate survey conducted by LendingTree, found almost three-quarters (73%) of people say they trust "their financial institution to keep their best interest in mind," compared to just over half saying the same of the federal government.

At the same time, $4.5 trillion Is needed to finance plans to decarbonize the U.S. energy supply over the next two decades, global energy consultancy firm Wood Mackenzie estimated in a 2019 report.

"The mass deployment of wind and solar generation will require substantial investments in utility-scale storage to ensure grid resilience is maintained," said Head of Global Wind Energy Research Dan Shreve in a report.

It is, in part, why the banks globally founded the Net Zero Banking Alliance in April 2021, ahead of the COP21 conference which took place later in the fall. The alliance — made up of over 100 banks from across 40 countries with over $68 trillion in assets cumulatively — is designed so financial institutions could "align their lending and investment portfolios with net-zero emissions by 2050.

Amalgamated Bank, based in New York City, pioneered the launch of the alliance. Senior Vice President and Chief Sustainability Officer Ivan Frishberg said sustainability is a vigorous conversation in banking, although it may not be moving fast enough to meet goals outlined by the U.N.

"The rhetoric of stakeholder capitalism — the round tables saying, 'we have to serve a greater purpose' — is actually pretty well normalized at this point," Frishberg explained, adding the idea of lowering their carbon footprint can be frightening for large banks who still profit from massive fossil fuel portfolios.

"The banks are not where they need to be," Frishberg said.

A: A carbon footprint as defined as the "total amount of greenhouse gas emissions that come from the production, use and end-of-life of a product or service." Individuals, governments and corporations can reduce their carbon footprint to net-zero by producing zero greenhouse gas emissions daily.

A: Although most non-financial corporations can get to net-zero by reducing their operational carbon footprint, banks must also evaluate their lending portfolio and analyze if the loans they make with businesses and consumers are producing carbon emissions.

Across the world, protestors are demanding banks to cut off their investments to fossil fuel companies. Rebekah Hinojosa, the Gulf Coast Campaign Representative for the Sierra Club, said at the SEJ Conference in Dallas her team is fighting the importation of gas by protesting French bank BNP Paribas.

"We've successfully got a bank to divest from one of these [liquified natural gas] LNG terminals — called Texas LNG," Hinojosa said, which has plans to bulldoze indigenous lands for the terminal. Hinojosa and other environmental advocacy groups released a report justifying why French bank BNP Paribas should pull out of financing a liquified natural gas (LNG) terminal in south Texas.

"[We are] pressuring the banks who are the ones bankrolling these investments," Hinojosa said.

A: Liquified natural gas — also called LNG — is a natural gas that has been cooled and brought to a liquid state. Liquifying natural gas is considered "a way to move natural gas from producing regions to markets" when a natural gas pipeline is not a feasible option, according to the U.S. Energy Information Administration. The energy potential of LNG is considerably greater than natural gas in its gaseous state, according to the U.S. Department of Transportation.

Some institutions slot sustainability at the core of their banking strategy, instead of designate it as a small subsection of their annual reports. Amalgamated Bank, for one, reduced its operational carbon footprint to net-zero and became the first bank in the United States to receive approval for its net-zero targets by the Science Based Targets initiative (SBTi) in March 2022.

The bank's goals would be absolute emissions targets, which would mean Amalgamated would not need to rely on offsets to maintain a net-zero portfolio.

Aspiration — a digital bank that launched in 2013 — is also focused on a net-zero carbon footprint. Cherny told The Financial Brand it not only hasn't invested in fossil fuel projects, but also plants a tree for every time a customer swipes their debit card. On the company's website, customers can use a simulator to calculate how many trees they would figurately 'plant' annually.

"We funded the planting of 50 million trees in just the last year alone, which is as many trees as there are in Central Park being planted every three hours,” CEO Andrei Cherny said. Most of the trees planted are in Africa and South America, he explained, where they "can grow the fastest and have the most immediate climate impacts."

A: The Science Based Target Initiative (SBTi) is a metric with which companies can determine how they perform in comparison to other corporations in their sector as well as help a company determine what its emission reduction targets should look like. "SBTi is working to define a science-based standard for net-zero target setting, to ensure that companies’ targets translate into action that is consistent with achieving a net-zero world by no later than 2050," writes the World Resources Institute team.

A: If a corporation emits fewer carbon emissions, it can sell carbon offset credits to another company emitting more carbon. However, in order to properly issue carbon offsets, " a project needs to prove it will actually reduce emissions," according to MIT Research Scientist Angelo Gurgel. Examples of projects which can sell carbon offsets are those involving reforestation, renewable energy and carbon-storing agricultural practices.

Not every bank can develop these unique strategies or cut out their fossil fuel investments right away — if they have them. Amalgamated's Frishberg suggests one of the best ways that a financial institution can reduce its carbon footprint and negative impact on the environment is through real estate.

"Real estate is a massive exposure for all of the banks, in both residential and commercial ways," Frishberg said. "Buildings are something like 39% of emissions, and behind buildings are fossil fuels. Heating and cooling and building, you're using electricity that has a significant fossil fuel footprint behind it."

The construction of energy efficient homes is the crux of [RH1] Neighborhood Housing Services of New Haven (NHS), a nonprofit helping local families gain access to affordable housing. Jim Paley, the executive director, started the nonprofit in 1980 in small loft apartment on State Street in New Haven.

As Paley described it, the apartment buildings across the street were desolate when NHS moved into the office in 1980. Over time, Paley watched the street grow, crumble as people left and then grow again over the years, which he attributes to the changing economic state of the city through the decades.

As time went on, Paley's original goal of neighborhood revitalization turned into six key goals: affordable housing development, homeownership counseling, community building and organizing, community sustainability, lending and realty services.

Among other goals, energy efficiency stood out as few low-income families had the money required for that type of home. Paley explained that NHS has always been "conscious of energy efficiency in housing because we knew our target market was low- to median-income families and we knew they could least afford to have energy-efficient homes."

In many cities and states across the country, Frishberg says, there is a strong focus on net-zero infrastructure, both commercially and residentially. New York City, for one, is implementing its Local Law 97. Under the law, buildings over 25,000 square feet would need to meet energy efficiency and greenhouse gas emissions limits, to meet the citywide goals of 40% emission reductions by 2024 and 80% emission reductions by 2050.

Kathy Fay, the NHS director of community sustainability, pointed to the complexity of the issue, explaining while there is funding in the state budget to help with these things, there's no money proportioned for remediation.

Frishberg said financial institutions — when entering into real estate contracts — should say no to any building construction which would involve gas, because it would "[lock] in long-term emissions."

"There is also the retrofitting of buildings on a cyclical basis — buildings always need upgrades and changes," Frishberg said. "Building in the sustainability goals is both and executing on that is a function of policy and finance and changes in the market."

Public transit is another opportunity for financing from private banks, said Michelle Levinson from the World Resources Institute (WRI). Major banks and investment firms, Levinson said, “are interested in adding electrified transportation to their portfolio because investors want to be a part of transportation."

One of Levinson's passion projects with WRI is the Electric School Bus Initiative.

"I like this work because it's at the intersection of different industries," Levinson said. "And I usually say that speaking to electricity or transportation folks about how it's at the intersection, but really my work is with a third point to that triangle — the financial sector."

Larger financial institutions aren't working with individual school districts, Levinson said, but instead hire third-party aggregators who find several school districts looking for electric school bus financing and pool them into one investment. For years before, buses were funded almost exclusively by public grants.

"It's very appealing for that reason, certainly in the school space," Levinson said, adding schools have a very low default rate and are therefore far less risky to a financial institution. "There's this intangible benefit that investors are interested in, which is not monetized — the health benefits to children."

Levinson also works with public green banks — like the Connecticut Green Bank — which offers access to funding through the state. So far, according to Schub, 14 of these green banks exist across the U.S.

"They are helping develop financial products and markets that let greenhouse gas reducing projects find financing," Schub said. "In the U.S., these purpose-built banks have turned each dollar of public funds into $3.40 of private co-investment, creating $3.67 billion of clean energy investment through 2018."

The Securities and Exchange Commission (SEC) — a regulating agency overseeing publicly traded companies — is ramping up discussions about climate disclosures in a conversation, which could drastically affect banking's role in fossil fuel investments.

"We believe that additional disclosure requirements may be necessary or appropriate to elicit climate-related disclosures and to improve the consistency, comparability, and reliability of climate-related disclosures," stated a March 2022 SEC proposed rule.

"The required information about climate-related risks would also include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks," the rule said.

Although the SEC only holds influence over publicly traded banks (of which there were over 600 in 2017), the Federal Deposit Insurance Corporation (FDIC) issued shortly after the SEC's statement its own guidance for climate-risk disclosures.

"The effects of climate change and the transition to reduced reliance on carbon-emitting sources of energy present emerging economic and financial risks to the safety and soundness of financial institutions and the stability of the financial system," said Acting Chairman of the FDIC Martin J. Gruenberg.

All financial institutions — regardless of their stature or geographic location — "are subject to climate-related financial risks," Gruenberg said, adding only banks with asset sizes of $100 billion or more would be subject to the climate-risk disclosures initially. As of April 24, 2022, only 36 U.S. banks have the minimum assets of $100 billion.

"Figuring out the levers of if the government does a small policy change that, if it's in the right place, has a huge impact on the industry and vice versa." O'Callahan. "Fossil fuels have been effective in putting the brakes on anything they don't like. There is a back and forth between policy and industry.