Is your bank helping or harming the planet? Here’s how to tell if it’s a green wash.

Your bank plays a role in climate change through lending and other actions. But does your bank have a positive environmental impact? It can be hard to know

Through their letters, Banks sometimes paint a greener picture of their impact on the climate than their holdings or other factors indicate, a process known as “greenwashing.”

If your decision about where to bank hinges on an institution’s approach and stance on climate change, here’s how to tell if a financial institution might be doing the greenwashing.

Why is green washing important?

Making banks accountable for overestimating their positive claims is an important way to pressure them to do better about their role in climate change. And if you want to do more, support a bank that phases out fossil fuels and supports climate-efficient solutions.

Greenwashing can do “one of two things: it directs the investment it wants to get into.” [climate] Zach Stein, co-founder of Carbon Collective, an investment advisory firm that creates portfolios focused on mitigating climate change, says solutions are out of the way or make people feel completely out of space and that it’s not solvable.

What is Greenwashing in Banks?

Greenwashing is misleading or even false messages about the company’s climate benefits or commitments, whether in annual reports, advertisements, or elsewhere. There is no standard definition of environmentally sustainable banks, which means that banks can come up with their own definitions or methodologies to describe their impact.

Paul Muenster, co-founder and CEO of The Outdoor Policy Outfit, says the ways in which banks lend, invest and guarantee are the “most massively impactful things” on the planet, not “paperless data and energy efficient buildings.” It is a think tank that aims to build systematic solutions to environmental issues.

And there is a clear northern star: The world needs to cut carbon emissions to net zero by 2050 in order to limit global temperature rise to 1.5°C, according to the 2015 United Nations Paris Agreement and its 2021 update. The goal is designed to prevent the worst effects of climate change. . The IEA, aligned with the mission, calls for two clear actions in its 2021 report:

  • No new investments in fossil fuels.

  • Invest in climate solutions, especially green energy.

For banks committed to climate action, “You have to do both. If you’re not, we’d argue you’re to some extent doing the greenwashing,” says Stein of investment firm Carbon Collective.

4 ways to learn about greenwashing in banks

1. Read the Bank Impact Reports carefully

Look online for the name of your bank as well as an “impact report” or “ESG report”. ESG – Environmental, Social and Governance – is a common framework for ethics-based finance such as investing in ESG. The largest US banks usually have annual reports and long web pages detailing their impact. Small banks may not always keep reports online, so check for recent news updates or which green networks you belong to (more on that later).

For national banks, “We’re looking at how clear that is [their] statements about removing carbon from their investments, and specifically removing fossil fuels,” Stein says.

Look at their summaries and be wary of ambiguous verbs such as “mobilized”, “spread” or “facilitated” financing. The bank’s role or specific steps to reach its commitment may be unclear. And if the Bank sets goals or methodologies to reduce carbon emissions, are they based on a third-party standard to enhance accountability? Are emissions cuts targeting their investment or their buildings? Investments have a greater impact.

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2. Find out if your bank finances fossil fuels

Greenwashing at major US banks can include fossil fuel subsidies and policy efforts such as lobbying or contributing to tackling climate change, the latter of which is hard to look for, says Adele Sheriman of the Sierra Club, representing the Fossil Fuel Finance Campaign.

Two key resources stand out when investigating the bank’s relationships with oil, gas and coal companies: the annual fossil fuel financing report by the nonprofit Rainforest Action Network and Sierra Club, among others, and a bank tracking tool by the independent organization BankTrack.

The report shows the 60 largest financial institutions worldwide responsible for expanding into fossil fuels through lending or other means of support, such as underwriting bonds and equity. BankTrack provides a directory where you can search for a fossil fuel related bank or transaction.

The four largest US banks are also the largest global financiers of fossil fuels, and ten other US banks make it to the report’s list. Just because banks like Chase JPM,
+ 2.33%
and Citibank C,
+ 2.61%
Contribute billions to green projects and say they support a low carbon future that doesn’t make it greener.

But the banks are standing by their climate efforts.

“We are also taking practical steps to achieve our 2030 emissions intensity goals in oil and gas, electric power and automobile manufacturing, while helping the world meet its energy needs safely and affordably,” a JP Morgan Chase spokesperson said 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] A Citi spokesperson said in an email: “Working with our customers on low-carbon transitions.

Read: ‘Net Zero’ pledges can amount to a green wash. This is the best way to reduce lethal carbon emissions

3. External Certificate Verification – or Absence

The financial institutions most committed to stimulating positive environmental impact tend to obtain third-party certification or join networks focused on climate action. Check the bank’s website, either at the bottom or on the About Us page, for designations including Certified B Corporation, Global Alliance for Banking on Values ​​Membership, Fossil Free Certified, and Green America Certified.

Another mission-driven movement, 1% for Planet, requires the company to provide the equivalent of 1% of total annual sales to some environmental nonprofit. However, this certification does not mean that the bank is exiting from gas or oil projects. West Bank, for example, has this designation and is owned by parent bank BNP Paribas BNP,
+ 3.92%And the
Which contributes billions of dollars to financing fossil fuel companies, according to a Rainforest Action Network report.

4. Investigate Easy “Feel Good” Tactics

Some financial institutions may describe account features with environmental impacts that are difficult to demonstrate or overestimate. Non-bank fintech company Aspiration, in partnership with a bank, is offering a debit card where you can “reforest while you shop,” meaning that a small amount of each purchase can go toward reforestation. Nonprofit news site ProPublica discovered in November 2021 that Aspiration recently claimed to be planting more than 35 million trees within a year, but that number includes trees that haven’t yet been planted.

“As we’ve shown to our clients, planting trees on this scale the right way with the viability and benefits for local communities in mind takes time — up to 18 months but usually shorter,” said Aspiration CEO and Co-Founder Andrei Cherny in a mailed statement. mail.

“As of June 30, more than 76 million trees have been planted in the ground by aspiration in less than two years. This almost certainly makes Aspiration the largest sponsor of private reforestation in the world.

ReadHere’s How Much “Greenwashing” Could Cut a Company’s Profit

support climate solutions

Some banks and credit unions (corresponding not-for-profit banks) have renewable energy programs. For example, Climate First Bank and Clean Energy Credit Union both offer loans for electric cars and solar panels. And look at other community banks and credit unions, especially socially responsible institutions, that support sustainable housing or other projects.

“The smaller the banks, the more environmentally friendly they are just because the majority of their investments tend to be local,” says Moinester of The Outdoor Policy Outfit.

“All of our money, all of our investments, have the power,” says Sophie Halpin, sustainable investment advisor, certified officer 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: spencer.tierney@nerdwallet.com. Twitter: @SpencerNerd.

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