Banking on change: How your accounts have climate impact

If you’re looking at new ways to take on climate action in 2024, try your own accounting: A report from Project Drawdown finds that changing how you bank (and the banking you use) can have more overall impact on emissions than choosing a vegan diet.

“Saving for the Planet,” released in December by the United States-based climate NGO, was written by Jamie Alexander, Julian Kraus-Polk, and Paul Moinester. It lays out the case for socially responsible investing with a focus on holding down greenhouse gas emissions, in the hopes of achieving the 1.5°C Paris Agreement target and avoiding the worst effects of climate change.

“Due to substantial data gaps, it has not been possible for most individuals to understand the climate impact of their banking and how their money can influence a financial system measured in billions and trillions,” the authors said. The report illustrates how banking choices affect direct emissions, indirect emissions (much of the banking shift applies here) and financed emissions.

The latter, financed emissions, are what many people think of in the climate context because financial institutions invest in fossil fuel projects and companies that fail to act aggressively on climate. They are a type of indirect emissions, compared with your direct emissions: the carbon footprint you generate yourself when heating your home, flying to see family at the holidays, buying and using new electronic gear.

The same is true of emissions linked to banks and institutions. In fact, the authors cite a 2020 CDP report noting that banks’ financed emissions are more than 700 times larger than the direct emissions (like operating their facilities) that they typically disclose in their annual reports and investor documents. And only about 25% of institutions even disclosed financed emissions, CDP found.

The Project Drawdown report notes, for example, that just 7% of global banks’ funding between 2016 and 2022 went to renewable initiatives and that moving your money to another institution can drive change so that the investments support the global energy transition. Up to 20% to 30% of your funds may be indirectly involved in generating emissions when your money is used to support the industries that fuel the climate crisis.

In the U.S., the average transaction account (checking, for example) held about $8,000 in 2022. If a person moves that $8,000 from a climate intensive bank to a “climate responsible” bank, they can reduce their indirect emissions by about twice as much annually as if they adopted a vegan diet.

The report’s assessment of 11 top banks (Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo among them) found that for every $1,000 in deposits and holdings, enough emissions were generated to fly you from New York to Seattle. And while climate-conscious people are mindful of their diets and air miles, banking as a climate choice isn’t always as obvious to them.

The report authors urge people to continue climate action in other spheres: Installing residential solar will reduce your individual carbon footprint by far more, and driving an electric vehicle will limit emissions by more than twice as much as your climate-friendly banking decisions can.

But it is another tool to consider, with wider impacts. The report doesn’t endorse any banks (or vilify any, for that matter) but it does offer links to Bank for Good, Bank Green, and other sites to help with calculating the impact and exploring your financial options. It’s not just for the wealthy, either: community banks play a key role.

“Moving your money is an action you can take to send a signal to the system and help shift the flows of capital away from banking institutions that fund carbon-intensive sectors and toward banks that do not,” the report authors explain.