Get the knowledge: making better choices about financial services

Whether we realise it or not, we’re all active members of the global economy.

From saving for a rainy day and investing in a pension, to organising insurance or simply taking cash out to pay for the weekly shop, we all play a role in the worldwide banking and financial services sector, which is worth an estimated $28 trillion every year.

On average people have around four or five financial accounts, often with different banks. These can include current accounts, savings accounts, credit card facilities and so on. When choosing an account we tend to consider things like interest rates and ease of access, but we don’t often think about how our money is being used by banks in terms of wider investment and funding. 

Banks use our money to support industry and governments, invest in infrastructure and back major projects. However, whether those investments are good for the planet and people is coming under increased scrutiny.

How do banks have an impact on climate change?

According to the 2022 Banking on Climate Chaos report – put together by Oil Change International, Rainforest Action Network, BankTrack and others – the world’s 60 largest banks have poured nearly $4.6 trillion into fossil fuel investments since the adoption of the Paris Agreement in 2015.

Globally, JPMorgan Chase is the worst offender, responsible for some $382 billion of fossil fuel funding. In Europe, Barclays has held top spot for a number of consecutive years now, with $167 billion worth of fossil fuel financing.

Banking also directly contributes to deforestation. A report by Global Witness shows that between 2013 and 2019, more than 300 investment firms, banks and pension funds contributed some $44 billion of financing to the world’s biggest agribusinesses. These companies are responsible for razing forests across the world – including the Amazon – to produce palm oil, beef, and rubber, among other things.

This means that banking has a negative impact on everything from carbon emissions and pollution to biodiversity loss and human rights abuses.

Are banks becoming more climate conscious?

As the climate crisis becomes increasingly urgent, environmental organisations are putting more and more pressure on financial institutions to make better investment decisions – not only to stem the influx of funding into damaging sectors, but to divert funding into measures that will actively tackle climate change. 

According to the Intergovernmental Panel on Climate Change (IPCC), limiting temperature rises to 1.5 degrees – in line with the Paris Agreement – would require global energy investments of around $3.5 trillion a year until 2050.

There are encouraging signs of change. In the insurance sector, for example, 62% of companies now have specific coal exclusion policies. In April 2021, 43 global banks, including Bank of America, HSBC and Credit Suisse joined the industry-led and UN-convened Net-Zero Banking Alliance (NZBA), committing their investment and lending portfolios to reach net-zero emissions by 2050. 

Meanwhile, COP26 saw more than 450 of the world’s banks commit to decarbonising their investments by signing up to GFANZ (the Glasgow Financial Alliance for Net Zero).