Can the banking industry learn to center clients and climate?

A lesson from Standing Rock

In 2017, protests at Standing Rock and around the world sparked large-scale divestment from the Dakota Access Pipeline project (DAPL). Cities like Seattle and Los Angeles voted to cease contracts with banks involved in funding the controversy. Amongst other large banks, French bank BNP divested completely, selling its $120m share of the $2.5 billion loan. In total, city governments cost DAPL-enmeshed banks more than $4.3 billion, while individual bank account holders accounted for another $86 million loss.

Beyond these impressive numbers, DAPL divestment sent a clear message on the importance of retaining a Social License to Operate (SLO) and caused many investors to deepen their questioning on the role of banks in funding extractive industries.

The banking system is broken

Trying to understand the behemoth that is our global banking system – let alone the role of central banks like the Federal Reserve – has become exponentially more challenging. Even with all the smoke, mirrors, acquisitions and advertising, one thing is clear: bigger banks tend to get away with way more than they ought to and are not good corporate citizens. Between 2008 and 2017, banks paid a staggering $321 billion in fines for regulatory failings ranging from money laundering to market manipulation.

Former managing director at JPMorgan, John Fullerton, argues that our version of capitalism has created the conditions for banks that are too big to fail. It seems we have drifted from a model where banks prioritize customer needs to one that extracts as much as possible from these customers – all the while marketing the inverse. In her new book Wealth Supremacy, Marjory Kelly notes that the United States used to boast a thriving network of locally owned banks – numbering 18,000 in 1985 but only 4,400 remained by 2020. She states:

These banks were harvested, mashed up into the big Wall Street banks that dominate today, like JPMorgan Chase, Bank of America, and CitiGroup. These banks are supported by our deposits. It’s our money, our communities’ money, that makes up their assets. Yet because mammoth absentee banks are less connected to community, they’re less likely to extend loans to small local businesses, which today struggle for access to capital.

The role of banks in climate change

On the climate front, the top 60 banks in the world have financed $5.5 trillion in fossil fuel investments since 2015, as reported by The Rainforest Action Network (RAN) in its Banking on Climate Chaos 2023 report. The report showcases detailed data on the banks responsible for investing in fossil fuels by year and sector – as well as the financing sources for the 20 oil and gas companies with the biggest short-term expansion plans. 

Despite the RAN report’s dismal data, oil executives are complaining that access to capital is getting tougher due to higher standards for clean energy goals from financiers. And some banks have already reduced funding to oil and gas projects as part of their own climate targets. As one example, BNP announced that it will no longer finance development of new oil and gas projects and has committed to cutting 80% of its oil exploration financing by 2030 – likely as a result of investor activism. 

Even with recent pushback on ESG investing, concern about climate change remains the most common reason for financial groups to exclude companies from their portfolios.

Does “better” banking exist?

DAPL sparked a resurgence in interest in public and alternative banking options. But retail investors alone don’t substantiate enough of the market to move the needle. Marjorie Kelly urges us to develop a new ecosystem for banking that centers public interest. But what does “better banking” look like? Joe Guinan, President of the Democracy Collaborative states:

We need a top-to-bottom ecosystem of mutual, cooperative, community and public banks that would be focused entirely on investment in the real economy, in greening production, in providing jobs, retirement security, and an economy of real human needs.

To achieve this lofty vision, some are saying we need more public banks like the Bank of North Dakota and more support for Community Development Financial Institutions (CDFIs). While the term ‘regenerative banking’ is not yet being used, examples of banks that center people and planet do exist. Germany boasts a legacy of cooperative banks which comprise two thirds of the retail banking market. And Spain’s Mondragon funds the world’s largest cooperative economy. One of Mondragon’s key principles is: the Instrumental and subordinated nature of capital — making it one of the only large banks that directly states that capital is not the center of its business.

Evaluate what your deposits are funding & local alternatives

One of the primary ways that banks make money is to use deposits from consumers and lend those funds to both consumers and companies at higher interest rates than they pay depositors. This means that the funds in your checking and savings accounts could directly be funding something that conflicts with your values. Fortunately, there are local options that not only don’t lend to fossil fuel companies, but they directly support our community in constructive ways.

One local example is Beneficial State Bank. The bank primarily serves non-profits, foundations and cooperative businesses in Washington, Oregon and California and seeks to set an example of what an “environmentally regenerative and equitable” future of banking could look like. Beneficial shares:

We invest in positive social and environmental impact. We prioritize transparency and accountability. We expand access to equitable financial products, endeavoring to leave those we help better off than they were before. We don’t maximize profits at the expense of our customers, team members, communities, or the planet. We consider all of our stakeholders, including the earth we share, in our business decisions. Our products are designed to help, not hurt.

Beneficial offers a calculator that shows what your deposits fund (an estimate based on 2020 mission metrics). If you want to see where your bank invests, Mighty Deposits provides a money tool that allows you to see what’s under the hood. The organization also provides a credit union search tool for folks seeking to align their banking with their values.

At Humanize Wealth, we’re committed to helping clients express their values across all areas of their financial lives - ranging all the way from checking and savings to shareholder activism. While it's unclear if the “too big to fail” banks can truly achieve better practices, we can only gain by supporting those that are working towards a more just future.