Why your current account is funding environmental destruction

You’ve ditched the plastic bags and you religiously turn lights off. Your next car will probably be electric.

But your credit card, or current account, the children’s regular savers, that workplace pension and even your mortgage could be contributing to devastating climate change.

Everyday banking

As the swell of environmental activism drives momentous changes in action and attitude across the country and the globe, brighter spotlights are being shone on the banks, building societies, pension providers and other financial product providers we use every day.

And the shadows they reveal are shocking. The fact that some of the UK’s biggest financial firms invest in fossil fuel expansion for example, isn’t exactly news.

But despite the most worthy looking environmental pledges, the amount the most prominent names in banking are collectively investing in these polluters is rising, not falling.

Customers, shareholders and governments have been demanding real tangible change for years. And yet the Rainforest Action Network (RAN) has calculated that 33 of the world’s biggest banks have funneled $1.9 trillion (£1.5 trillion) into fossil fuels in the past three years alone.

This week for example, Greenpeace reported that in 2018, Barclays was Europe’s third biggest private sector bank supporter of companies planning coal power expansion around the world, primarily via underwriting the issue of bonds for such companies. Barclays leads Europe in banking fossil fuels ($85bn) and fossil fuel expansion ($24bn) and is the top European banker of fracking and coal power.

Since the Paris climate agreement, it said, Barclays has led deals for EOG Resources, EQT Corporation and Concho Resources – three of the four top pureplay fracking companies active in the Permian Basin, America’s most prolific oil basin.

Barclays response was that the bank published its Energy and Climate Change statement in January, which aimed to help accelerate the transition to a low- and zero-carbon economy while also keeping the lights on.

“We recognise that climate change is one of the greatest challenges facing the world today,” a spokesperson claimed at the time. “Our approach balances the need to accelerate the transition away from the most carbon intensive fossil fuel sources, with ongoing financial support for clients operating responsibly in energy sectors that are expected to contribute significantly to the world’s energy mix.”

Barclays was also keen to point out that it has no stake in fracking – though only in the UK and then only since last week – “facilitated” £27bn in financing for green bonds and renewable financing in 2018 and has pledged to run its own operations on 100 per cent renewable energy by 2030.

Then there’s HSBC, which RAN says increased its total fossil fuel financing in the years after the Paris Agreement from more than $17.4bn in 2016 to more than $21.5 in 2017 and invested almost $18.8bn in 2018.

“HSBC is committed to helping customers make the transition to a low-carbon economy in a responsible and sustainable way,” said a spokesperson. “HSBC has not financed any new coal-fired power plants since the release of the updated energy policy in April 2018.”

At the other end of the scale though there are players like sustainable bank Triodos, which invests heavily in renewables.

“Given the growing urgency of climate change, we need to work together to take on the existential environmental and social challenges within the Paris Climate targets and the United Nation’s global goals for sustainable development,” warns Bevis Watts, CEO of Triodos Bank UK.

“The transition must come from the banks themselves, as well as regulators applying pressure for change.”

Investing

“People can see their savings, pension or ISAs as a drop in the ocean compared to institutional investments,” says Quintin Rayer, head of research & ethical investing at P1 Investment Management. “Even though individuals may feel their potential impact on financial markets is too small to matter; like casting their democratic vote or recycling their plastic bottle, they can have confidence their contributions add up.”

He believes there is a lack of understanding as to what investors can do. Many people in the workplace do not realise their pension is an investable asset, he believes, probably the largest they own, and that it is their pension, not the employers. “It is essential to educate people to ask where their pension is invested and whether there is an ethical option.”

There’s certainly an appetite for it. More than half of UK investors want their money to support companies that contribute to making a more positive society and sustainable environment, according to Triodos.

More than 60 per cent of investors believe that for the economy to succeed in the long-term, investors need to support progressive business tackling the big issues we face.

In fact, the UK market for socially responsible investing (SRI) is expected to grow by 173 per cent to reach £48bn by 2027. But there are three key concerns to contend with. Cost, performance and what, exactly, constitutes SRI. How green is green?

“Ethical investment can be seen like ‘healthy/organic lifestyles’, or as ‘nice to have’ rather than crucial,” Rayer says. “Most people want to do it but if it’s more expensive then not everyone can afford it. For this to change, the cost of ethical investing needs to be as competitive as other investments.”

As for performance, a range of academic studies (like this one) can quickly dispel the age-old myth that pursuing an ethical strategy can only mean a hit to performance. They just aren’t widely available, especially for retail investors.

The key point is that while ethical can’t be guaranteed to out-perform, that doesn’t mean it must under-perform, Rayer says.

“Any investment strategy can under-perform, whether ethical or not,” he says. “Many argue that ethical companies can reduce risks and have a competitive advantage. They avoid problems such as; increasing constraints from regulation and oversight, community/societal opposition, increased insurance premiums, decreased access to capital markets and damage to reputation.

“In exchange for these negative factors, they benefit from attracting customers by having a good reputation. Enhanced trust with similarly ethical trading partners also reduces costs and increases business opportunities. They can attract the best staff, find new revenue streams from novel environmental technologies and access capital markets on better terms.”

So where do we find such investment opportunities? And without years of experience in the City how do we work out how green our investments really are?

Luckily there’s help out there.

The drive towards SRI transparency is growing and reputable, independent organisations trying to prompt both investor engagement and institutional action are gaining traction, calling out the pretenders and championing those who really are forces for good.

ShareAction, for example, which seeks to influence significant action on environmental and social responsibility via shareholders and institutional investors has recently released its in-depth report into how some of the largest defined contribution pension providers rank for climate risk engagement.

Elsewhere, independent financial advisers such as Castlefield Advisory Partners, a financial advice group that deals in SRI financial management, does an annual deep dive into the underlying investments of funds open to retail investors that tout their eco credentials to determine whether they’re really all they seem.

Their latest report lists the FP WHEB Sustainability Fund, Liontrust Sustainable Future Funds and EdenTree Amity UK as providing funds which respond to demand from today’s responsible investors who want their money to make a positive social and environmental impact.

They were less impressed with Royal London Sustainable Leaders, The Future World GIRL fund and M&G’s PP Ethical Fund.

A two-pronged attack

But the way to evolve the financial world into one that could deliver the dramatic and immediate environmental changes we need isn’t simply about pushing for full transparency from which your average consumer should then take full responsibility for their funding actions.

In other words, changing the world isn’t and shouldn’t be about consumers voting with their wallets, campaigners like Greenpeace warn. To create fundamental, permanent change, this has to be institutionally led too.

This week, climate activists were outside the Bank of England calling for the central bank to go green.

They demanded that the Bank of England uses all of the powers at its disposal to stop financial firms it regulates pouring more money into fossil fuels, while encouraging greater lending towards more sustainable ends.

“As regulator of our financial system, the central bank has the power to stamp out risky fossil fuel lending, using the same macroprudential tools it has used to clamp down on irresponsible mortgage lending since the financial crisis,” said Fran Boait, executive director of Positive Money.

“In choosing not to use these powers at its disposal, it is complicit in the climate crisis.”

A spokesperson for Fossil Free London said: “In signalling to the market that it is willing to invest in fossil fuels, the Bank is setting an example for other banks and investors to do the same. In giving its stamp of approval, the Bank of England is legitimising climate criminals.

“We are therefore demanding that the Bank’s Monetary Policy Committee blacklist bonds from fossil fuel companies, and we call on them to instead buy assets in fossil free sectors, such as renewable energy.”

The Bank has made some encouraging first steps on climate, announcing in April that it will disclose its own climate risk.

But with the Intergovernmental Panel on Climate Change (IPCC) warning that we have only 11 years to avert the devastating impacts of climate change, campaigners believe central banks can and must go further.

As Bank of England governor Mark Carney recognises, meeting even the modest targets of the Paris Agreement will require a massive reallocation of capital – trillions of pounds globally – to deliver the transition to a low-carbon economy.