It’s stunning. US banks and investors are responsible for roughly the same amount of emissions as all of Russia. It’s just one shocking finding from a report from the Center for American Progress (CAP) and the Sierra Club studying the carbon footprint of US banks and asset managers. The finance sector is driving greenhouse gas emissions, but there is still no requirement for it to reduce emissions in line with government targets – unlike plenty of other industries across the states. That’s why CAP and the Sierra Club are calling for regulations that will align the US finance sector with the Paris Agreement.
The analysis, carried out by leading climate solutions and project developer South Pole, takes into account all the carbon emissions associated with the lending and investment activities of the US financial sector. And even still, it’s probably a gross underestimate. That’s because it relies on public disclosures, which misses out key bits of data including estimations of “Scope 3” emissions. Scope 3 emissions are emissions produced by a company’s supply chain or customers, and it can account for 88% of emissions for oil and gas companies.
JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America are the largest providers of funding to the fossil-fuel industry. Together, them and a few other banks financed an estimated 668 million metric tons of C02 equivalent (equal to 145 million passenger vehicles driven for one year) through the $5.3 trillion (yes, trillion) of investment found by researchers.
All of this makes it clear. If these financial institutions are allowed to continue, they will magnify the climate crisis, and lead us into another financial crisis too. One insurer is calculating that the global economy risks losing more than 18% of current GDP by 2048 if no action on the climate crisis is taken. For perspective, the U.S. economy contracted by about 4.3% during the Great Recession. And just like 2008, the people who will be most damaged by a climate crisis-induced crash are those who did the least to cause it: communities of color and low-income earners.
Ben Cushing, Campaign Manager for the Sierra Club’s Fossil-Free Finance campaign: “Regulators can no longer ignore Wall Street’s staggering contribution to the climate crisis. Wall Street’s toxic fossil fuel investments threaten the future of our planet and the stability of our financial system and put all of us, especially our most vulnerable communities, at risk. Financial regulators have the authority to rein in this risky behavior, and this report makes it clear that there is no time to waste.”
Andres Vinelli, Vice President of Economic Policy at the Center for American Progress: “Climate change poses a large systemic risk to the world economy. If left unaddressed, climate change could lead to a financial crisis larger than any in living memory,” said “The U.S. banking sector is endangering itself and the planet by continuing to finance the fossil fuel sector. Because the industry has proven itself to be unwilling to govern itself, regulators including the SEC and the OCC must urgently develop a framework to reduce banks’ contributions to climate change.”
This is why it’s so crucial that Joe Biden acts right now. If he continues allowing banks to continue as they are, it will mean deadly wildfires, droughts, heat waves, hurricanes, floods and other extreme weather events will only become worse. Here are the recommendations from the report:
- Require all financial institutions disclose all emissions embedded in their portfolios and attributable to businesses for whom they provide services.
- Ensure that investment fiduciaries keep their commitments to clients and the public, including those related to how they invest and vote their shares.
- Incorporate climate risk into the supervisory ratings they assign to banks.
- Administer climate-related stress tests to identify the banks’ potential losses from climate change (Moody’s Investors Service estimates that banks globally have $22 trillion of exposure to carbon-intensive industries).
- Require that banks fund riskier investments with more equity capital and less debt.
- Implement climate-risk surcharges on “global systemically important banks.”
- Adjust deposit insurance premiums to reflect climate-related risks.
- Proactively address racial and economic justice issues that intersect with such climate-risk related reforms
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