The Green Finance Podcast Ep. 3: Banks’ role and responsibility in the climate crisis with Chris Skinner

Today we’re talking about banks and their role in the climate crisis. Big banks historically supported the global fossil fuel industry through massive amounts of funding, and now they’re being pressured to change.

But change happens slowly for banks – they don’t want any overnight actions. And yet, they can’t avoid change forever.

In the not-too-distant future, banks will be required to disclose the carbon footprint of their lending and investment operations. Regulators are already sending some pretty strong signals towards making the financial system more transparent and accountable.

Many of you might have seen the headlines over the past few weeks on the investigations that government authorities are conducting around greenwashing claims by some of the biggest banks in the world.

To help me unpack this, I’ve called Chris Skinner, a financial technology expert, global commentator, bestselling author of multiple books, and owner of the website The Finanser.

Chris is out with a new book, called Digital For Good. The book explores how financial systems influence the economy, the purpose of banks, and how they impact society and the planet.

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The following excerpts were edited for clarity.

What do you think is the banking and finance industry's current role in the climate crisis?

Chris Skinner: Banking is at the heart of enabling the crisis, and the reason for that is that they provide all the funding for fossil fuel firms and fracking, and other things that are affecting the stability of planet Earth. And if they squeezed that funding, or withdrew that funding, then it would change behaviors and move a lot of the industries that are creating greenhouse gas emissions to actually being focused far more on renewables. Now, that is happening, but it's just not happening fast enough. 

The issue is that banks make most of their profit from supporting those fossil fuel activities. By way of example, I think about 14% of all the loans of European banks go to firms that are creating issues for the climate, and that's something that the banks have to understand and work out how they can still make profit whilst changing behaviors.

What do you think of this year's activist shareholder proposals at major US banks requesting them to stop fossil fuel financing?

Chris Skinner: If shareholders put pressure on the leadership of the financial companies that they're investing in, that has an effect. And there is, as you say, particularly in the pension fund and the asset management communities, pressure being put on financial firms to think more about ESG. There's also equally the activist consumer who has less of an impact, except when they demonstrate outside banks, annual general meetings, which is something that's quite common now, particularly outside the UK banks. 

The problem is that the banks then try to demonstrate that they are turning green, and doing a lot of sustainability and environmental projects. But when you lift the hood, you find that normally, that's just PR and marketing. It's not actually anything that's making an impact on the bottom line and behaviors of their customers. 

I always go back to a Bloomberg interview I saw with Anna Botha, who's the Executive Chair of Santander Group, and she was talking to Bloomberg about 18 months ago and said we’ve got to also understand that you can't just switch off fossil fuel funding, just like that. What you have to do is create a plan for Net Zero 2050, ideally 2030, depending on your view, and get the movement to renewables far quicker through the financial system.

Do you think in the US the general sentiment is that there is a genuine interest from banking executives to move from being part of the problem to being part of the solution?

Chris Skinner: From a heart view, yes. From a head view? No. Because I mentioned greenwashing, and actually the US banks are the biggest culprit of greenwashing – from Blackrock through to JPMorgan Chase, the biggest funders of fossil fuels and greenhouse gas companies. It's coming from the US banks, the top four, namely JPMorgan Chase, Wells Fargo, Citigroup, Bank of America, and then behind them in Europe, HSBC, and Barclays Bank. 

The reason for that is, as I say, they're making huge amounts of profit out of those investments and loans that support those industries. And so, there's a real conflict. On the website, you'll find loads of messages around their focus on sustainability and the environment. And yet, as I mentioned earlier, underneath the headline, they're not doing anything at all.

Forgetting about all the marketing and PR, and just focusing on the reality of the situation, do you think it's fair to draw a line and say that big banks are currently making the climate crisis worse?

Chris Skinner: I think I can safely say that. Since the Paris accord of 2015, something like $4.6 trillion through 2021 was poured into fossil fuel and fracking firms. But there is pressure coming through, and it's not just from activist investors and activist consumers.

I spent the last 15 years talking about FinTech nonstop, which to me is just the integration of technology and finance. When I look at the FinTech community and when you talk to the challenger banks and the neobanks around the world, their agenda is all about financial inclusion about making the world and society a better place, focusing on offsetting the way in which your lifestyle through your money shows your behaviors, to encouraging consumers to behave better. 

How can we make the most out of this new mentality that the fintech industry is injecting into finance? What role does technology play here, for example, as most of the innovation in the space has been driven by technology?

Chris Skinner: Technology makes it really transparent as to how companies are behaving. A figure that struck me when I started investigating these ideas, which was five years ago, was that 71% of the global greenhouse gas emissions are produced mainly by just 100 large companies. 

Then you look at who's behind those companies from the financial backing viewpoint – you can find out easily through the network now, because so much of it is transparent, thanks to search engines. For example, just a couple of years ago, Blackrock said that they were investing in sustainable projects, but when you actually looked at what that meant as a definition, 97% of their investments were going into non-sustainable projects, as discovered through investigations of various research companies. 

I always questioned such findings, because some of them are just scams and spams, and they're not real. But regardless, when you see something that doesn't look right, you can very quickly get the facts. It doesn't take long; there’s lots of research for free out there, and you can act upon it. 

That's where Extinction Rebellion and others are starting to step in to say they’re going to shine the light on what these guys are doing and make sure people are far more aware of that. This is really bad PR for the bank, but it's a good way of actively protesting. And what's interesting is, for example, Gail Bradbrook, who's a co-founder of Extinction Rebellion – I regularly host her on my blog these days with a monthly column, because I want to have a voice heard, and at least have the conversation. And her latest blog that she wrote was about breaking the windows in Barclays Bank branches and headquarters. She said this is not a crime, because active protest, as long as you're not damaging or killing people, is allowed. That's what the suffragettes did a century ago to get the vote for women, and that's what Extinction Rebellion are doing today.

What do you think the role of the government is when we talk about accountability and transparency?

Chris Skinner: The financial system and the government work hand in hand. Economies prosper if the financial system is effective and works and they fail if the financial system fails. Governments want finance to be successful and prosperous. At the same time, the financial system wants to have the government to support the way in which they're behaving. 

An example of this is in Norway – I run a group called NSI, Nordic Future Innovation, and in Norway, there’s a huge movement towards sustainable transport and services. It's the leader in Europe, in electric cars and renewables. And at the same time, their sovereign wealth fund makes all their money out of oil. The government is not going to shut down that revenue stream. And yet at the same time, their society wants to have an environmentally friendly future. That’s a big conflict. 

Capitalist societies have been driven so far by short-term profits, mostly focusing on returns for shareholders and willing to compromise on everything else. Do you think there's going to be any change there? How do we change the economic system to include the environment?

Chris Skinner: Stakeholder capitalism was rising in the 2010s and culminated maybe in the business roundtable led by Jamie Dimon, the Chief Executive of JPMorgan Chase. He delivered a white paper talking about stakeholder capitalism in 2019, saying that the focus has to be not just to shareholders but also to the society and community. 

It's a nice thing to say, but to deliver is much harder, because if you had things that would do good for society and the planet, but you have to deliver to the shareholders to maintain their support, then the model falls down. But I think it is changing, because I think a lot of the shareholders are going back to what you said before around investors, asset managers, pension funds, feeling that this is important. 

One of the things that happened in a meeting I chaired around this subject is that pension fund managers often said, I'm really worried I won't have any money to pay a pension in the future, because of the way we are abusing the planet. And for a pension fund, that's not a good thing to think about. So we need to change our ways now. 

I've been talking about climate in a financial context for almost 30 years, in terms of meetings and presentations that I've been listening to, and yet, we're still caught in this terrible loop around shareholder capitalism. 

You argue in your book that banks need a higher purpose, and that there's also a need for a stakeholder purpose that makes sense. So how do you think purpose can be translated into something more tangible and quantifiable?

Chris Skinner: When you look at some of the newer companies – Discovery Group from South Africa, Monzo, others I’ve interviewed, and I asked them about their purpose – they have a very clear purpose. For Discover Group, it's around using wealth to make health. That's how they came up with things like vitality, like a Fitbit. If you say that you go into the gym, they can actually monitor that through the connection to the Fitbit or whatever other health device you use, then your premiums are lowered. You may have lent the Fitbit to a friend, that's another story, but it's a great idea.

Monzo is about financial services that should be suitable for everybody. And they came up with a number of ideas, which include, for example, bank accounts for homeless people. You wouldn't give a bank account to someone who had no fixed abode, but if they had a guardian, who guaranteed their account, you could do that. In fact, HSBC and others are now starting to come up with those ideas. 

I think the problem with the large financial institutions is that they're 100, 200, 300 years old, and they've lost that sense of identity and purpose. Maybe the values were there with the founders, just as it is with these founders of new financial firms today, but then over time, it's been lost and twisted. And it's become purely around profit and bonus, rather than around society and the wellness of the planet. 

But I can say that change is on the agenda of the management. When I talk to any of these chief executives of the large financial firms, they say, Chris, we really understand the issues. It's just that we can't change a whole organization on our own with several hundreds or thousands of people overnight. They have to do overtime. And the real thing, going back to your regulatory viewpoint, is, can they do that in time? And specifically, can they find a purpose? That's not just a piece of PR and marketing, but what do they truly believe in?