Financing fossil fuels is a lose-lose.

The world’s largest banks are still lending to fossil fuel companies for new extraction projects. But it poses a risk that our climate—and global economy—can’t afford.

It’s happening to the tune of $3.8 trillion over 5 years, even as most major financial institutions have pledged net-zero goals.

The UN’s annual climate conference (COP27) is happening right now in Egypt, and a few hot financial topics have taken center stage. One is the concept of “loss and damage,” in which some wealthy nations have pledged to help pay for climate change-related damage to poorer nations. Another is a carbon trading program introduced by the United States and a group of corporate partners.

What should be front and center is the fact that banks and asset managers, only a year after forming the Glasgow Financial Alliance for Net Zero (GFANZ) before COP26, managed to worm their way out of a commitment to end their financing of new oil and gas projects. Rather than forcing banks to change their policy, GFANZ simply changed the agreed-upon rules of membership. Institutions will still need to demonstrate progress on their commitment to net-zero operations, but they won’t be penalized for bankrolling fossil extraction endeavors. Basically, a group of Wall Street firms used the threat of antitrust lawsuits as leverage, since they could be accused of colluding with the international community on investment decisions. But the result is that now, no one is adequately pressuring them to reconsider their financing decisions.

We’d be remiss not to mention a key factor in why Wall Street was so insistent on getting a rule change. A countermovement against ESG investing has been gaining traction, calling it “woke capitalism." ESG investing incorporates environmental, social, and governance factors into its assessment of financial risk. Particularly alarming is the support this countermovement has garnered from U.S. elected officials, resulting in proposed and enacted pro-fossil fuel “boycott bills” that boycott financial institutions with climate-friendly investment strategies. A growing number of state legislatures are targeting BlackRock, the world’s largest asset manager, for its “climate agenda” by threatening to divest their states’ pension funds from BlackRock assets. And if the House majority changes hands, we can expect to see this phenomenon at the federal level, too.

But the anti-ESG movement is largely a disinformation campaign. Its proponents claim that climate-smart investing is purely ideological, and that participating institutions are engaging in a war on capitalism. In reality, these decisions are driven by capitalism, as BlackRock CEO Larry Fink argues in his annual letter to other financial services CEOs; climate risk is investment risk. Most financial experts agree that a gradual withdrawal from oil, gas, and coal assets is better for an investor’s long-term bottom line.

All this is to say that the financial services sector has a massive role to play in meeting U.S. emissions targets, since the viability of new oil and gas projects depends on fossil companies’ ability to secure financing. Financial institutions need to hear that most stakeholders—shareholders, employees, customers, regulators—expect banks to play a role in decarbonizing the global economy.

Your voice extends beyond your status as a bank customer. Public demands on financial institutions can influence elected officials, like when the Seattle City Council divested from Wells Fargo after protests over Wells Fargo’s fossil fuel financing. So what are we waiting for?

Featured photo by Robert Bye on Unsplash