What happens to the money in your bank account
The money in your bank account could be funding fossil fuel companies. How is that possible and is there anything you can do about it? In this blog we explain how the money makes it from your account to oil and gas companies and what you can do about it if you don’t want it to happen anymore. There’s so much we can do as individuals to lighten our footprint on the planet and choosing a fossil fuel free bank account is a tricky step, but one with planet saving impact.
Where does my money go?
Have you ever wondered what happens to your money when you put it into the bank? Most people don’t as they rightly see their bank account as an important service that helps them lead their day-to-day lives and leave it at that.
However, the way banks make money is that they take the money that people deposit in their account and then lend it out[1]. Much of this lending goes to help people buy houses and grow small businesses, both essential to support our economy. Some banks though also lend to fossil fuel companies who in turn will use it to support their business which is focused on the exploration, extraction and sale for profit of oil and gas. So a little bit of your money may be inadvertently helping fossil fuel companies make more money as they worsen climate change.
Is it a big deal though?
This is a crucial question as people wonder whether they should be taking action or not. We try to answer it by estimating how much of your money is lent to fossil fuel companies. For many people knowing that some of their money may be lent to fossil fuel companies is enough to make a change. However, we also go a step further by estimating what fossil fuel companies do with that money in terms of their carbon emissions to get a sense of the impact you can have by switching banks.
So how much of your money gets lent to fossil fuel companies? We analysed the annual accounts of the top 5 UK high street banks (HSBC, Barclays, RBS who own Natwest, Santander and Lloyds) to help us answer this question. We also used the excellent Rainforest Action Network Fossil Fuel Finance Report 2020. Whilst these reports can be over 300 pages long they usually contain “climate related financial disclosure”[2] which helps us to assess the amount of money lent to fossil fuel companies. It’s important to note though that you don’t find exact amounts with detail on where the money goes[3]. Therefore whilst we can estimate the amount of money that’s lent to fossil fuel companies it’s not possible to be specific until banks provide greater transparency.
What we found is that amongst these top 5 banks, on average, 2% of all their lending goes to fossil fuel companies[4]. That might not sound like a lot but for Barclays that means £24,000,000,000 (that’s £24 billion!) in 2019 and for HSBC that adds up to over £71 billion since the Paris agreement when countries agreed to try and limit global warming by making big cuts to emissions[5]. So for every £100 you have in the bank £2 could be lent to fossil fuel companies.
How much impact does this have?
For many people knowing that your money is being lent to fossil fuel companies is enough and, if so, skip straight to “What can I do?”
However, it’s also useful to understand what sort of impact this really has before tackling the challenges of changing bank accounts. In order to estimate this Giki analysed the carbon emissions[6] that are generated by 7 large oil and gas companies including UK giants BP and Royal Dutch Shell[7] to assess how they use the money they’ve got from banks or investors[8]. The numbers run into hundreds of millions of tonnes.
It’s such a large number because in order to make petrol, chemicals and other fuels the oil and gas companies have to: explore for new resources; extract those resources using techniques such as drilling and fracking; process what comes out of the ground to create the products that people want and then transport them around the world to where they are required. This process is highly carbon intensive.
What this means is that for every £1 that is being lent to them on your behalf they generate just under 400g of carbon dioxide each year. So if you’ve got around £6000 in a bank account or cash ISAs[9] (the average for people over 35 years old in the UK) it adds up to almost 50 kg every single year.
Unfortunately, there is more. These estimates don’t include the emissions created when customers of the fossil fuel companies actually burn the fuel[10] (which may well be all of us driving cars and flying on planes). This quickly moves the figure to over 300 kg. Furthermore no account is taken here of the incredible destruction to natural habitats caused by oil and gas exploration including in areas like the Artic.
So whether we look at the smaller figure or the wider picture, your money is having a material impact.
What can I do?
Giki Zero shows people the steps they can take to lighten their footprint on the planet and one of these is to find a fossil fuel free bank. However, we know it’s tricky to do but if you do decide to switch then banks such as Triodos, the Co-operative and Charity Bank all offer fossil fuel free accounts. You can also switch to many of the UK’s independent Building Societies as they focus on lending money to home owners rather than big business. This includes Nationwide, Coventry and Ecology Building Societies. So there are plenty of good options to choose from but there’s no hiding from the fact that there will be admin! However, you’ll be taking a planet saving step.
Also not only will you be taking your money away but if you let the bank know why, and they hear that from enough people, then they’ll be encouraged to change their practices too. Already many banks have banned lending to coal companies and for some oil projects in ecologically sensitive areas so all they need is a gentle push… If enough people do that then the impact really starts to build up[11]. Some of the large high street banks, such as Natwest, have made significant progress in recent years with a focus on getting their lending portfolios aligned with a 1.5C world.
Methodology Notes
Analysis by Giki Social Enterprise, May 2020
[1] Banks have various sources of funding including deposits. Since the financial crisis more focus has been put on deposit funding as it is seen as lower risk, important for banks at times of financial stress such as 2008 and during deep recessions such as the one currently being caused by Covid-19.
[2] The provision of climate related disclosure has improved significantly since the TFCD (Task Force on Climate-Related disclosure) issued recommendations in 2017.
[3] Here’s an example from RBS’s 2019 Annual Report and Accounts on the types of information banks provide. “Exposure percentage represents the gross lending and related off balance sheet
exposure to a sector as a percentage of total gross lending and the related off balance sheet exposures.” A simple figure, in £, would be preferable!
[4] We look at oil and gas companies from the TFCD where it is available. However, there are other high risk transition categories that could also be included which would lead to a higher number. Average includes figures HSBC, Barclays, RBS and Lloyds. Santander was not included due to insufficient TFCD disclosure to cross check with RAN information.
[5] Source: Rainforest Action Network “Banking on Climate Change. Fossil fuel finance report 2020”.
[6] Source: CDP https://www.cdp.net/en/responses/ and company annual reports
[7] The full list is: BP, Royal Dutch Shell, ConocoPhillips, ENI, Occidental Petroleum, Repsol and Equinor
[8] Based on analysis of the enterprise value of 7 Oil and Gas companies relative to the Scope 1 & 2 emissions generated.
[9] Source: Wealth and Assets Survey, Office for National Statistics
[10] These are known as Scope 3 emissions.
[11] Even the shareholders of many banks are now pressuring them to stop financing fossil fuels. At Barclays 2020 Annual General Meeting 24% of them voted for a resolution asking them to stop.