Banking on Climate Justice

Accessing finance in the face of a disaster through various policy and bank solutions such as disaster risk insurance, catastrophe bonds, weather index insurance, facilitation of microfinance cash transfers, and debt relief.

Retail banks develop expertise at the front office in available local subsidies and programs to serve as advisors to their clients - especially low-income communities. At its most complex, banks could use customer data (e.g. income thresholds, regional variations, spending patterns) to offer tailored solutions. At its most basic, retail agents could have information relevant to specific types of loans (e.g. energy subsidies if taking out mortgage loans)

The H2R programme from GCF aims to provide affordable and green energy access to first-time users in low-income populations in 16 countries in Africa. The programme will support off-grid solar companies to enter and grow in these underserved markets by providing flexible financing that matches the needs of the companies.

The Equitable Education Fund (EEF) shares about social finance innovations and the concept of Pay for Success, a new operating model for sustainable educational outcomes and a way to end the long-standing educational inequality.

Policies enable bankers to prioritise financing climate solutions that come from frontline, historically disadvantaged communities in order to create accountability and reparations for policies that have historically & systemically exacerbated climate risk.

Processes and policies to ensure communities/sectors stay adapted & bankable in face of climate risk (policy, insurance, lending)

Fair by Design describes how they used inclusive design to place people with lived experience of poverty at the centre of policy decisions within a regulator. It highlights how this can be done by any decision or policymaker, and why inclusive design is essential for delivering markets that works for all consumers.

Banks - including mainstream financial institutions, green banks, DFIs, etc. - issue bonds that can be voluntarily purchased at low-cost in order to help crowdsource the funding needed for local and regional climate resilience projects.

Relevant case studies include: Connecticut Green Bank’s Green Liberty Bonds; United States’ government Clean Energy Victory Bonds; Verizon Wireless Green Bonds; and World Bank Green Bonds

Proposals on currency-hedging facilities such as the Bridgetown initiative led by Barbados’ Prime Minister Mottley to help Global South countries with liquidity support and debt sustainability

Debt-for-nature swaps take distressed sovereign debt from poor countries and use the expected debt write-off to free up money for otherwise unprofitable investments in nature recovery or preservation.

With the objective to deliver on the Race to Resilience’s target of making 4 billion people more resilient by 2030, the High Level Climate Champions, the Ocean and Climate Platform, Resilient Cities Network and ICLEI are partnering to unlock financial flows that promote climate change. This paper provides a summary of funding and financing options and mechanisms, as well as a mapping of the key stakeholders.

Banks support microfinance institutions through financing and technical assistance in order to leverage microfinance platforms to provide training on adaptive livelihoods to people and communities who are increasingly exposed to climate risks.

Relevant resources: Microfinance, Over-indebtedness and Climate Adaptation: New Evidence from Rural Cambodia (Royal Holloway, University of London), and EaSI Technical Assistance for microfinance case study.

One year progress report on advancing environmental justice under the DoJ’s environmental justice strategy. This report details the work done to implement each of the four principles, including both specific cases and related activities. The information included here is current through August 3, 2023. Highlights include several cases related to EJ.

Initiatives are set up for pre-competitive data sharing in order to empower stakeholders, including governments, investors, and civil society organisations, to hold banks accountable and drive change on climate justice.

The Business for Climate Finance Initiative was launched with two goals in mind: 1) assess and disclose the climate impact of corporate cash deposits and retirement funds and 2) decarbonize bank accounts and employee retirement plans, starting with a group of leading US companies.

Financial institutions place social & environmental covenants on loans so borrowers are required to adhere to the undertaking or forfeiture of certain activities in line with climate justice principles (e.g. SDG-linked bonds).

Mainstream FIs + DFIs utilise a tool to assess the level of climate justice risk to the financial institution and to other stakeholders originating from instruments as part of initial underwriting and ongoing portfolio monitoring, management and risk assessment. Development of tool done in partnership with community stakeholders and stakeholders from other sectors. Implementation carried out by regulators as part of wider risk assessment framework.

Relevant resources:

The Emperor’s New Climate Scenarios: Limitations and assumptions of commonly used climate-change scenarios in financial services (Institute and Faculty of Actuaries, University of Exeter)

"The Problems with Climate Risk Scenarios -and How to Fix Them" panel and associated resources (CSLN, Green Central Banking)

Tipping Frontier’s model of quantifying climate, pandemic, and conflict (CPC) risks that cascade across systems to impact asset prices, and facilitate investments in resilient financial products.

The warning issued by United Nations and ClientEarth regarding the significant human rights impact Saudi Aramco and its financial backers have across the world through the state-run oil company’s outsized contribution to the climate crisis sets precedent for human rights obligations of banks in their oil & gas financing

This report, published by Lloyd’s in association with the UK’s Centre for Global Disaster Protection, identifies and provides an outline design of four financial instruments that could be used to incentivise and deliver greater investment in resilience: (1) insurance linked loan package, (2) resilience impact bond, (3) resilience bond, (4) resilience service company

Central banks and regulators take on more active roles such as through systemic-risk approaches to encourage central bank mandates that restrict financing of fossil fuel proliferation and promote climate justice objectives.

Key Resources: WWF’s Financial Services and Markets Bill policy position briefing, and research on the implications for central banks and financial supervisors of biodiversity loss and climate change interactions

Engaging local stakeholders from across supply chains in data collection to improve social equity metrics and standards

Providing access to capital, expertise and networks to enable entrepreneurs - especially indigenous entrepreneurs - to bring their ideas to life. Partnerships with accelerators and incubators, climate-specific venture capital funds, green banks, governments, and international development finance institutions can help increase access to finance, share risk and engage in investments traditionally seen as unfavourable or unattractive. Leveraging corporate sustainability initiatives, or creating prizes and competitions can increase recognition and funding to promising entrepreneurs.

Financial instruments that can be used by organisations or individuals as part of a risk management strategy to reduce risk associated with adverse or unexpected weather conditions.

bank.green, Bank for Good and Switch It Green are examples where it has been made easier for people to align their values with their financial decisions by switching banks that align with a fossil-free future.

Policymakers implement measures - including regulatory incentives (tax breaks, capital reliefs for finance that would otherwise fall on the state) and simplifications - to create space for smaller and stakeholder banks to increase their share of the market, much like the efforts under the fair banking for all campaign related to financial inclusion.

Community Wealth Building is an approach to economic development that promotes the local, democratic, and shared ownership and control of community assets

Using blended finance models between mainstream financial institutions and CDFIs to co-finance local communities

A unique fellowship program that connects insurance professionals with city senior leadership to develop resilience-building risk transfer solutions

Proliferation of policy mechanisms (e.g. the Community Reinvestment Act, Community Benefits Agreements) and partnerships (e.g. with CDFIs) to increase incentives for and ease of access to financial mechanisms and avenues by which financial institutions can engage in more local-level lending.

Relevant resources:

TD Bank’s community benefits plans

Participatory Investment in Banking: Opportunities and Options for Banks

Seed Commons is a national network of locally-rooted, non-extractive loan funds that brings the power of big finance under community control. By taking guidance from the grassroots and sharing capital and resources to support local cooperative businesses, we are building the infrastructure necessary for a truly just, democratic and sustainable new economy.

The Afterglow Climate Justice Fund focuses on the root causes of the climate crisis through an intersectional lens of racism, classism, capitalism, economic injustice, and environmental harm. The Fund will lend to organisations serving communities living in persistent poverty, facing high energy costs, lacking access to clean transportation, and disproportionately suffering from the effects of extreme weather. We share movement leaders' views of shifting to a regenerative economy based on ecological restoration, community protection, equitable partnerships, justice, and full and fair participatory processes. Across the board, our investments will support the creation of green jobs and solutions with leadership and ownership proximate to the communities served.

The Global Economy and Development Program hosted an event to bring together key stakeholders from the Village Enterprise DIB project and high-level experts and critical thought leaders. Panellists shared lessons learned and explored the potential and limitations of the impact bond approach as a tool to address global poverty challenges.

"Banks, central & local government and private sector investors partner to finance community trusts, who can invest the generated capital and use the income for local grant making. By involving community based organisations in the process, there will be increased reliance on local structures, communities and approaches to climate resilience projects.

Relevant case study: Eastern & Central Community Trusts and Westpac Banking Corporation

The Guild takes a systems approach to creating collaborative, inclusive, and sustainable communities, with the aim of addressing the root causes of economic inequality.

The CRFPF is an initiative of the Asian Development Bank to support countries in Asia and the Pacific region to scale up community-level investments in climate adaptation, explicitly seeking to build the resilience of poor and vulnerable communities to the negative impacts of climate change.

The Sierra Club Foundation, a 501(c)3 endowed organisation, leverages its diversified assets to support a healthy planet for all people. As part of its catalytic capital work, the foundation works in reciprocity and solidarity with innovative, Indigenous-led groups providing Indigenous-focused climate solutions at catalytic junctures. These groups include SAGE Development Authority, with whom the Foundation helped bridge an initial funding gap to develop the Standing Rock Sioux Tribe wind project; and Navajo Power. These were financed investments at a time when banks and more traditional investors had deemed the investments too risky or early; which then catalysed co-investments and growth that allowed downstream investors to come in. The projects themselves have had enormous positive impact and implications for Native communities, local health, and the planet. And the foundation learned much along the way.

Additional resources: We Are Facing a Planetary Crisis - an article containing short case studies of high-impact investments, Sierra Club Foundation 2022 Annual Report, and a video introduction to Sierra Club’s Shifting Trillions work

With its communities-first approach and support from ImpactAssets, a major nonprofit impact investing firm, as well as green banks that specialise in financing green technologies, the JCF is well positioned to reliably deploy intentional and coordinated investments that will lower carbon emissions and strengthen the country’s climate resilience at the community level.

The SCF is an example of a small scale impact/innovation fund. The goal of the SCF is to catalyse climate solutions at the subnational level through a transformative finance model designed to attract public and private investment and to deliver certified climate and sustainable development impacts and Nature-based Solutions.

The Sierra Club Foundation has been engaging several of the large US banks on Climate and Environmental Justice topics. Most recently, we filed a shareholder resolution at Goldman Sachs, asking the bank to conduct an assessment of the environmental justice risks and opportunities it faces. The recommendations in the proposal serve as another great example of tools banks can use to understand the climate justice factors material to their work. Supporting and voting for the proposal itself is a direct resource that shareholders can use to make sure Goldman Sachs is doing so. Learn more here and review the full exempt solicitation here.