NOVEMBER/DECEMBER 2022 l DOLLARS & SENSE l 23 B Y R I C K G I R L I N G B Y R I C K G I R L I N G T HE INITIA L S “ I R A” C A L L TO M I ND A W I D E VA R I E T Y O F I N S T I T U T I O N S : individual retirement accounts, the Irish Republican Army, and now the Inflation Reduction Act, so named to show that the Biden administration is doing something about inflation. Deep inside this mam- moth legislation is authorization for $27 billion to be distributed to nonprofit organizations that provide capital for the rapid deployment of low- and zero-emission products, technologies, and services. Imagine medical facilities across the nation with funding to install micro-grids of solar panels and batteries enabling energy self-sufficiency at huge cost savings. Or imagine how making funds available for creating energy- efficient affordable housing complexes would be ecologically and socially transformative. Many see this billion-dollar allocation as the basis for a National Green Bank, a public bank capable of funding these and other badly needed initiatives to reduce greenhouse gases. While $27 billion is grossly insufficient to tackle the climate crisis, it does acknowledge that U.S. megabanks have failed miserably to sufficiently finance the transition to a sustainable economy and that something needs to be done. Most corporate bankers claim that they support the aims of the Paris Climate Agreement of 2016, yet they continue to pour trillions into expanded fossil fuel output. Sixty of the world’s largest banks have channeled $4.6 trillion into supporting fossil fuels since 2015, with JPMorgan Chase alone providing $317 billion—33% more than any other bank. In 2021, the Intergovernmental Panel on Climate Change (IPCC) published a report which the U.N. Secretary-General António Guterres characterized as nothing less than “a code red for humanity.” Deaf to this warning, in his letter to shareholders in Chase’s 2021 Annual Report, chair and CEO Jamie Dimon called for “immediate approval for additional oil leases and gas pipelines.” Making every crisis an opportunity for Chase, he wasted no time noting that “constraining the flow of capital needed to produce and move fuels, especially as the war in Ukraine rages on, is a bad idea.” Corporate bankers are sabotaging the rapid transition away from carbon fuels that, according to the 2022 IPCC report, climatologists have deemed essential for seizing the “brief and rapidly closing window of opportunity to secure a liveable and sustainable future for all.” Public Banking for Climate Justice Public Banking for Climate Justice Replacing fossil fuels with climate-wise investing Replacing fossil fuels with climate-wise investing requires redesigning the financial system requires redesigning the financial system ›› Protesters march past a US Bank branch in Vashon Island, Wash., demanding financial institutions stop financing fossil fuel pipelines, October 23, 2017. Credit: Backbone Campaign, via Flickr, CC BY 2.0 license. ›› 24 l DOLLARS & SENSE l NOVEMBER/DECEMBER 2022 The vast majority of corporate banks are in the hands of a very small group of executives who con- tinue with outdated investment portfolios that protect their own wealth, with minimal regard for environmental consequences. After analyzing the executive leadership positions of the 20 largest U.S. and European banks, Bloomberg News found that while “at least 73 have at one time or another held a position with one or more of the biggest cor- porate emitters of greenhouse gasses, including 16 connected to oil or refining companies,” only four had connections with companies involved with renewable or sustainable industries. These intimate ties with carbon-dependent industries, and execu- tives’ isolation from regenerative industries, make it extremely unlikely that the dominant banking institutions in the United States will play a positive role in the needed rapid transformation of invest- ment toward renewables. If we want a future other than planetary eco- logical collapse, we need to remake the financial system that drives fossil fuel expansion. Public banks are key to this financial reformulation because they can be designed to require that cli- mate action be a central focus of their lending. When freed from shareholders’ obsession with short-term profits, public banks are capable of accepting below-market returns if they can show their investments serve the public interest. Public banks adhering to a “triple bottom line” will seek positive improvements to the environmentally sustainable economic well-being of their local communities in addition to financial returns that will support the bank. Over 900 public banks currently operate worldwide with combined assets nearing $49 trillion and they are funding renewables. “Despite private banks having four times the financial assets, public banks provide nearly equal amounts of climate financing,” according to a December 2021 NJ Spotlight News article by Thomas Marois, a senior research fellow at the University College London Institute. How Public Banks Work Some public banks provide consumer services, such as the German Sparkassen with 13,000 branches and self-service outlets in communities across the country. Others, such as the Nordic Investment Bank, operate with the express purpose of directing investment in a particular direction. In the United States, only one state has a functioning public bank. All revenues received by the state of North Dakota are deposited at the Bank of North Dakota (BND). The BND improves access to credit for North Dakotans by channeling funds into community banks and credit unions that orig- inate most of its lending. At the national level in the United States, grass- roots advocates are working to establish a National Infrastructure Bank with HR 3339, authored by democratic Representative Danny K. Davis from Illinois, to provide funds for $5 trillion in badly needed infrastructure upgrades such as renewable- energy super-grid overlays and high speed rail net- works without raising taxes. Throughout the coun- try, municipalities such as Philadelphia, Santa Fe, and Seattle are currently pursuing legislation enabling municipal banking. The Public Banking Act, enacted in California in October 2019, allows for the chartering of municipal public banks within the state following a model similar to the BND. Like the BND, these banks will rely on community banks, local credit unions, and Community Development Financial Institutions (CDFIs) to originate loans. Public banks and private-sector community banking institutions complement each other’s operations in mutually—and publicly—benefi- cial ways. Local financial institutions are famil- iar with conditions in their neighborhoods. Additionally, having community banking insti- tutions as loan originators substantially reduces the operating costs of public banks. The larger scale of the public banks enables them to stimu- late local investment through participation loans where the public bank joins with local financial P U B L I C B A N K I N G A N D C L I M A T E C H A N G E If we want a future other than planetary ecological collapse, we need to remake the financial system that drives fossil fuel expansion. Public banks are key to this financial reformulation because they can be designed to require that climate action be a central focus of their lending. NOVEMBER/DECEMBER 2022 l DOLLARS & SENSE l 25 instutions by providing a portion of the funds to be lent. For example, the BND often provides 80% of the capital, requiring local banks to come up with the remaining 20%. This allows community banks to dramatically expand their lending capacity and results in government rev- enue from local residents and businesses being recirculated back into the communities that gen- erated those funds. Holding Public Banks Accountable All public bank officers hold their positions by virtue of public authority granted by being elected or by being appointed by elected officials. This makes public bank boards of directors and execu- tive leadership more accountable to residents of the communities they serve. Also, as these are public institutions, greater transparency is required in their operations. Records of bank business transactions become public records, making bank officials more accountable and less likely to partake in irresponsible or destructive business practices. The fiduciary responsibilities of public bank officials are more stringent than other banks, with safety and liquidity being more crucial than yield. To secure popular support, public banks need to assure taxpayers that public funds are fiscally responsible and are not engaged in speculation. Similarly, municipalities need to be assured that they can meet government expenses, such as pay- roll, as they come up. Corporate banks, on the other hand, are under intense pressure to maxi- mize short-term profits, even to the extent of jeopardizing safety and liquidity. Public banks do not have private shareholders exerting this kind of pressure, so their managers can provide loans with longer time horizons that focus on the needs of community stakeholders, rather than distant shareholders. This makes it possible for public banks to focus on the long-term well-being of communities, instead of short-term profits. Worthwhile projects such as financing energy- efficient, affordable housing may not provide large profits, despite offering huge social benefits to their communities. Likewise, lending for the procurement and installation of climate-resilient infrastructure such as microgrids to address envi- ronmental community needs may bring smaller financial returns, while offering substantial social and equity returns. Public banks are guided by mission statements and principles that are developed and endorsed by their communities. For instance, California’s Public Bank East Bay (PBEB) Viability Study states: PBEB [Public Bank East Bay] will invest public mon- ies from participating governmental agencies to meet the needs of local communities...It will adhere to the principles of the United Nations Declaration on the Rights of Indigenous People, and will prioritize envi- ronmentally regenerative, culturally equitable and participatory practices that reverse discrimination against members of economically and socially mar- ginalized communities. Furthermore, the PBEB Viability Study enu- merates five key values to guide the bank’s decision-making: equity, social responsibility, fiscal responsibility, accountability, and democracy. Of course, these goals are subject to interpreta- tion, and the capacity of a bank’s leadership to respond to public pressure will play a huge role in determining its success with living up to its princi- ples. Nevertheless, public banks offer an PUBLIC CLINIC GOES 100% SOLAR T he San Benito Health Clinic in Hollister, Calif. invested in a $1.7 million self-contained microgrid of solar panels and batteries which made it more climate resilient and saved hundreds of thousands of dollars. As Pam Strayer reported in a recent article in The Guardian : The clinic’s monthly power bills have dropped from more than $44,000 annually to less than $4,000 a year since the clinic made the move to solar in 2019. The clinic has also received $200,000 so far in rebates from electric utility PG&E and expects another $200,000 more over the next five years. In contrast, prices for electricity have climbed more than 15% so far this year. This is the kind of climate-friendly investment that public banks could fund. S O U R C E : Pam Strayer, “Inside America’s groundbreaking solar-powered health facility,” The Guardian , Oct. 13, 2022 (theguardian.com). Image from the clinic’s website. ›› 26 l DOLLARS & SENSE l NOVEMBER/DECEMBER 2022 P U B L I C B A N K I N G A N D C L I M A T E C H A N G E opportunity for public participation in determining the path of financial investment. “What we’re really looking for is a tool to help us have that just transi- tion that is moving the whole community, the whole society from an extractive economy to a regenerative economy,” Sylvia Chi, the legislative director of the California Public Banking Alliance, told Yes! maga- zine in February 2020. “I see public banks as a way to do that because of the public nature of it and the accountability to the people that’s built into the structure; it should have the values that are missing in the status quo,” added Chi. Municipal Banks and Local Sovereignty One way banks make profits is by charging higher interest rates on loans taken out by borrowers while paying lower interest rates—or paying no interest at all—to depositors. When conventional corporate banks profit, the profits go to executives and mostly wealthy shareholders, building private wealth. Presently, funds collected by local government agencies are deposited in corporate banks, which have no obligation to consider the needs of people in the communities providing the funds. What’s more, corporate bankers are obligated to put the needs of their shareholders first. When govern- ments make deposits at corporate banks, they for- feit their municipality’s financial sovereignty to profit-making financial behemoths which often make investment decisions that are detrimental to local communities. Rather than relinquishing investment decisions to corporate banks, having public banks allows for the possibility of funds being used for climate justice initiatives such as local distributive renewable energy projects, partic- ularly for public buildings, that reduce expenses, thus saving taxpayers money while addressing the climate crisis. Matters are no better when local governments borrow funds. Currently, when municipalities make the decision to improve or build local infra- structure, such as levies for flood control or renewable energy installations, they have to work with corporate banks for financing through loans or issuing bonds. Debt payments routinely dou- ble the cost of infrastructure projects. Further, debt incurred by municipalities from borrowing on the open market subjugates local politicians to the dictates of the lending institutions. University of California–Berkeley School of Law professor Abbye Atkinson shows how public debt to profit-making institutions forfeits decisions that could be made for the betterment of locali- ties to those that generate sufficient profits for investors: [P]ublic debt is first and foremost a private good. Infrastructure improvements are just a means of wealth maximization, facilitating tax-free wealth accumulation for bond investors who, in turn, con- sider the social well-being of residents only in Children sing inside a Chase Bank branch in Vashon Island, Wash., demanding financial institutions stop financing fossil fuel pipelines, October 23, 2017. Credit: Backbone Campaign, via Flickr, CC BY 2.0 license. ›› NOVEMBER/DECEMBER 2022 l DOLLARS & SENSE l 27 relation to the investors’ own financial interests. Consequently, the welfare of this most democratic of institutions—the local polity—functionally matters only to the extent that it can produce a profit for its investors. A public bank can offer more affordable lines of credit and recirculate debt payments back into local government for public uses. This expands the financial capacity for local governments to pursue climate change mitigation and adaptation. Public banks can also broaden access to finan- cial services in underserved communities, enabling working-class people to finance cost-sav- ing, energy-efficient appliances, as well as residen- tial and community renewable energy installa- tions. Public banks can work with local community banks, credit unions, and CDFIs using their expertise to vet investments that pub- lic banks can join as participation lenders, where the loan originates with a local financial institu- tion and the public bank supplements funds allowing community financial institutions to ser- vice larger projects for enterprises to reduce their reliance on fossil fuels. Public Banks to Finance Climate Mitigation and Adaptation There is no doubt that banks play a huge role in determining the course of economic development within communities. Accumulated wealth stored in banks is one way in which individuals and enter- prises gain access to capital for launching or expanding their businesses. Municipalities amass large inflows of revenue that can be transformed into working capital. In much of the world, public banks stand alongside private commercial banks. The linkage between these public banks and their government sponsors has meant that public banks are able to support industrial policies that advance public-sector environmental objectives. The Australian government established the Clean Energy Finance Corporation (CEFC) in 2013, which committed $10 billion for invest- ments toward net-zero emissions. To date, the CEFC has invested over $7 billion in grid infra- structure, regenerative farming transformation, next-generation solar generation and energy stor- age, green residential mortgage-backed securities, and green homes for people living with disabilities, among other projects. In Germany, 70% of depos- its are in public banks, which have played a leading role in accelerating the adoption of renewable energy. According to Public Banking Institute founder Ellen Brown, Renewables generated 41% of the country’s electricity in 2017 up from just 6% in 2000; and public banks provided over 72% of the financing for this transi- tion. In 2007-2009 KfW [Germany’s public invest- ment bank] funded all of Germany’s investment in Solar Photovoltaic [Solar PV technology]. This notable track record demonstrates that public banks can model a path forward which con- fronts climate chaos, invests in clean energy alter- natives, and builds community wealth. However, the powerful steps being taken by public banks are missing participation from the largest economy in the world. One can imagine what would be possi- ble if U.S. cities, states, and the federal government utilized public financing institutions aimed at funding decarbonization and democratization rather than pouring trillions into propping up an anachronistic banking system that continues financing industries that destroy our health, envi- ronment, and the planet. D & S R I C K G I R L I N G is the communications director of the California Public Banking Alliance and an active member of the San Francisco Public Bank Coalition. S O U R C E S : Pam Strayer, “Inside America’s groundbreaking solar-powered health facility,” The Guardian , Oct. 13, 2022 (theguard- ian.com); Joan E. Greve, “‘Transformational’: could America’s new green bank be a climate gamechanger?” The Guardian , Sept. 11, 2022 (theguardian.com); Georgia Wright, Liat Olenick, and Amy Westervelt, “The dirty dozen: meet America’s top climate villains,” The Guardian , Oct. 27, 2021 (theguardian.com); United Nations Office of the Secretary General, “Secretary-General’s statement on the IPCC Working Group 1 Report on the Physical Science Basis of the Sixth Assessment,” August 9, 2021 (un.org); JPMorgan Chase, “Annual Report 2021, Chairman and CEO Letter to Shareholders,” April 4, 2022 (reports.jpmorganchase.com); Saijel Kishan, Andre Tartar, and Dorothy Gambrell, “The Other Fossils in the Boardroom,” Bloomberg, June 2, 2020 (Bloomberg.com); Thomas Marois, “Op-Ed: Why a public bank could accelerate NJ’s clean-energy ambitions,” NJ Spotlight News, Dec. 6, 2021 (njspotlightnews.org); “H.R.3339 - National Infrastructure Bank Act of 2021” (congress.gov); Tom Sgouros, “Public Bank East Bay Viability Study,” March 2022 (publicbankeastbay.org); Oscar Perry Abello, “What a Public Bank Can Do for Real People,” Yes! magazine, Feb. 19, 2020 (yesmagazine.org); Ellen Brown, “The Real Antidote to Inflation,” Scheerpost, Dec. 22, 2021 (scheerpost.com); Abbye Atkinson, “Making Public Debt a Public Good,” Law & Political Economy Project, Sept. 16, 2021 (lpeproject.org); Clean Energy Finance Corporation, “2020-2021 Investment Update: Year of firsts for trailblazing clean energy investor” (cefc.com.au); Ellen Brown, “Why Germany Leads in Renewables: It Has Its Own Green Bank,” Truthout, Jan. 31, 2019 (truthout.org).