- Feb 21, 2023 Updated 15 hrs ago (SFExaminer.com)
Jessica Wolfrom
Jessica is a climate reporter at The San Francisco Examiner.
Extinction Rebellion protesters outside Wells Fargo headquarters in San Francisco carry signs referencing climate disasters. Many of the world’s top banks are still heavily invested in the oil and gas industry, despite growing calls to rein in lending to help tackle climate change.
Extinction Rebellion demonstrators rallying at Wells Fargo headquarters in September 2021. San Francisco is examining the viability of a green bank that would provide capital for city projects that benefit the climate.
- Jessica Wolfrom/The Examiner
The private banking system has left some San Franciscans behind. That’s why The City is taking steps to roll out a new public bank that would prioritize investing in affordable housing, small businesses and green infrastructure to ensure low-income residents and low-margin businesses get the loans they need to thrive.
But as The City moves closer to establishing a public bank — defined as a financial institution that is owned and managed by the government in the public interest — the challenges of how to disentangle The City’s reliance on private banks and foster an equitable transition across its energy, housing and transportation sectors have surfaced, including questions of how to pay for San Francisco’s ambitious climate plan, which is expected to cost nearly $22 billion.
“Public banks, in general, are experiencing a renaissance,” said Thomas Marois, a political economist at the SOAS University of London. “And much of that now is tied to this question of how we finance the climate transition.”
The aim of San Francisco’s public bank is to make up for decades of racial discrimination by the private banking industry, including the practice of redlining and the refusal to underwrite loans for small business owners, while also reducing pollution burdens in disadvantaged communities by slashing emissions.
Versions of public banking institutions have been around since the 1400s, noted Marois, and many flourished following World War II. “Public banks became one of the more dominant ways by which a society could gather its financial resources and savings — and then use those for various forms of community development, agricultural development, infrastructure, import exports and small trades — you name it,” he said.
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But in the postwar era and increasingly during the Cold War, much of the world has leaned on the private sector to solve its problems, noted Marois, which slowed the transition away from fossil fuels and created vast inequities in its wake. “What’s killing the climate transition is this fiduciary duty to maximize returns and protect the capital of shareholders,” said Marois.
Not to mention that many of the world’s top banks are still heavily invested in the oil and gas industry, despite growing calls to rein in lending to help tackle climate change. In 2021, the world’s top banks provided $742 billion in finance to the fossil fuel industry, Reuters reported.
Last week, the body tasked with rethinking San Francisco’s banking system also examined the viability of establishing a green bank that would operate in the purview of San Francisco’s future public bank and provide capital for city-wide projects that cut greenhouse gas emissions, including loans to decarbonize the city’s building stock, which represents nearly 40% of its carbon footprint.
But while the public bank process has been years in the making, the need for a green bank may be much more pressing. A recent report from UC Berkeley recommended standing up a green bank to capture the historic climate funding passed by the Biden Administration last year to help fund The City’s Climate Action Plan.
“We’re in the middle of this unprecedented release of funds for climate action,” said Jackie Fielder, co-founder of the San Francisco Public Bank Coalition. “And all those federal funds have to be dispersed by September 2024.”
Still, questions remain about how a green bank could take advantage of the $27 billion in climate-related grants that Congress approved as part of Biden’s Inflation Reduction Act. The report created for The City’s Reinvestment Working Group noted that regulated public banks are ineligible to participate in the Greenhouse Gas Reduction Fund, which houses the grants.
But a green bank could exist without its public counterpart, noted Tyrone Jue, acting director of San Francisco’s Department of Environment. “Setting up a green bank, which might be thought of as a revolving loan, might not require the full public-bank kind of institution,” said Jue.
“A green bank can be something that we create literally tomorrow if San Francisco wanted,” said Fielder.
This points to the important distinction between public and green banks, noted Ted Lamm, a senior research Fellow at UC Berkeley’s Center for Law, Energy & the Environment. While a public bank represents a monumental shift in how the city would manage its finances, he said, a green bank is basically a mechanism to incentivize green projects.
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“A green bank takes a very small slice of public funds and holds them in reserve for eligible entities to access if needed,” said Lamm. “The whole point is to draw in capital from private financial institutions because you can get a lot more money that way.”
In other words, a green bank can be a backstop for larger lenders to mitigate risk and maximize equitable investments in green projects. “What the green bank does is it allows you to kind of target middle and lower income communities to offer them financial options that wouldn’t necessarily be available due to generally higher risk,” said Jue.
For now, though, San Francisco’s dream of a green bank remains just that, with many questions lingering about how it would function and who would oversee it.
“Where would a green bank live? Who’s in charge of it? One of the mechanisms of transparency and accountability? How do we make sure that equity is baked into the governance structure? How do we ensure that disadvantaged communities in San Francisco see the benefits first?” said Fielder. “Obviously, there are challenges around the current budget, for example,” she said, noting the souring economic climate.
But, Marois said, money isn’t the issue; it’s getting San Franciscans to trust the government to run their bank. “There’s lots of money around, and there are lots of people who want to do stuff on green lending,” he said. “Money is not the problem. The challenge is just getting over the logical barrier to this notion of a public bank being effective, accountable, transparent and better, frankly than a private bank.”
With private banks, he said, “we might well get a green transition. But unless we’re able to shape the terms of that democratically, it’s not going to be just. We must have more community say over our own financial resources. So we simply have to build an alternative. And that means democratic public banks. Period.”
@jessicawolfrom
