The Money Pipeline

Banks store individual’s cash and savings. Most of this money doesn’t just sit in a vault – banks use it for loans and investments that generate returns. At big for-profit banks like Chase and Bank of America, some of this money is used to finance the fossil fuel industry. Over the past 6 years, the world’s 60 largest banks have poured over $4.6 trillion into the fossil fuel industry, driving climate chaos and causing deadly impacts of people and the environment. [1]

The fossil fuel industry would not be able to exist without large investments. They require large loans to finance capital-intensive infrastructure, institutions to underwire their corporate bonds, and brokers to trade their shares. Luckily, we collectively have the power to end fossil fuel investments. Big banks and their shareholders care about their public image as trustworthy institutions. In the face of a nationwide grassroots divestment movement, they are already feeling the pressure to divest from fossil fuels and establish sustainable investment guidelines. [2]

To demonstrate the financial pathways through which your saved money flows to the fossil fuel industry, we’ve put together two charts comparing finances between an average person and a divested, green-banking individual:

Each of the financial instruments, institutions, and their relative financing of the fossil fuel industry is described below. As a summary, we’ve estimated how much the average U.S. household is contributing to financing fossil fuels:

(The difference between the mean and median household highlights massive wealth inequality the U.S.)

Transactional Accounts

Banks store individual’s cash and savings – “transactional accounts”. Traditionally, banks are federally required to store some percent of it as cash that people can access, the “reserve requirement”; the rest gets invested. In March 2020, this requirement was removed and set to 0%. U.S. banks no longer have to have a minimum amount of liquid cash backing their transactional deposits.

Fossil fuel financing by banks has been well documented by “Banking on Climate Chaos“. Financing refers to lending, underwriting of bonds, and equity insurance, and does not include stock investments. Looking at yearly financial statements of several banks, “trading account securities” vs “commercial and industrial loans”, banks do a lot more lending than investing, so it is reasonable to assume that the financing number is representative of the total business. U.S.-based banks have about 7% of their financing business with fossil fuel companies.[3]


The most popular way to invest in stocks is by purchasing Exchange Traded Funds (ETFs) which effectively give the holder a small slice of all the companies that the ETF invests in. The most popular ETFs invest in some subset of the stock market. Fossil Free Funds has an extensive set of metrics on the fossil fuel investments of funds. If we choose to look at VT[4] as a good weighted representation of the global stock market, it is 7.39% invested in fossil fuels. You’ll notice that the top ETFs sorted by Assets Under Management (AUM) actually have slightly lower fossil fuel exposure because they often trade only U.S. companies, while many fossil fuel companies are not US-based. Performing the average of the top 30 ETFs weighted by their AUM gives a mean of 7% fossil fuel investment, representing $371 billion out of $5.6 trillion of publicly-traded capital. 


Fossil fuels make up a smaller percentage of bonds, as most bonds are issued by governments and treasuries. Unfortunately, Fossil Free Funds doesn’t provide information on bonds and bond ETFs such as the Vanguard Total World Bond ETF (BNDW). There is information about the bond issuers on the Vanguard website, however, which shows “utilities” as being 1.9% of the fund, and “industrial” as 11.8% of the fund.[5] The fund is therefore at least 1.9% invested in fossil fuels.

General Investment, Retirement, and Pensions

General investment funds and retirement accounts are typically some combination of stocks and bonds.

Target date funds automatically adjust their allocation based on the desired risk profile – retirement dates further in the future are less sensitive to risk and thus benefit from an increased allocation of stocks, and retirement closer to the present is more risk averse and thus has a greater share of bonds. Compare the Vanguard 2025 Target Retirement fund (VTTVX) with 3.85% fossil fuel investment vs the Vanguard 2065 Target Retirement fund (VLXVX) with 6.46% fossil fuel investment.[6]

For general investment accounts, a broad rule of thumb is 80% stocks and 20% bonds, which would give an average fossil exposure of 6%.

Pensions also frequently invest in private equity, companies that are privately traded and not listed on the stock market. Because their financial information is not public, it is much harder to estimate the fraction of fossil fuel investment.

Payments on Loans

When you make payments on a loan, the portion that is interest is the revenue the bank generates on the loan. In effect, you are the investment, and your payments are the return, so the story could stop there with no fossil fuels involved. But along with expanding as a company, paying dividends to its shareholders, and bonuses to its CEOs, the bank also expands its pool of funds to then loan out, in part to fossil fuels. This chain makes figuring the connection between loans and fossil fuels a bit tricky.

Let’s look at the financial balance sheet of a bank, let’s say Chase. In 2019 Chase generated a total of $34.6B of profit on $141.3B of total income or 24%. Of the total income, $50.3 B was income from interest and fees on loans. Doing this for a few years gives a profit to income ratio of about 25%. Here’s where things reach the limit of basic financial analysis. This profit is used to pay stock dividends, pay back loans, expand business operations, etc. Some of it eventually gets reinvested and becomes part of the asset pool. Tracing this chain from a summary financial statement proves seemingly impossible. We’ll make a conservative estimate and say that maybe 10% of profits are reinvested. Then 7% of these reinvestments go into fossil fuels. So in total, for interest paid to the bank, 25% x 10% x 7% ends up going into fossil fuels, or 0.175%. We’ll round this to a rough 0.2% of total interest on a loan for illustrative purposes. 

If you have a loan, like a mortgage, car, or credit card, in the amount of P dollars, your yearly contribution to the fossil fuel industry is P x APY x 0.2%.

Insurance Premiums

Insurance works in largely the same way as loans, except with a loan the company pays you money at the start of your payments, whereas insurance takes your money first and then pays you IF something happens. It is therefore similarly hard to piece together how your payments equate to fossil fuel investments. In principle, as you pay insurance premiums, the insurance company invests them, presumably at the same 7% ratio of fossil fuels as the general stock market, maybe slightly less because insurance is slightly more risk-averse.

When you file a claim, the insurance company pays you a pre-agreed upon sum, but keeps whatever profit it generated from your premiums. Some part of that premium is eventually reinvested in its pool of investment assets. If insurance companies are assumed to have similar profit margins as banks, we could reasonably guess that whatever we estimated for bank interest applies to insurance premiums. This comes out to about 0.2% of total premiums paid for a policy. 

A separate issue is the market of insuring fossil fuel assets – oil wells, pipelines, coal mines, tankers – every step of the fossil fuel supply chain needs insurance. Our focus here is on personal banking, but remember that insurance companies also need to be pressured to stop insuring the fossil fuel industry.


[1] Banking on Climate Chaos

[2] Stop the Money Pipeline

[3] Banking on Climate Chaos Methodology

[4] Fossil Free Funds

[5] Vanguard Total World Bond ETF

[6] Target Date Funds