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Climate financing is finally here, but will there be equity?

Financial regulators are failing to adequately address the intersections of climate investing and justice, equity, diversity, and inclusion. This failure risks continuing the long history of oppressive financial policies.

Globe staff illustration/Digital Vision Lab/Adobe

Financial policy for climate change is finally happening.

The Securities and Exchange Commission is finalizing a climate disclosure rule that would better protect investors, ensure fair and efficient markets, and enable capital formation in the face of pervasive climate change. In November, the Department of Labor provided new guidance that permits private retirement plans to consider climate change and other environmental, social, and governance factors into investment decisions. The Office of the Comptroller of the Currency has appointed a chief climate risk officer to implement climate risk management frameworks for banks — an unprecedented move by the top banking regulator.


Capital is core to efforts to solve climate change and reduce social disparities. Yet financial regulators are failing to adequately address the intersections of climate investing and justice, equity, diversity, and inclusion. This failure risks continuing the long history of oppressive financial policies.

Wall Street began as a slave-trading street. In 1711, the New York City government created the city’s first official market for renting and purchasing African and Indigenous American flesh. Boston also took part. In the 1800s, the origins of the $8 trillion US insurance market were born; slave owners could purchase life insurance on enslaved people and be paid three-fourths of their market value upon their death. Then, the Homestead Act of 1862 gave 160 acres of stolen land to US residents — but originally only to white immigrants as defined by the 1790 Naturalization Act. In practice, it was not until subsequent laws (such as the Naturalization Act of 1870) were passed that non-white people could benefit. The Freedman’s Bank was established in 1865 and instead of building stable wealth for Black communities that were forbidden from accessing banks, it lent millions in unsecured loans to white businesspeople. It failed.

The early 20th century continued with a racism-first approach. The government established racial covenants for nationally subsidized private housing developers. The New Deal era ushered in government-sanctioned “Do Not Lend” lines for predominantly Black neighborhoods. Today, the Greenhouse Gas Reduction Fund — a $27 billion program which is part of the Inflation Reduction Act of 2022, excludes depository institutions and thus minority depository institutions from being direct recipients, eerily mimicking the Freedman’s Bank failure of direct empowerment.


This status quo has deprived the economy of $51 trillion in lost output since 1990. The climate-friendly economy, with the promise of $3 trillion in economic gains by 2070, could stand to reverse that trend — but only by addressing the history of exclusion. The greenhouse gas math simply doesn’t add up if the market rules ignore 40 percent of the US population that is of color — let alone over two-thirds of the world.

Addressing this history means intentionally designing just climate finance policies.

First, allocate capital to minority depository institutions and credit unions for climate. MDIs, with assets of just under $400 billion, are far more effective at providing loans to BIPOC communities and BIPOC-led businesses than their counterparts. Credit unions, with assets of over $2 trillion, are poised to provide affordable conditions due to their not-for-profit charter. The Clean Energy Credit Union, for example, focuses exclusively on providing loans across a wide range of climate-friendly applications.


Second, require companies to measure and manage their greenhouse gas social impact. Are racialized communities disproportionately exposed to the harms of gas stoves in a real estate portfolio? Where is the newly financed polluting plant located?

Third, create incentives for financers to invest in low- and middle-income countries. Black and brown communities, most of whom are in low- and middle-income economies, bear the brunt of the climate crisis. To deprive such communities of climate capital from US retail and institutional investors is another form of inequity. Creating tax incentives and banking rules that support climate-friendly LMI country banks would be a great place to start.

In the financial industry, there is a saying that is backed by regulatory mandates: “know your customer” (KYC), which calls on investors to collect information about account holders. If climate finance is really going to work for people, perhaps it’s time for the regulatory mandates to “know your history” (KYH).

Marilyn Waite is managing director of the Climate Finance Fund.