Historically the federal government has done very little to push banks to address climate risk in the financial system. The last major wave of environmental legislation passed in the 1960s and 1970s, when banks were nowhere near as big as they are now. Back then, the primary targets of anti-pollution laws were corporations that were actively generating emissions or had dumped toxic waste that needed to be cleaned up. This made sense, given that manufacturing and chemical firms were still at the top of the Fortune 500 list in 1977, while financial firms were not. Banks simply did not receive the same scrutiny as firms in the industrial sector.

Changes in the banking sector over the past half-century have produced dramatic consolidation, making a handful of big banks outsize financial engines in the fossil fuel industry. So long as these large banks and financial firms continue funding major fossil fuel development, environmental activists argue, addressing climate change will be impossible. And policymakers are now beginning to heed their calls.

Prodded into action by a growing grass-roots environmental movement, Congress passed several pieces of momentous environmental legislation in the 1970s. Lawmakers enacted the Clean Air Act in 1970, with the Clean Water Act following in 1972. These laws gave federal agencies, such as the Environmental Protection Agency — which had been created in 1970 — wide authority to regulate air pollution coming out of factories and effluent coming out of company pipes. Other laws such as the Superfund Act of 1980 and the Clean Air Act Amendments of 1990 broadened the authority of federal regulators and pressured polluting firms to do better.

Yet, much of this legislation came before seismic changes in the banking industry that would eventually impact the environment. Before the 1970s, the 1927 McFadden Act essentially prevented commercial banks from opening retail branches in multiple states. But by the time President Ronald Reagan came into office in 1981, states had begun negotiating regional compacts that allowed for some interstate branch banking. Then, in 1994, President Bill Clinton signed the Riegle-Neal Interstate Banking and Branching Efficiency Act, which officially repealed federal restrictions on interstate banking. Commercial banks were now free to open new branches coast to coast — and to merge with other regional banks to create national powerhouses. They did so with gusto.

In 1999, Congress repealed provisions of the 1933 Glass-Steagall Act that had prevented investment banks, such as J.P. Morgan, from merging with commercial banks holding depositors’ money, such as Chase Manhattan Bank. A new wave of investment bank and commercial bank consolidation took place, meaning big banks gained even greater power in the American economy.

During these decades of mergers and acquisitions, America’s largest financial firms, including Bank of America and Wells Fargo, offered huge loans for fossil fuel extraction and exploration. Yet, while environmentalists targeted oil companies and coal firms in their climate change campaigns in the 1980s and 1990s, the banks that were financing these businesses received little attention from activists or government regulators.

That changed in the early 2000s, when environmentalists began to reason that the best way to address the climate crisis was to center activism on the few big banks that now controlled a tremendous percentage of the capital financing for fossil fuel enterprises. By directing their limited resources at the largest financial firms, environmental groups hoped to sever investment arteries that provided financial lifeblood to fossil fuel firms.

The Rainforest Action Network (RAN) led the way, initiating its first wave of big bank protests in the early 2000s. The organization focused on Citigroup, and then JPMorgan Chase and Bank of America, with the goal of trying to stop the flow of money before it reached companies and factories contributing to climate change.

This was a new era of environmentalism, and slowly it had an impact. Banks began to respond to these protests, with Bank of America, for example, agreeing in 2008 to “phase out” funding for mountaintop removal coal mining programs that are destroying ecosystems and communities across Appalachia.

But the pace of change was glacially slow, even as actual glaciers continued to melt. In 2013, RAN noted that Bank of America continued to finance mountaintop removal mining, and five years later in 2018, it was still adding new loans to the coal industry to its investment portfolio. That year, Bank of America happily reported that it had spent $8.9 billion on solar energy projects from 2007 to 2018. That sum sounded impressive, but in 2018 alone the bank also spent nearly $35 billion — more than three times as much — financing fossil fuel projects.

Bank of America acknowledges having “an important role to play in helping to mitigate and build resilience to climate change.” It has promised to invest billions of dollars in clean energy projects in the years ahead and expressed a commitment to achieve “net zero” emissions by 2050. Yet, in 2022, RAN reported that it was still the fourth-largest financier of fossil fuel projects in the world, behind Wells Fargo, Citi and JP Morgan. It was also one of the largest funders of fracked oil and gas pipelines.

Federal regulators and liberal legislators quickly became frustrated with the slow pace of change in the banking industry. In 2019, Rep. Rashida Tlaib (D-Mich.) chastised Bank of America’s CEO in a congressional hearing, claiming that he was “greenwashing your own track record and duping the American people into believing that you are helping to address climate change.” In 2019 and 2020, Sen. Elizabeth Warren (D-Mass.) proposed amending the Dodd-Frank Act to include provisions that discourage lending practices that contribute to climate change.

Building on these proposals, President Biden signed an Executive Order on Climate-Related Financial Risk in May 2021, which tasked federal agencies with finding ways to address climate risk embedded in our financial system. Since then, the Treasury Department has established a Climate-Related Financial Risk Advisory Committee to look into how federal regulations might push banks to move away from investments that produce climate-changing consequences. The Securities and Exchange Commission is also considering new rules that would force companies to be more transparent when reporting greenhouse gas emissions.

This is a seminal moment in the history of federal environmental policy. Never before have federal policymakers sought to use financial regulation to address climate change in the manner they are now. So much has yet to be determined, and it’s unclear whether a divided Congress will continue the regulatory momentum that we’ve seen in recent years — especially given Republicans’ general aversion to business regulation and their desire to increase fossil fuel production. But those pushing for change clearly see financial regulation as the key to keeping rising ocean waters from inundating bank offices that line the low-lying lands of Manhattan.