Put Your Money To Work For Both You And The Planet

While the carbon footprint conversation is often framed around consumption, your investments are just as important in terms of making more planet-friendly choices.

Story by

Danny Schleien

When you think of ways to reduce your carbon footprint, you might consider driving less, shopping more consciously, or eating more locally raised foods. Maybe you can replace your air conditioner with a heat pump or ditch your gas stove for an induction cooktop.

Typically, the carbon footprint conversation is framed around consumption. But there’s a hidden half to the climate crisis that often goes overlooked: investments. After all, money is what makes the world go round and is the main fuel of the climate crisis.

You can feel the impact of lifestyle changes related to your consumption made in the name of sustainability. It’s harder to feel the impact of clicking a few digital buttons to move money from one account or investment to another, but greening your finances might be more valuable than making lifestyle changes to reduce your footprint.

There are many simple steps you can take to make your financial habits a net positive for the planet.

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Focus On Sustainable Banking

Switching bank accounts is rare despite how much big banks fuel the climate crisis.

The Rainforest Action Network released a 2022 report entitled ‘Banking on Climate Chaos’ that details how global banks contribute to climate change. The report revealed that, since the 2015 Paris Agreement, the world's 60 biggest banks have financed fossil-fuel projects to the tune of $3.8 trillion, with $742 billion in fossil fuel financing in 2021 alone. This is just one of many data points highlighting the degree to which big banks have fuelled the climate crisis.

In this context, moving your savings to a more planet-friendly home is incredibly impactful. According to a study done by the European bank Nordea, moving your money to a sustainable bank account is 27 times more effective in reducing your carbon footprint than flying less, eating less meat, taking shorter showers, and taking public transportation combined. Their research found that putting your pension into investments that support the planet could save over 2,000 tons of carbon over your working life whereas cutting back on just one round trip by plane would save about 19 tons.

Unfortunately, people tend not to switch banks very often. J.D. Power’s 2019 U.S. Retail Banking Satisfaction Study showed that just 4% of consumers switched primary banks in 2018. Moving accounts from one bank to another can be a time-consuming and frustrating process that cash-strapped consumers with little free time on their hands can navigate.

Furthermore, in the absence of robust bank reporting standards that would allow for more informed consumer banking decisions, people often have a hard time understanding the differences between what banks offer. When you shop for an appliance or a car or even an insurance policy, you can easily compare different attributes to make the right choice. The same can’t be said about where you will keep your savings.

Likewise, modern banking practices entrench consumers. For instance, relationship banking requires consumers to use multiple bank products (such as home loans, auto loans, or credit cards) to qualify for perks. Logging into any big bank’s app reveals just how many convenient features they offer nowadays, such as automatic payments and easy balance transfers. Just as Big Tech companies like Apple and Amazon intentionally offer various integrated services to hook you to their offerings, big banks do the same thing.

On top of all of that, market concentration has deprived consumers of banking options. Combined with deficient transparency and other barriers, particularly the bureaucracy involved with consumer banking, switching bank accounts is rare in the U.S.

What To Do With Your Savings

You can still choose to save your money more responsibly than conventional banking options. Some smaller banks that lack the prestige and branding of the world’s biggest banks have been mission-oriented since long before ESG entered the mainstream.

For instance, founded in 1923, New York-based Amalgamated Bank has advocated for workers and promoted ESG standards since its inception. the bank financed the Amalgamated Housing Cooperative in 1927, which was the first union-supported housing development in the United States. More recently, in 2015, Amalgamated became the first bank in the nation to raise all employee wages to a minimum of $15 per hour. In 2021, a third of the bank’s lending portfolio went toward climate or sustainability-related projects. The home page of its website lists 10 “Issues We Care About” including climate justice, workers’ rights, and anti-violence and gun safety.

Another example of a more socially conscious banking option is Aspiration, a bigger name in the sustainable banking space that has encouraged potential customers–largely millennials–to put their money where their values are. Aspiration was founded with the idea of never investing directly in fossil fuels, and its rapid growth since its founding in 2015 attests to the popularity of its mission.

More recently, in 2015, Amalgamated became the first bank in the nation to raise all employee wages to a minimum of $15 per hour.

Other kinds of financial communities could serve your needs as well, like credit unions and building societies. These are member-owned nonprofit financial communities that offer banking and related financial services. Since they don’t have the same narrow profit motive as big banks, they often make more responsible investments. And since they tend to be smaller and operate more locally, they can meet community needs more easily and efficiently.

An exodus of funding towards more responsible banking options would signal to big banks that consumers expect their banks to be more planet-friendly. If this happens on a wide scale, consumers might compel big banks to finally put their money where their mouths (and their pricey PR campaigns) are.

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What To Do With Your Investments

As sustainability grows in popularity, more and more companies seek to create an image of sustainability and do-goodery. They want you–as a consumer and/or as an investor–to perceive them as doing good. But whether or not the perception aligns with reality can be tough to decipher. For example, Tesla has spent years branding itself as a forward-looking company behind its mission of accelerating the global transition to sustainable energy. If you ask a random person on the street to name one company that they associate with sustainability or going green or anything along those lines, there’s a good chance they’ll name Tesla.

Tesla has done quite a lot of good by making electric vehicles appealing to a mass audience. Nonetheless, the company was delisted from the S&P 500 ESG Index in 2022 because of the totality of its impact and its operations no longer merited inclusion in the index.

This reflects a bigger sustainability issue: greenwashing. What companies and organizations say they’re doing to help the planet often differs greatly from what they’re actually doing. The investing world is rife with greenwashing.

If you have a personal investment portfolio, you ought to periodically examine your holdings to ensure that your investments are working for you. If you care about the planet in addition to your net worth, you shouldn’t prioritize your financial return above all else. You should take a closer look at what exactly you’re invested in.

You can certainly do this on your own. Online brokerage platforms like Fidelity and Merrill Edge increasingly provide data on how closely a given stock or fund aligns with ESG principles, for instance.

What companies and organizations say they’re doing to help the planet often differs greatly from what they’re actually doing.

If you want help making your portfolio more responsible, it’s never been easier to find that help. One option is to enlist a robo-advisor, which uses algorithms to build and maintain an investment portfolio based on your individual risk tolerance and investment goals. Robo-advisors like Betterment and Wealthfront don’t provide the same degree of independence and flexibility that you’ll get by managing your portfolio, but some of them offer socially responsible portfolio options that will likely match or even exceed what you might conjure up on your own.

While you’re at it, make sure to also contribute responsibly to charities. They hold a lot of money but don’t always put that money to work as responsibly as their donors might assume. You can ensure that your charitable contributions align with your values by consulting indices and databases such as the Global Fossil Fuels Divestment Commitments Database, which transparently tracks institutions that have committed to divest from fossil fuels. You can use these sorts of databases both to verify your existing contributions and to find new organizations to support.

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Making Your Retirement Account More Responsible

Beyond your personal finances, there’s a good chance you have some sort of retirement account – whether it be a 401k account or something else – through your employer. Usually, your employer pre-determines your portfolio investments. With your personal investments, you don’t need approval from anyone else to switch your investments. With investments tied to an employer or other external entity, you do.

Many employees want climate-friendly investing options in their retirement plans. But few have that option. Recent research from the Plan Sponsor Council of America found that only 3% of plans offer an ESG fund as an investment option for employees and an even smaller fraction (a tenth of 1%) of total retirement plan assets are held in such funds.

A recent Department of Labor decision might change that. Starting in January 2023, a new retirement investing rule will allow employers to consider “participants’ preferences” in selecting and monitoring 401(k) menu options. This participant choice provision could enable employers to incorporate ESG factors and other responsible investing into retirement plans for current and retired employees.

Crucially, this new guidance may increase employee participation in workplace retirement plans. A recent T. Rowe Price study showed younger workers were more likely to base their level of participation in a workplace retirement plan on access to socially conscious investment options. Since the success of a retirement plan often depends on funding from participants, this might help socially conscious retirement plans be both more popular and more lucrative for participants.

If your employer doesn’t offer climate-friendly retirement plan options, you and your coworkers can petition in unison for those options. If your company has a sustainability committee, a chief sustainability officer, or some sort of department that addresses the company’s social impact, you can point to the need for alignment between what the company says its values are and what options it offers for employee retirement plans.

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What The Federal Government Can (And Should) Do

One of the foremost advantages employed by big banks is technology, which provides vast economies of scale that are hard for smaller (and often more responsible) banks to compete with. As banking becomes more digital, the federal government could seek to level the playing field by providing technological solutions and support to smaller banks and credit unions, including but not limited to simple account switching platforms that mitigate the existing barriers to account switching that particularly disadvantage lower-income people.

As banking becomes more digital, the federal government could seek to level the playing field by providing technological solutions and support to smaller banks and credit unions.

The federal government should consider many other potential policy interventions to address this problem and pave the way for more responsible consumer banking across the country. For instance, the Treasury Department could leverage it's Community Development Financial Institutions (CDFI) Fund and programs like the Small Business Lending Fund to help small banks and credit unions grow.

In sum, along with enhanced antitrust enforcement and other banking competition regulations, the federal government has a bevy of straightforward options at its disposal to support responsible banking.

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Talk To Your Friends And People In The Community

Finally, as with just about any climate solution, talk to your friends and people in your community about this issue. If you know someone who has made the switch to responsible banking, ask them for guidance. And once you’ve done it yourself, spread the word to people who trust you. Given the lack of awareness of how impactful your financial habits are in regard to your carbon footprint, there may be no better way to amplify your climate impact than by showing and telling your community that in spite of longstanding barriers to responsible banking, it has never been easier to make your money work for both you and the planet.

In Conclusion

If you’re reading this article, you almost certainly get to vote and have your voice heard in the political arena. A ballot is a powerful instrument of change on a personal and societal level. In democratic societies, over the long run, the officials elected to represent people generally reflect the preferences of those who vote. The direction of a given government - local, regional, or national - tends to mirror what people want.

The same can be said regarding the climate crisis. For far too long, wealthy people around the world have voted in favor of dirty interests more interested in lining their pocketbooks than safeguarding our collective well-being. This trade-off has worked well for a thin sliver of humanity but has jeopardized billions of people and the entire planet’s long-term climatic stability.

Going forward, the fate of the climate crisis hinges on how people with the most power and influence to change choose to exercise that power and influence. The scope of those potential actions is broad. Voting in the literal political sense–and empowering elected officials and candidates who will govern with the planet in mind–is one of those mechanisms.

Wealthy people have by and large torn the planet asunder by initiating and entrenching our addiction to fossil fuels. Now, as the stakes of the climate crisis grow alongside an awareness of their importance, you have the power to vote with your pocketbook to the degree that might dwarf the impact of making a few lifestyle changes here and there.

It’s never been easier to make your money work for the planet in addition to working for you. You choose to exercise the privilege of being able to vote for the policies you want, you can also choose to exercise the privilege of voting with your pocketbook for the planet.

Key Takeaways

The 2022 ‘Banking on Climate Chaos’ report revealed that, since the 2015 Paris Agreement, the world's 60 biggest banks have financed fossil-fuel projects to the tune of $3.8 trillion, with $742 billion in fossil fuel financing in 2021 alone.
According to a study done by the European bank Nordea, moving your money to a sustainable bank account is 27 times more effective in reducing your carbon footprint than flying less, eating less meat, taking shorter showers, and taking public transportation combined.
Online resources such as this one from Money Under 30 can guide you toward socially responsible banking options that fit your needs.
Visit Banking On Climate Chaos, a 2021 report from the Rainforest Action Network that scores banks based on their fossil fuel funding.

Put Your Money To Work For Both You And The Planet

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