What Is Green Banking?
Green banking is a new financing trend where banksshift their investment strategiesto focus on sustainable technologies and environmentally-friendly initiatives.
These financial institutions are dedicated to sustainable banking initiatives that promote clean energy and combat climate change.
It became widely popular among banks following theParis Climate Agreementand has since helped promote investments in renewable energy, reforestation projects, and carbon offsets.
But green banks aren’t just about making investments in climate resilience projects; banks can also become green at a more local level byinstituting eco-friendly lending policies. These mission-driven policies could be in the form of loans for electric vehicles and home solar electric systems or company-wide policies banning investments in harmful industries such as fossil fuels.
Why Is Green Banking Important?
It’s becoming clear that sustainable investment strategies are important to curbing climate change.
According to the Intergovernmental Panel on Climate Change (IPCC), our planet will warm by about3 to 5 degrees Celsiusby 2100 if businesses continue to operate as usual. If left unmitigated, extreme weather events could causehundreds of billions of dollars in damageand lead to the loss of many human lives.
Within this context, businesses have to do their part toreduce greenhouse gas emissionsthrough their activities.
This is most true for the world’s 60 largest private banks, which, according to a report byBanktrack, funneled a shocking$3.8 trillioninto coal, oil, and natural gas projects between 2016 and 2020. The expansion of the fossil fuel industry risks jeopardizing the achievement of the Paris Climate Agreement goals.
Thankfully, the adoption of green banking principles by several major banks in recent years shows promise that a renewable energy-based economy may develop soon. As thebenefitsof climate resiliency and clean energy become visible, more and more banks may become inclined to address climate challenges rather than maximizing profit.
What to Look For In an Eco-Friendly Bank
Asocially responsible bankputs customers and the planet before profit. Customers looking to do business with a socially responsible bank should look for banks withB Corp certificationanda commitment to support environmental and social equity initiatives.
B Corporation Certification
Almost every socially responsible and sustainable bank on the planet isB Corp certified.Such banks meet the highest public transparency and social and environmental performance standards. A B Corp certified bank takes a leading role in driving social change in the communities they serve, while also investing in businesses working to build a more inclusive and sustainable economy.
When youopen a bank account with a B Corp certified bank, you’re likely to receive financial services and products that aretransparent and fair.
Divestment from Fossil Fuels
Many large banks invest in fossil fuels to increase their profits. Theyprovide fundingfor oil and gas companies to build new pipelines, purchase equipment, and conduct more explorations to expand their businesses.
Environmental activists and researchers believe that the money for these funds comes from their customers’ bank deposits, which are redeployed as loans to fossil fuel corporations.
Eco-friendly financial institutions such asAspirationrefrain from making the same fossil fuel investments as large banks because of the damage it does to the planet. Instead, theyproactively fund climate positive projectssuch asreforestation initiatives to protect the climate.
Positive Impact In Local Communities
In addition to climate-friendly commitments, green banking also involvescharitable work. They provide financial support to community development programs as well as environmental conservation projects around the planet. It’s the mission of most socially responsible banks tostrengthen relationships in the communities they serve to foster economic growth.
Are Any Big Banks Considered Green Banks?
Major banks cannot be considered green banks because of their poor environmental record. Many commercial banks continue to providebillions of dollars in fundingto coal, oil, and gas companies,despite making pledgesto cut their investments in fossil fuels per the goals of the Paris Climate Agreement.
Unfortunately, public commitments alone are not enough to stem the rise in global average temperature levels.
To become a genuine green bank, a major bank has tocompletely divest its resources from fossil fuelsand commit to expanding its investments in clean energy, sustainable businesses, and carbon offsets. It also has to disclose the carbon emissions of its funded businesses and loan portfolios for better regulation.
No Big Bank has done this yet, as of the time of this article's posting.
Advantages of Green Banking
Several major financial institutions have begun adopting green banking principles, as more and more customers call forgreater environmental responsibility among banks.
Green banking increases a bank’scompetitive advantage, as it encourages the bank to invest in sustainable, low carbon industries that providelong-term profitsandattract eco-conscious investors, such as renewable energies.
Willing to Take Risks That Matter
Green banks are different from their competitors in that they are willing to make risky investments in clean energy projects, industries, and products that matter. They applyenvironmental, social, and governance (ESG) criteriain their investment decisions, and seek investments in new carbon-resilient technologies that provide both profit and value to society.Electric vehicles,smart power grids, andrenewable energy systemsare some of the risky innovations that green banks usually invest in.
As a result of these practices, green bankscease to become the financiers of highly destructive industries, such as fossil fuels.
Potential to Scale with Extra Funding
Green banks also play a major financing role in scaling up crucial, low-carbon technologies, allowing them toreceive extra fundingfrom government organizations and eco-conscious investors.
This capital enables them to grow their operations to pursue more national and globalclimate targets. It also helps themrecruit more technical expertsto bolster their investments in climate-positive technologies.
Strong Accountability
What sets green banks further apart from major banks is theircommitment to accountability. Several green bankspublish their financial reports annuallyto inform investors and customers about the investments they’ve made and the carbon emissions they’ve produced. This level of transparency promotes trust between the green bank and its stakeholders.
In addition, green bankingencourages banks to establish strong governance structuresthat are responsive to climate trends. A culture of climate accountability helps green banks take the long view to invest in projects that have positive social outcomes.
Focused on Lowering Carbon Footprints
Green banks operate under the goals of the Paris Agreement byredirecting capital flows to environmentally responsible projects. They’ve helped establish aclimate-resilient infrastructurethat reduces carbon emissions. Because of green banks, we’re seeing an increase in community adoption of low-carbon technologies such ashome geothermal power systems, which, if expanded, can help drive the world towardsnet-zero emissions.
To create a low carbon future, we need more financing fromgreen banksto rapidly increase the availability of community-level renewable energy systems.
Who Is the Most Environmentally Friendly Bank?
A quick survey of the world’s biggest banks will reveal that almost all of them arereluctant to divest from fossil fuels.
These banks have increased their funding forultra-deepwater oil and gas, tar sands, and fracking projectsin recent years despite worldwide recognition that fossil fuels threaten our planet’s future. They’ve used legal mechanisms toignore calls for sustainability-focused reform, anddisallow stakeholder resolutionsrequiring them to disclose the climate impact of their loan portfolios.
It’s only eco-friendly financial institutions likeAspirationthatprioritize the financing of green practices and initiatives.
Aspiration provides customers with the option to invest in ethical stocks through itsRedwood Fund, which includes socially responsible businesses that commit to sustainable supply chains and the use of clean energy.
Aspiration doesn’t invest in any fossil fuels but instead uses its profits tofund forest and water conservation projectsacross the planet, making it one of the bestbanking alternatives for climate change-conscious individuals.
Green Banking: Simple Ways to Get Started Today
One of the simplest ways to reduce your carbon footprint is tofind a green banking institution to do business with. The right green banking partner can help yousave, invest, and donate your moneyto positively impact the climate.
Paperless Billing
The first, and easiest, thing you can do to help the environment is toavoid paper bank statements and bills. Doing so helps reduce the amount of paper that your bank uses and also reduces clutter around your home. Electronic bank statementscan be requested almost anytimefrom the bank so you don’t have to wait to receive them in the mail.
Studies have found that the average household can reduce up to9 paper bills a monthif they went paperless. If this was done over a year, a family could reduce about3 kgof their carbon emissions.
Mobile Banking at Home
With online banking, customers no longer need to drive to a branch to conduct transactions. They can simply do it from the convenience of their home or office, saving them petrol and helping them keep theircarbon emissionsto a minimum. Online transactions are also usuallyfaster and safer.In addition, online banking helps brick-and-mortar bankscut downon the number of branches in operation and assign shorter banking hours to branches. This helps them save money on their energy bill and puts a lower demand on the power grid.
Automate Your Commitment to Sustainability
Online banking also gives you another benefit over traditional banking – you canautomate your contributions to charitable environmental organizations. Several banks allow customers tocommit pre-authorized gifts, which are monthly monetary pledges to charities of their choice through direct debit or credit card payments.
Aspiration goes further by allowing customers to not just set up automatic recurring donations to charities but also help plant trees with each purchase. Each time our customers buy gas for their cars, ourPlanet Protection programcalculates the carbon output of the gas and plants trees automatically to help neutralize the Carbon impact.
Similarly, ourPlant Your Change programrounds up every transaction made to the nearest dollar andplants treesusing the spare change.
Leave Your Bank for a More Climate-Friendly Alternative
Ultimately, the best way to bank responsibly is toleave unscrupulous big banks for more ethical alternatives. Socially responsible eco banks aremuch more likelythan their traditional counterparts to be transparent about their investments and lending policies. Most of them will have commitments tonot invest in fossil fuels, weapons manufacturers, and private prisons.
With a green bank account, you’ll have access toenvironmentally-friendly productsthat help you grow your wealth and reduce your climate footprint.
At Aspiration, we offer accounts that give customersup to 3.00% APYon their savings ($10k balancewith a spend requirement) withno ATM, overdraft, and no deposit fees.
What Is the Future of Green Banking?
The green revolution may be young. But it’s growing fast enough to potentiallyreplace traditional fossil fuel investment strategies.
Just a decade ago, leading environmentalists werecalling on financial institutionsto divest from oil, natural gas, shale, and tar sands projects. Today, nearly$14.5 trillionhas been committed to the fossil fuel divestment effort.
Green banks are becoming strong alternatives to traditional banks, especially as more and more consumersquestionthe long-term viability of fossil fuel as an energy source.
The continued stigmatization of fossil fuels may lead to a reduction in capital flows toward fossil fuel corporations, which over time could lead to the demise of the industry and greater adoption of clean energy technologies.
Over the coming decades, green financial institutions likeAspirationwill no doubt continue to gain.
