What Is Green Banking?
Green banking is a new financing trend where banks shift their investment strategies to 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 the Paris Climate Agreement and 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 by instituting 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 about 3 to 5 degrees Celsius by 2100 if businesses continue to operate as usual. If left unmitigated, extreme weather events could cause hundreds of billions of dollars in damage and lead to the loss of many human lives.
Within this context, businesses have to do their part to reduce greenhouse gas emissions through their activities.
This is most true for the world’s 60 largest private banks, which, according to a report by Banktrack, funneled a shocking $3.8 trillion into 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 the benefits of 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
A socially responsible bank puts customers and the planet before profit. Customers looking to do business with a socially responsible bank should look for banks with B Corp certification and a commitment to support environmental and social equity initiatives.
B Corporation Certification
Almost every socially responsible and sustainable bank on the planet is B 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 you open a bank account with a B Corp certified bank, you’re likely to receive financial services and products that are transparent and fair.
Divestment from Fossil Fuels
Many large banks invest in fossil fuels to increase their profits. They provide funding for 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 as Aspiration refrain from making the same fossil fuel investments as large banks because of the damage it does to the planet. Instead, they proactively fund climate positive projects such as reforestation initiatives to protect the climate.
Positive Impact In Local Communities
In addition to climate-friendly commitments, green banking also involves charitable 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 to strengthen 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 provide billions of dollars in funding to coal, oil, and gas companies, despite making pledges to 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 to completely divest its resources from fossil fuels and 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 for greater environmental responsibility among banks.
Green banking increases a bank’s competitive advantage, as it encourages the bank to invest in sustainable, low carbon industries that provide long-term profits and attract 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 apply environmental, social, and governance (ESG) criteria in their investment decisions, and seek investments in new carbon-resilient technologies that provide both profit and value to society. Electric vehicles, smart power grids, and renewable energy systems are some of the risky innovations that green banks usually invest in.
As a result of these practices, green banks cease 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 to receive extra funding from government organizations and eco-conscious investors.
This capital enables them to grow their operations to pursue more national and global climate targets. It also helps them recruit more technical experts to bolster their investments in climate-positive technologies.
Strong Accountability
What sets green banks further apart from major banks is their commitment to accountability. Several green banks publish their financial reports annually to 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 banking encourages banks to establish strong governance structures that 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 by redirecting capital flows to environmentally responsible projects. They’ve helped establish a climate-resilient infrastructure that reduces carbon emissions. Because of green banks, we’re seeing an increase in community adoption of low-carbon technologies such as home geothermal power systems, which, if expanded, can help drive the world towards net-zero emissions.
To create a low carbon future, we need more financing from green banks to 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 are reluctant to divest from fossil fuels.
These banks have increased their funding for ultra-deepwater oil and gas, tar sands, and fracking projects in recent years despite worldwide recognition that fossil fuels threaten our planet’s future. They’ve used legal mechanisms to ignore calls for sustainability-focused reform, and disallow stakeholder resolutions requiring them to disclose the climate impact of their loan portfolios.
It’s only eco-friendly financial institutions like Aspiration that prioritize the financing of green practices and initiatives.
Aspiration provides customers with the option to invest in ethical stocks through its Redwood 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 to fund forest and water conservation projects across the planet, making it one of the best banking 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 to find a green banking institution to do business with. The right green banking partner can help you save, invest, and donate your money to positively impact the climate.
Paperless Billing
The first, and easiest, thing you can do to help the environment is to avoid 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 statements can be requested almost anytime from 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 to 9 paper bills a month if they went paperless. If this was done over a year, a family could reduce about 3 kg of 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 their carbon emissions to a minimum. Online transactions are also usually faster and safer.In addition, online banking helps brick-and-mortar banks cut down on 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 can automate your contributions to charitable environmental organizations. Several banks allow customers to commit 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, our Planet Protection program calculates the carbon output of the gas and plants trees automatically to help neutralize the Carbon impact.
Similarly, our Plant Your Change program rounds up every transaction made to the nearest dollar and plants trees using the spare change.
Leave Your Bank for a More Climate-Friendly Alternative
Ultimately, the best way to bank responsibly is to leave unscrupulous big banks for more ethical alternatives. Socially responsible eco banks are much more likely than their traditional counterparts to be transparent about their investments and lending policies. Most of them will have commitments to not invest in fossil fuels, weapons manufacturers, and private prisons.
With a green bank account, you’ll have access to environmentally-friendly products that help you grow your wealth and reduce your climate footprint.
At Aspiration, we offer accounts that give customers up to 3.00% APY on their savings ($10k balance with a spend requirement) with no 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 potentially replace traditional fossil fuel investment strategies.
Just a decade ago, leading environmentalists were calling on financial institutions to divest from oil, natural gas, shale, and tar sands projects. Today, nearly $14.5 trillion has been committed to the fossil fuel divestment effort.
Green banks are becoming strong alternatives to traditional banks, especially as more and more consumers question the 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 like Aspiration will no doubt continue to gain.