Sustainable Banking: How to Make Earth-Friendly Choices With Your Money
In the five years since the Paris Agreement, the world’s 60 biggest banks have provided $3.8 trillion in funding for fossil fuel projects. Here's how to make more climate-friendly banking decisions.
If consumer consciousness surrounding the climate change crisis and the need to protect the planet can be said to be progressing along a spectrum and evolving, that evolution looks something like this:
One of the earliest waves of realization and adoption was sustainable food and the acknowledgment that our food choices have an impact on the overall health of the Earth, thus the growing shift toward eating less meat and dairy and following a plant-based diet.
"Most people agree that sustainable food was the first one that broke through to the mainstream because it's personal; we literally put food in our bodies," says John Oppermann, executive director of Earth Day Initiative.
Next came fashion, and the gradual understanding that the fast fashion industry does significant harm to the planet as well, including through the use of natural resources, greenhouse gas emissions, and labor practices.
"I view it as concentric circles moving out from a person," continues Oppermann. "Food goes in our body…fashion goes on our body…"
Now, taking Oppermann's spectrum of consumer consciousness one step further, we have more recently begun to move outside the body and focus on things that humans interact with on a daily basis. And thus, a shift to educating consumers about the impact of our daily money and financial habits. Specifically the devastating impact our banking decisions have on the planet.
Perhaps the most eye-opening and unsettling call to action on this front came in the form of a recent report from the Rainforest Action Network (RAN) called "Banking on Climate Chaos," which highlighted the ways in which global banks are a leading contributor to climate change.
As the report reveals, in the five years since the Paris Agreement, the world's 60 biggest banks have financed fossil fuels to the tune of $3.8 trillion. That funding has resulted in everything from increased indigenous rights violations to wildfires, pollution, and health impacts, as well as humans and animals being forced out of their homes by extreme weather disasters.
The players behind all of this are the world's most well-known banks. Leading the pack is the bank the RAN report calls the "world's worst contributor to climate chaos"—JP Morgan Chase, which the report says is the top offender when it comes to financing projects that exacerbate climate change. The bank has spent a staggering $317 billion financing fossil fuel projects since the Paris Agreement, says RAN.
Many of the other banks that are next in line, according to the report, are household names as well, including: Citi ($237 billion), Wells Fargo ($223 billion and also the world's top fracking financer), and Bank of America ($198 billion).
"Despite clear warnings, these banks continue to finance fossil fuel projects and companies that impact communities every single day," states the RAN report, adding that runaway funding for fossil fuel extraction and infrastructure continues to cause climate chaos and threaten the lives and livelihoods of millions of people across the planet. JP Morgan Chase, Citi, Bank of America, HSBC, and Barclays, for instance, all continue to finance fracking in Argentina's treasured Patagonia region, negatively impacting indigenous communities.
In Northern Mozambique, where 14 of the world's biggest banks, including JPMorgan Chase, BNP Paribas, and MUFG fund LNG projects (liquid natural gas) many communities no longer have livelihoods—and the LNG work has led to local increases in poverty and malnutrition, says RAN. These same extractive projects also trigger increasing conflict, human rights abuses, and militarization.
What's the key takeaway for you as the consumer here? It's that banks have a massive impact on communities around the world that are on the front lines of climate change. What's more, the money banks have available to provide funding and loans for these types of environmentally harmful projects comes from you, the consumer, and from your checking and savings accounts. Meaning the choices you make about where to bank have very real consequences.
"The only reason banks give us checking and savings accounts is because they need our money to give these loans," explains JP McNeill, founder and CEO of San Diego-based banking service Ando, a start-up that launched earlier this year to address this very issue.
Here's what to remember when making banking choices—and how to put your money where it matters.
Your dollars are your vote
Where you choose to bank does matter. The money in your checking account or savings account and the bank where you place that money makes a difference.
“In terms of the planet and climate change, people don’t appreciate the single most impactful thing they can do to help the environment is to put their money into sustainable banking,” explains McNeill.
Let’s state that again: Your banking choices are the single most impactful thing you can do. That means more important than eating vegan, recycling, or avoiding fast fashion.
“According to a study done by the European bank Nordea, moving money to a sustainable bank account is 27 times more effective in reducing carbon footprint than if you flew less, ate less meat, took shorter showers, and took public transportation combined,” says McNeill. “The single biggest thing we can do to help the environment is also the easiest.”
It’s hard to make the case for responsible banking any clearer than that. Shorter showers are great. Eating less meat is helpful too. And so is flying less. But in your entire lifetime, none of that will be nearly as impactful as simply switching where you put your money—and not providing funding for environmentally harmful projects.
But McNeill, who obviously has skin in the game as the founder of an environmentally conscious banking service, isn’t alone in expressing this sentiment. He is among a growing chorus really.
“Banking is the most important thing you can do because you’re turning your hard-earned money over to someone and trusting them not to do bad with it,” says Grant Sabatier, CEO of BankBonus, a website designed to help consumers find the best bank accounts, savings accounts, and credit unions for their needs. “It’s like a vote. People question whether their one vote matters during elections. And I think we have all seen now that yes it does. Your single vote matters. And when you’re voting for a bank that does the right thing, it is having an impact.”
Alternative banking options
So, what is one to do, if you’re looking to vote with your dollars? The good news is that a cottage industry of banking services focused on investing in environmentally friendly and sustainable projects has begun taking shape. San Diego-based Ando, which uses your money specifically to combat global climate change, is among the early leaders in the space.
Here is why Ando is radically different from the competition that has emerged thus far: It’s the first completely transparent banking service that invests 100 percent of consumer's money in carbon-reducing projects. To date, Ando is the only banking service start-up to boldly and clearly make that promise. Ando invests specifically in areas that will make the most impact such as clean energy, sustainable transportation, green buildings, sustainable agriculture, and other essential green initiatives designed to preserve the planet for future generations.
“One-hundred percent of your checking and savings is used to finance green loans,” McNeill emphasizes. “The money is used to finance sustainable farming, regenerative farming, electric vehicles…We are able to use the money over time in a number of different ways. That’s why it is so impactful.”
Furthermore, at any time, you as the consumer can see exactly how your money is being used by visiting the Impact Center within the Ando app.
Yet another big name in the space is Aspiration, which encourages consumers to leave their current banks and help change the world. “There’s a good chance your bank is using your money to fund oil projects that destroy the climate. Put your money where your values are. Join Aspiration today,” states the Aspiration website.
“Aspiration is the quintessential millennial bank focused on sustainability. They don’t invest in fossil fuels. From the ground up, that was why they were founded,” says Sabatier. “When they launched, they had a bunch of high-profile celebrity investors like Robert Downey Jr. and Brad Pitt and they have grown to 4 million accounts since 2015.”
You’re not sacrificing anything when you leave
While we’re discussing alternative banking services, let’s address the elephant in the room. Do these smaller providers offer the same options and convenience as the behemoths that have branches on every corner in your community? The good news is consumers sacrifice very little when opting to make a switch.
“There are advantages to banking with one of the largest banks in the world, but those benefits are significantly greater the larger your net worth is. For high-net-worth clients you get access to a wide variety of high-net-worth wealth tools, from advising to lending,” says Sabatier, of Bank Bonus. "A lot of these smaller, upstart, socially conscious options aren’t going to have access to those types of products, but for the average banker that isn’t going to matter.”
Let’s look at Ando again as a case in point. As founder McNeill explains, Ando is focused on providing customers not only better banking services for the planet, but also better banking services for themselves. That means offering customers the types of options you want and expect—including overdraft protection, a fee-free ATM network, and (in a move that’s better than most banks these days)—no monthly minimum balance requirements or monthly fees. Perhaps the most notable departure from traditional banks these days, Ando will soon begin offering customers the ability to earn as much as five percent on savings accounts, which is largely unheard of.
Importantly for younger customers, Ando offers a mobile app.
“One of our primary goals is providing feature parity for customers in terms of what they are looking for in a bank,” says McNeill. “Ando can deliver all of the features.”
If you do leave, be sure to explain why
The RAN report calls on the banks (and all of us) to defund the progression of climate change. Banks are currently spending about $2 billion a day on such harmful projects.
“The financial system is really entrenched in the climate crisis, and there is really a need to shift dollars away from funding climate crisis to funding solutions,” says Oppermann, of Earth Day Initiative. “We need to start pushing financial institutions to start doing good with those dollars. Most people would be somewhat horrified if they knew they're funding the climate crisis. And unfortunately, that's the truth of it.”
For his part, Oppermann urges consumers to let banks and also friends and family, know why you're shifting your money elsewhere. Again, this ties back to the idea of, does your one vote matter? Yes, it does. And when you spread the word, the votes start to add up.
“If you do it, and you talk about it and encourage other people to follow suit, you do start to see a critical mass not only in terms of dollars but also in terms of the conversation being had,” says Oppermann. “We have seen this with Black Lives Matter movement, and the Me Too movement. You think I'm just one person. But at some point, it does reach a critical mass and start to shift. And it does start to impact those institutions if you're pulling your dollars. And it also sends a signal.”
How likely are consumers to make a switch?
The larger question to contemplate perhaps, is do consumers care enough to make the switch? A variety of encouraging signals indicate the answer to that question may very well be yes.
“We're getting more and more traffic from people interested in banks that are environmentally responsible,” says Sabatier, of BankBonus. In addition, he points to increasing Google searches on the topic. The volume surrounding searches for socially responsible banks, socially responsible bank accounts, and sustainable investing has been steadily ticking upward, and that is a proxy for consumer interest and demand, explains Sabatier.
“But do you also see a shareholder interest? That’s the even bigger question,” suggests Sabatier. “JP Morgan’s profits are growing hand over fist, so do they care right now about consumers demanding a change? Banks are biding their time in that sense, as the wealth shifts from baby boomers to Gen Z and millennials.”
The seismic shift of wealth that's looming on the horizon matters because, Sabatier says, there’s a much deeper sense of social consciousness among the younger generations—and that may ultimately force the hand of banks to a tipping point where they change their ways.
“Look at Aspiration; it grew to 4 million customers in just five or six years,” he says. “Yes, Aspiration is great at marketing, but those numbers are also a testament to the increased interest in sustainability.”
To be fair, some of the banks on RAN's list are already taking steps in the right direction. JP Morgan Chase in April pledged to invest $2.5 trillion in sustainable projects over the next 10 years, while Bank of America promised to spend $1 trillion on such projects between now and 2030.
Those announcements may well be because big banks see the writing on the wall when it comes to the wealth shift on the horizon referenced by Sabatier and others. All of which reinforces the importance of letting banks know why you're moving your money. At the very least you may want to join the chorus to call upon big banks to make a change sooner rather than later.
"Do consumers care? It seems like they really do," says Sabatier. "The trend is increasingly shifting toward making more sustainable investments and banking choices. And Gen Z and millennials, in particular, are doing so because they want to make sure the planet remains a healthy place for them to live."
If you’re curious about how your bank stacks up when it comes to funding the progression of climate change versus supporting renewable energy there are various online resources, including those that can help you choose a green-energy-focused bank.
Start by checking out BankingOnClimateChaos.org, from RAN, which gives banks a score based on their funding of the fossil fuel sector including lending and underwriting of debt and equity issuances.
Another option is to check out the B Corp directory, which is a database of all those communities committed to serving global good. Sabatier points out that this directory includes banks.
The Global Alliance for Banking on Values, is also a very valuable resource as it includes a searchable map that provides information about member banks near you that use finance to deliver sustainable economic, social and environmental projects.