How your financial decisions can power the fight against climate change
Your choice of bank account or investment can help the environment. Learn how you can start using your financial decisions to support a clean energy transition today.
By Elizabeth Landau
Updated: September 8, 2021
Original: May 14, 2021
131 trillion dollars. That’s the amount of money that governments, companies, organizations, and people like you and me need to invest in climate solutions between now and 2050 to meet the targets in the Paris Climate Agreement. As if that number wasn’t scary enough, global investment is nowhere near that level. If you’re now thinking, “well, this is hopeless,” you’re not alone! 68% of Americans are anxious about the impact of climate change; this is so pervasive that the term ‘eco-anxiety’ has been coined.
The enormity of the climate crisis is hard to ignore, but the size of this problem can make it difficult to determine what actions can meaningfully impact it. Recycling, taking mass transit, eating less meat, improving the efficiency of your home – you’ve probably tried one or all of these activities. You may even be increasingly aware of how the products you purchase and brands you support can help or hurt the environment. Out of all the changes you’ve taken to live a more sustainable life, have you thought about what your financial decisions can do?
Your choice of bank account, investment, or other financial product is an easy way to fight climate change and is actually more impactful than day-to-day lifestyle changes. Many offerings are popping up today that support climate solutions – like credit cards that offset the carbon footprint of your purchases and bank accounts that use your deposits to fund solar loans. GreenPortfolio reviews all of these products and picks out the ones that most directly invest in renewable energy so that your dollars can help fund the clean energy future we all need. With a $131 trillion price tag, every dollar counts.
You have the power to make this happen! Here are some suggestions on how to get started:
1. Find out what your money is up to today
Do you know if your bank is a top financier of fossil fuel projects? The reality is that most large banks fund some level of oil and gas exploration – the world’s 60 biggest banks have financed $3.8 trillion since the Paris Agreement – which means a portion of your money is probably being used to build a pipeline or drill a well. Fortunately, the Rainforest Action Network has made it easier to learn if your bank is a top offender with its annual report that tracks fossil fuel financing. When researching your bank, take a look at the total fossil fuel financing level compared to other banks and if the level of investment is trending up or down.
Understanding the investments in your retirement plan is also important, albeit a bit less transparent. Let’s start with your 401(k). The first place to search for information would be the employee portal that connects you to the firm managing your account, such as Vanguard, Voya, or Fidelity. You can review the summary for the fund your money is invested in and see if:
- it is a green or Environmental, Social, Governance (ESG) fund;
- it isn’t an ESG fund but mentions being fossil fuel free; or
- it isn’t an ESG fund but does take ESG or other sustainability factors into account.
You can always dive deeper and look at all of the holdings in the fund, searching for terms like ‘ESG,’ ‘socially responsible,’ ‘green,’ and ‘sustainable’ in the asset names. This exercise, though, is time-consuming and not foolproof unless you read through every single line item.
2. If you don't like what you see, change it
More and more banking options are becoming available that use your deposits to support clean energy initiatives. For example, Clean Energy Credit Union offers checking, savings, retirement accounts, and more. As a member, your money would be put to work in the form of loans to people looking to finance purchasing electric vehicles or solar panel installations. Since their formation, they’ve exceeded $60M in clean energy loans!
Regarding retirement accounts, you may be able to select an ESG or sustainable fund. However, most 401(k) plans offered by employers don’t include green funds since many of these funds are newer and lack a long historical performance record, but that is starting to change.
If a green fund isn’t an option, the next best thing is to see if you can select a fund that says it accounts for environmental factors in their analysis. Your employer or the firm that manages your account can let you know the details of the fund – call up your account rep and ask them if they can provide you with this type of information. If they can’t give you an answer, they will at least know that it’s important to you. Another action you can take if you aren’t happy with the choices provided is to form a sustainable investing employee group at your company to advocate for better options.
If you’re managing other investments, you’re in luck because the number of sustainable investment funds has increased by 30% in the past year! Morningstar reports that 392 sustainable open-end mutual funds and exchange-traded funds (ETFs) existed in 2020. It’s important to look for green bonds so you can feel confident that you’re supporting green projects.
If robo-investing is more your style, Betterment, Wealthfront, and EarthFolio have options that prioritize climate impact. Regardless, you don’t have to choose between your financial goals or your values – you can support both! Green investments have outperformed their peers over the past five years, with the best returns yet in 2020, and will be a win for your wallet and the environment.
3. Remember that you hold the power over your financial decisions
As you begin to look at your accounts, remember that you can always start small if switching is something that seems daunting. Start with one account and continue on from there. Once you’ve moved to a new account, the process is done! It’s not something you have to revisit every day.
Another thing to remember: this doesn’t have to be all or nothing. Especially with investments, it’s essential to have a diverse portfolio to mitigate risk.
If you want more information on how to green your own portfolio, GreenPortfolio is here to help! We want to make it easy for you to take action against climate change without having to sacrifice convenience or potential profit. Join us in our mission to get everyone invested in a clean energy future.
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