GERMAN VERSION

Green finance seems to be the new “hot topic” in the investment world, but is it even possible to make your finances more climate-friendly? Global capital markets and climate change are often depicted as going hand in hand, with the human drive to make money (aka capitalism) speeding up climate change to a point of no return. In that way, finance (and investing) is most often seen as a cause for climate change, but never as a solution.

Looking at our finances and investing through this lens is, however, a mistake if we want to find a true and sensible way to keep our planet from heating above 1.5 degrees. 

But this is where the first question arises: in an effort to make your finances “green” and sustainable, where do you even begin?

Is it better to save as much money as possible in your savings account, while trying to spend as little as possible, or should you focus on spending your money on the manifold sustainable brands out there? Or, perhaps, could it be best to invest your money in the companies that are committed to reducing their emissions and are serious about fighting climate change?

So many questions. 

This guide will help you answer them — and more! — as you’ll get a better understanding of the carbon footprint that comes with the many different ways of managing your money. It will also provide you with some actionable tips on how to use the power of money to become more climate-friendly and reduce your own carbon footprint. Read on! 💪

Your guide to green finance: 6 ways to make your money more climate-friendly

“By saving money, I’m not doing any harm!” — wrong!

Though it would surely make your life a lot easier to know that as long as you don’t spend your money you don’t need to worry about it having a negative impact on the planet, it’s unfortunately wishful thinking. If you really care about green finance, you should start with your savings!

The first thing you should know about the money in your savings account is this: your money isn't actually materially in your savings account, but is being loaned and invested by your bank. 

This is a problem because the international banking world pumps significant amounts of money into climate-damaging industries every day. 

JP Morgan Chase, for example — one of the largest U.S. banks — has been the largest financier of fossil fuels in the four years since the agreement, providing over $310bn of financial services to extract oil, gas and coal.

The "Banking on Climate Change" study produced by several environmental organizations, including Rainforest Action Network and BankTrack furthermore found that the British banks Barclays, HSBC and RBS all helped finance the Dakota pipeline — a 1,886 km underground oil pipeline in the US that was heavily protested due to concerns about its environmental impact. 

In other words, when saving money, you're actually lending it to your bank which it then often uses in a way that drives the climate crisis.

There's a lot to be said in favour of taking more control of your money, to ensure it's managed sustainably, instead of hoarding it in your savings account. 

Now, you’re probably thinking: Thanks very much for ruining my belief in my frugalistic lifestyle, what am I supposed to do now? 

Here’s some good news for you: not all banks are “bad banks”. Amid the growing awareness of environmental responsibility, some banks have come up with solutions to this problem, aiming to provide you with more sustainable saving accounts. So how can you, as a climate-conscious individual, make sure that your bank isn’t funnelling billions into fossil fuels?

Your very first step towards greener finances should be to find out if and how much money your bank invests in climate-harming industries every year. While you’re doing your research, be careful not to judge too quickly from the first source that you come across. Some banks may actually have ambitious targets to become climate neutral and reduce their investments in fossil fuels to zero. Sometimes it helps to take a step back and try to find out not only what their current spendings are, but also what their future goals might look like and how likely they are to reach them.

Did you know?

The U.S.’s six largest banks recently all committed to a carbon neutral future, pledging that all the bank’s operations — including projects and companies it finances — will achieve net-zero carbon emissions by 2050. (Source: Fortune

Keep an eye on the bank’s wording, specifically when it comes to the different emission scopes. 

The most crucial aspect of a bank’s net zero emissions target ought not to be concerned solely with their own operations (known as scope 1 and scope 2 emissions), but rather ensuring that the businesses they finance are carbon neutral too (scope 3). 

Think about it this way: even once you know that your bank is investing heavily in fossil fuels, weapon manufacturing, or other industries that are harming our planet (and even if you have already made the decision to change your bank), you should let them know. 

If you simply switch without writing, the bank may think it's because of poor service, or because you found the same service somewhere cheaper. If you’re leaving your bank, let them know it’s because of climate change! 

Move your Money has prepared a template for this exact purpose that you can send to your bank before switching, to explain why you are taking this step. It asks the bank to disclose, in full, all its investments — including those that are harming this planet — and commit to a 5 to 10 year plan to completely divest from fossil fuels. Make sure to customize this template accordingly and send it to your local bank’s service contact (give it a quick google if you’re not sure about the email address). 

Once you’re done, don’t forget that sharing is caring! It’s important to make your voice heard so that others follow your example. How to do it? Think of a suitable hashtag and make your statement public on social media, explaining why you think this is important and how others can follow your example. Don’t forget to provide a link to the template and remind your followers to use the same hashtag — hashtag activism can play a crucial role for social movements!

Once you have decided that your bank can definitely be labelled as “a bad bank”, it’s time to switch to a bank that suits your personal (and the climate’s) needs better. If you do that, one of the most important steps towards green finances, has been taken! The good news is that switching accounts has become virtually hassle-free since the bank account switching service was introduced. In Germany, banks are required to cooperate with each other to help customers switch accounts, thanks to a 2016 law which made switching services a required service. When you switch banks, your current bank will send your transaction history to your new bank and will also organise your direct debits to be changed. N26, for example, offers this service online.

However, the tricky part is yet to come: how can you pick the new bank wisely and, most importantly, how can you be sure that the new bank will be a more sustainable one? This is even trickier due to the fact that terms like "sustainable," "environmentally friendly" or "ethical investments” are not protected. There are no uniform minimum standards for sustainable investment labels, meaning each provider can decide for themselves how “green” their sustainable bank really is. So just looking for nice product names and fancy green advertising isn’t enough: if you want to make a difference, you need to take a closer look.

According to the German consumer advice center (Verbraucherzentrale), there are currently 14 banks in Germany that pursue a special business model. These credit institutions have specially defined ethical and ecological criteria that they base their entire banking business on. However, only 5 of the 14 banks (as audited in 2020) meet all the sustainability-exclusion criteria defined by the consumer advice center. Here is an overview of which banks are particularly good.

Green finance: Sustainable banks in Germany

SOURCE: FAIR FINANCE GUIDE

Now that we have established that by simply keeping your money safe in your savings account you won’t actually be saving the planet, what is it that you should do next (aside from switching to a more sustainable bank)?

In the quest to reduce your carbon footprint, the first thing that often comes to mind is developing more conscious consumption habits. Buying ethical clothing, fairtrade lattes, shampoos without microplastics, adopting a vegan lifestyle — whose Instagram account isn’t full of all the do-gooders out there? 

Of course, changing your consumption habits can really make a difference. For instance, if you go fully vegetarian, you’ll save 0.8 tonnes of CO2e per year. 

Green finance: Food CO2 emissions

If you then then reduce the amount of clothes you buy and extend their usage cycle by an extra 9 months, you can reduce the carbon footprint of your clothes further by 20 to 30%.

So yes, the way you spend your money — or, more precisely, the things you spend your money on (or, even more precisely, decide not to spend it on) — can have a significant impact on your carbon footprint. 

But here’s the truth: although our personal consumption habits are undoubtedly important when trying to effectively reduce our CO2e emissions, there are other areas that can have a far bigger impact

Which leads us to the next point: 

As mentioned in the beginning of this article, the words “global capital markets” and “climate change” are rarely used in the same sentence from a positive angle. It is often argued that capitalism is destroying the planet and therefore, if we want to solve the climate crisis, capitalism has to end.

But what if you find a way to change the way the global capital market is run, instead of deeming it a lost cause? As Audrey Choi says:

"Actually, one third of this ocean of capital actually belongs to individuals like us, and most of the rest of the capital markets is controlled by the institutions that get their power and authority and their capital from us, as members, participants, beneficiaries, shareholders or citizens."

Audrey Choi

So if you are, to some extent, the ultimate owner of the capital market, why shouldn’t you be able to make your voice heard and have a say in how it is run? 

By investing your money into company stocks, you become a shareholder. And as a shareholder, you have power! If you haven’t yet, it’s time you make use of this potential!

Taking on the capital market to invest in a greener future and reduce your carbon footprint may feel a little overwhelming, compared to changing your consumption habits. But as always, what seems the most immediate action to take, isn’t always the most important one — as it is not necessarily the solution with the biggest positive impact! Here’s a little example: 

If you invest €10.000 into a MSCI All Country World Index Fund, this causes about 1.8t CO2e (based on 17kg CO2e on every €100 invested). Quite a lot right? Now if, for example, you decide to go vegan, you can save 0.8t CO2e per year

Looking at these two numbers, you will notice that your investment actually causes twice the amount of carbon footprint compared to said footprint reduced by turning vegan. This means that the impact of your investment behaviour far outweighs the impact achieved by your consumption behaviour.

For the future, instead of spending €20 monthly on certified, ethical, vegan,organic products, why not think about investing the same amount of money in climate-friendly companies with ambitious carbon-reduction targets? By investing your money impactfully, you can thus actively vote for a greener future we all hope to live one day.

Once the first step of jumping on the “investment bandwagon” is achieved, how can you be sure that your investments are not only used in line with your appetite for risk, but also exclude companies that don’t take climate change seriously? 

To answer that question, you need to know the different types of responsible investing.

Many people, for instance, think that ESG funds (funds based on environmental, social, and governance criteria) are the most impactful thing we can do with our investments. But even funds that score well on ESG criteria may still be supporting companies that are not in line with your values. There is still a big “grey zone” when it comes to ESG, with little collective agreement on what ESG actually means and no standardized criteria. So what “behaving responsibly” actually means depends very much on the person or company doing the rating — some have incredibly strict criteria, others much less so. 

This means that there is always the risk that not all funds that carry ESG labels meet your definition of “green” and might, for instance, include notoriously “non-green” companies (like Amazon) that are not exactly known for their climate ambitions. 

For you, this ultimately means that in your quest to “greenify your investments”, you have to make sure to put your money into companies that have future-proof climate strategies and ambition to cut down greenhouse gas (GHG) emissions, instead of throwing it into the first ESG fund that comes your way. 

Top tip:

Don’t get too stuck up in the latest ESG trends, but look into other ways to do sustainable investing. One such investment type is impact investing — an investment strategy that aims to generate positive impact for a specific social or environmental cause. It examines the impact that a company has on the world, investing only in those that have a positive impact, in whatever social or environmental area that impact investor is focused on. If, for instance, you really care about climate change and want to reduce your carbon footprint with your investments, opportunities like climate impact investing can help you direct your investments into the cause you truly support.

Many investors are unaware of their rights as stock owners. Yet, this is a very important source of power. Common shareholders are granted six rights: voting power, ownership, the right to transfer ownership, dividends, the right to inspect corporate documents, and the right to sue for wrongful acts. 

So even though you cannot directly manage the company with your stocks, you can vote for the directors who can. This way, you can get a say in controlling the direction that the company takes. 

Shareholder voting power includes electing directors and proposals for fundamental changes affecting the company, such as mergers or liquidation. It takes place at the company’s annual meeting and is a great way to learn about how the company operates, see how it focuses on different topics (such as sustainability) and to voice your opinion to the management directly! 

In conclusion: The path to green finance is paved with balanced decisions

To sum it up, when it comes to finding the best way to make your finances “green” and more climate-friendly, a healthy balance is key! Saving, spending and investing money shouldn’t be mutually exclusive options. Quite the contrary, they can (and should!) complement each other on the way to making your finances more sustainable, and your own future — more secure.

Rebecca Pflanz
Rebecca is Social & Community Manager at Cooler Future