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This is part 1/2 in a series on green banking and investing created by Kristy Halderman. Today we cover the basics of divestment and green banking, ie. what to do with your cash. In part 2, we'll cover green investing.
With more than 1200 institutions divesting $14.5 trillion away from fossil fuels, these organizations both have a lot of power to make an impact and realize the necessity of it.
Divestment (n): the action or process of selling off subsidiary business interests or investments, in this case avoiding investment in fossil fuel intensive companies.
In the white paper The Financial Case for Fossil Fuel Divestment, the authors discuss how financial institutions hold a fiduciary responsibility to clientele and that the case for investing within the shrinking fossil fuel sector is ‘no longer tenable.’
Within the last few years alone, activist investors have gone from losing votes on climate change proposals with companies like Occidental Petroleum and ExxonMobil to demanding ‘reports on the business impacts of climate change.’ This past August, Exxon was even dropped from the Dow after nearly a century of being on the index.
It’s clear that Wall Street is well aware of the risk involved in maintaining positions in companies that aren’t taking appropriate measures toward climate-friendly practices. And as an individual investor, you should be, too.
Not only has evidence emerged that a better ESG score lowers the cost of capital due to reduced risk, but there have been over 2000 academic studies to support the positive relationship between ESG scores and financial returns.
Customers have more clout
So, what does that mean exactly? How can you bank with purpose? And are there any investments that are truly sustainable? One that hasn’t been tainted by fossil fuels, deforestation, human rights violations and the like?
The last few years have seen a major uptick in green banking options and as more institutions get on board, the more choices that will follow, especially with an incoming climate-focused Biden administration. Further, per the Financial Times, many investors claim that:
engagement is the only option to push companies to be more transparent and shift their businesses toward cleaner fuels and green investments [where] divestment would only pass the problem to others who may be less socially conscious.
However, if you absolutely can not bring yourself to invest your money with institutions or companies that were at any point linked to fossil fuels, deforestation, unethical political campaigns or other human/animal rights issues, then you must also be willing to accept that you may incur more risk, lower returns, higher minimums or upfront costs and have less available options. More on green investing in part 2.
It’s not to say that any of these are a given, but you also have to be prepared that this could very well be your reality.
Greek banking: what to do with cash
As I am sure you have heard before, one of the easiest ways to switch to a ‘more sustainable’ option is to move your money to a credit union or even regional bank. This seems completely reasonable considering many of the large private-sector banks have been responsible for funding fossil fuels, not to mention the 2008 financial crisis which ruined millions of lives and set off a global recession.
Since credit unions are member-owned and usually community based, they will be less likely to have ties to fossil fuels (although, be sure to ask before moving your money).
You can find a list of sustainable credit unions and B-Corp banks here.
If you are unable to move your money to any of the organizations on this list, you can search a broader database here to locate a credit union closest to you. (UK, Canada)
Keep in mind that credit unions don’t often have many locations, so if you need access to cash and you aren’t close to the branch, you may be subject to extra fees.
Also, while they can offer lower lending rates as well as more consumer-friendly credit cards, the green banking options may be available to members only. Further, rates are just above record lows, so bank products like savings accounts or IRA CDs aren’t going to give you the returns you need if you are more than a few years from retirement.
Overall, it can make sense to transfer your transactional banking and/or lending to a credit union, especially if everything can be done online. This means, if the organization allows you to be a member from afar, you can hold a checking and/or high yield savings account and rewards credit card as well as taking advantage of lending and/or refinance options for potentially better rates.
Popular B-Corp Banks
Note from Polly: I use Aspiration for banking and investing. So far, so good! If you use my referral link, I do earn a commission at no cost to you.
Aspiration is focused on conscious banking and has a unique ‘pay what’s fair’ fee feature. It also has fossil free investing and donation options as well as cash back on companies within the ‘Conscience Coalition’ and a way to track the impact of your spending choices.
There are no physical locations, but there is access to a wide array of ATMs without fees.
Amalgamated Bank has four branch locations and is 100% committed to renewable energy. It offers a few more services than Aspiration, including mortgage lending and commercial services, more specifically, mission-driven enterprises.
The limitations of green banking
We all have to spend money every day, so most of us want our choices to reflect the better world we want for future generations. Yet, much like coming to the realization that a mason jar of trash is not representative of all your personal consumer waste, green banking and investing isn’t perfect, either.
This is why I don’t think it’s fair to punish yourself as an individual by aiming for perfection, especially in a country like the US where the lack of retirement resources compounds the fact that we lack basic rights like universal health care and affordable higher education.
This doesn’t mean, however, that organizations should not be trying to be more sustainable, nor does it mean that we should ease up on accountability standards for corporations and even elected officials.
Making your money work for you while continuing to push for transparency, sustainability and equality can all be achieved through more mindful financial decisions.
And regardless of where you decide to put your money, you have a voice.
All you need to do is get started and make it heard.
Disclaimer: This is written from the perspective of someone that has lived and worked in the US financial industry and holds positions in several of the investments mentioned such as ICLN, TSLA and Republic. The information provided is for educational purposes and is not advice. Any major financial decision should be well-thought-out and discussed with a licensed tax and/or financial professional. Past performance does not indicate future results.
Kristy Halderman is an Accredited Financial Counselor based in Washington, DC. She has over ten years of experience having worked for a number of firms in the financial services sector and most recently, as a government contractor.
To contact, email at hello@kristyhalderman.com or follow on social @squanderandpoor.
