Banking may not seem like a culprit for climate change. But researchers and activists have found that banks contribute to a devastating loss of nature each year through their financing of fossil fuel, logging, and agriculture companies. It’s a truly heartbreaking story for us here at Aspiration. We’re a neobank that offers the same financial services as all banks – we just make sure we don’t destroy the environment while managing our customers’ money. We believe that banking can help the environment, and we show you how.
In this article, we explain how banking affects the environment, and how you can choose an eco bank to switch to.
How does banking affect the environment?
Amidst the highly-praised global development of the past two decades, environmental destruction has increased at alarming rates. Exploitative companies, from palm oil plantations to oil pipelines, have been expanding their operations with investment from banks. These investments alter the landscape beyond recognition.
Fossil fuel companies bankrolled by the world’s top financial institutions build large drills and refineries on virgin land. This infrastructure leaks oil and gas out into the atmosphere and natural rivers, poisoning the air and contaminating the water supply of indigenous communities. Large beef and soy plantations funded with bank dollars in the Amazon rainforest and South East Asia cause widespread deforestation and habitat loss. To make the land for these industrial farms, companies clear forests, sometimes using slash and burn techniques, that endanger the lives of both humans and animals. Then there are logging companies that operate unsustainably and illegally to supply the world’s demand for wood and pulp.
Some are funded by banks who profit off the high prices that these commodities fetch, often at a heavy cost to the forests that will take decades to regrow. The total cost of these activities is heart-wrenching. It’s estimated that between 2001 and 2015, big global banks destroyed over 300 million hectares of forest cover, roughly the size of India, with their funding. And the practice has continued despite banks’ pledges to reduce their impact on deforestation, mostly because they are not held accountable by a governing body. If fossil fuel extraction, industrial agriculture, and logging continue to expand, it’s very likely that we will exceed the 2 degrees Celsius temperature rise limit set by the 2016 Paris Agreement for this century.
Are there environmentally sustainable banks?
That said, not all banks are bad. While the environmental destruction funded by banks is truly worrying, there are signs that attitudes towards unethical financing may be changing. Environmentally sustainable banks such as Amalgamated Bank, Sunrise Banks, and Beneficial State Bank are changing the conversation around sustainable financing. These banks challenge the long-held traditional notion that profits are an end in themselves. They believe that profits can be generated by investing only in climate-positive activities. They go beyond the usual ‘greenwashing’ commitments to reduce paper usage and rely on renewable energy sources. They legally bind themselves to environmental policies that hold them accountable for every impact they make.
What’s an eco-bank?
An eco-bank is another name used to refer to environmentally-friendly banks. They are banks that put climate policy at the forefront of their business practices. Eco-banks differ from traditional banks in a few key areas, namely their investment portfolios, environmental policies, and community relationships. For a start, eco-banks do not invest in any companies or organizations that harm the environment and human lives.
They restrict funding for fossil fuel, logging, industrial agriculture, and tobacco companies. They make a clear and explicit commitment to respect indigenous rights. Eco-banks are also guided by environmental policies designed to help the communities they serve transition to low-carbon economies. They invest money into clean energy initiatives and organizations working to make society more climate-resilient. Some, like Aspiration, even go further and donate a portion of their profits to sustainable local community development projects. And most importantly, eco-banks build trust with their customers and investors by only funding entities that have a positive social impact. Almost all eco-banks are certified B Corporations and/or members of the Global Alliance for Banking on Values (GABV) association and Community Development Financial Institutions (CDFI) network.
How do eco-banks use technology to stay eco-friendly?
Eco-banks use technology to help their customers make better decisions about which environmentally-friendly businesses and organizations to support. This technology plays a vital role in making climate positive decisions easier, valuable in a world where social consciousness is becoming the norm. Environmentally-friendly neobanks like Aspiration leverage big data to analyze the financial and sustainability performance of businesses.
The results are used to create a sustainability score that customers can rely on to determine which businesses they want to support. It creates a win-win situation for everyone. Customers help businesses that are aligned with their values. And socially responsible businesses are rewarded for their outstanding products and services. Eco-banks also use technology to help customers create environmental impact with every transaction they make. Aspiration has a program where every transaction is rounded up to the nearest whole dollar to help plant a tree. When a certain amount of trees are planted with the customer’s contributions, Aspiration rewards the customer with a monetary deposit. Technology is also used to help make the eco-banks themselves carbon neutral. The ability to send customers electronic bank statements has helped banks reduce their paper usage. Some eco-banks which only operate online and through apps don’t need to open offices that consume energy. Those that have physical branches switch to using only 100% clean energy sources to reduce their carbon output.
6 signs your bank is an eco bank
To know whether your bank is an eco-bank, look for these six signs that show their commitment to helping the planet transition to a low-carbon economy.
1. Your eco-bank does not fund any fossil fuel investments
The first and most important, thing you should look for in an eco-bank is its commitment to not fund any fossil fuel companies. The extraction of fossil fuels and their use is actively increasing carbon dioxide levels in the atmosphere, which if left uncontrolled, will cause widespread catastrophic climate disasters in the future.
2. It refrains from investing in industrial agribusinesses
Your eco-bank should also not be investing in any industrial agribusinesses like soy, beef, and palm oil plantations. These industries require huge swathes of land that can only be acquired by cutting down pristine forests. With fewer trees, our planet will lose its ecological biodiversity and natural ‘air purification’ system.
3. Your eco-bank invests in renewable energy
Instead, your eco-bank should have investments in renewable energy projects. To phase out fossil fuels, renewable energy has to become more affordable, reliable, and widely used. Many leading eco-banks are already making millions of dollars in investments in solar and wind energies.
4. It commits to the Paris Agreement
A trustworthy eco-bank should also be committed to the goals of the Paris Agreement. The global effort to curb climate change requires companies and organizations, including banks, to work together toward global net-zero emissions by 2050. It’s not an easy task but a highly necessary one that is essential to keeping the planet livable for future generations.
5. It publishes transparent reports of its investments
To ensure total accountability, your eco-bank should publish regular detailed reports of its business investments. This will help you, as a customer, know how your money is being used. It will also help you keep track of your eco-bank’s business interests and flag any issues that might conflict with your ethical and environmental values.
6. Your eco-bank plants trees
Last, but not least, you know your bank is an eco-bank if it helps plant trees. Many eco-banks work with charitable organizations and local communities to reforest areas that have been devastated by climate change, mining, logging, and fossil fuels.
How to opt-out of your old bank
Opting out of your old bank and moving to an environmentally-friendly bank is a straightforward process. The best place to start is by looking for an eco-bank that’s aligned with your values and offers the banking services you need. Find a bank that does not invest in industries that harm the planet and human lives. An eco-bank that’s B-Corp certified is always a good option, and if it commits to giving back to underserved communities, even better.
Once you know where you want to move, open a bank account with your new eco-bank. This process will involve some paperwork and fees, so make sure you follow the instructions carefully. Then contact your old bank and tell them that you are leaving them. You may want to send them a letter or an email explaining your reasons for leaving. If banks know that they are losing customers because of their failure to act on climate change, it will spur them to consider their environmental policies more seriously. After that’s done, start shifting your deposits from your old bank to your new eco-bank. This may take some time and patience so be prepared, especially if you are moving large amounts of money. Check also if there might be any fees for closing your account with your old bank. When your transfers are complete, you’ll be totally zen knowing that your money is in a place that cares about the planet.
Want a solid eco-bank? Try Aspiration
Aspiration is one of the world’s leading neobanks that commits to climate-positive actions. We are a certified B Corporation that allows our customers to vote for sustainability with their money when making everyday purchases, from shopping to restaurant dinners. Our Aspiration Impact Measurement (AIM) helps you see the Sustainability Score of different businesses so you can choose the best one that’s aligned with your values.
You can also keep track of your own sustainability impact via the app or online so you always know how your money is impacting the planet. Aspiration does not invest in any fossil fuel companies, and we are committed to making all of our business investments transparent. Try Aspiration today to keep the world safe for future generations.