What happens to your money after you deposit it into your bank account? Do you know how your bank is using your money?
The biggest banks in America make about 600 dollars off the average American each year. They loan the money you deposited back out to businesses and people with hefty interest rates and fees piled on top. This lending strategy has kept big banks alive for decades.
It’s the backbone of their business model. But banking doesn’t have to be a service that you have no control over. Sustainable banking breaks away from traditional banking models and gives you the power to choose how your money is managed by the bank.
Socially responsible institutions like Aspiration only lend money to industries that do no harm to the environment. We contribute our earnings towards social justice causes, and help our communities grow wealth sustainably. Sustainable banking works for everyone and the planet. In the article below, we show you which sustainable banks are best for saving your money with.
Why is sustainable banking important?
It’s no secret that big banks tend to favor markets that will bring them profits and growth. Industries like oil and gas and industrial agriculture have received huge financial support packages from banks that have kept them at the forefront of economic growth for decades.
But many of these industries harm our planet and contribute to climate change. Recent studies have found that the fossil fuel industry alone accounts for three-quarters of our carbon emissions.
While it’s true that coal, oil, and gas are still necessary in many countries around the world, including the US, for economic development, energy, and transportation, the continued expansion of fossil fuel extraction is heating up our planet faster than we can manage. Mining for fossil fuels damages wildlife habitats, contaminates water supply on indigenous land, pollutes the air. Add large scale soy, corn, or beef farming to this, and climate change becomes very difficult to halt.
Research has found that about 5 million hectares of forest – roughly the size of Costa Rica – is lost every year due to the clearing of forests to make the land for farming. How is this continuing unabated? The answer lies in the inextricably connected world of finance and industrial development. As Big Banks continue to fund the fossil fuel and industrial agriculture industries, they encourage environmental destruction in return for profits from fuel and agribusiness commodities.
That’s why sustainable banking is becoming increasingly important as an alternative to traditional banking models. Sustainable banking divests people’s deposits and investments from businesses and projects that damage the environment and harm humans and animals. It adds environmental, social, and governance (ESG) criteria into banking so that banks cease to become the financiers of destructive business practices.
What is a good example of sustainability?
Renewable energy is perhaps one of the best examples of sustainability. The most common sources of renewable energy such as wind and the sun are naturally available and can be used conservatively and wisely for decades to come. In many parts of the world today, renewable energy projects are sprouting up to replace coal-fired electricity plants. Public criticism of coal’s environmental impact, plus the expensive maintenance required to operate coal plants, have made wind and solar farms a more popular replacement.
They’ve also agreed to be a cleaner source of electricity as they produce little to no greenhouse gas emissions. Some experts even say that our increased reliance on renewable energy can help rejuvenate wildlife habitats damaged by fossil fuel extraction. More than that, the energy produced by wind and solar farms can be stored on the power grid, allowing for greater flexibility of use.
It’s also fast becoming the cheapest source of power in many parts of the world such as China, India, and the US. These benefits have not gone unnoticed by sustainable banks. Many environmentally-friendly banks in the US and Europe have invested in renewable energy projects to both generate revenue and help countries transition to low-carbon economies.
What are the hallmarks of sustainable banking?
Sustainable banks can be identified by five main hallmarks that distinguish them from traditional big banks. The policies that they adhere to are:
A commitment to ‘do no harm’
Sustainable banks commit only to activities that will not harm the planet and its inhabitants. This includes refraining from investing in or loaning money to fossil fuel projects, industrial farms, weapons manufacturers, and tobacco producers. At Aspiration, we don’t invest in oil companies, private prisons, and firearms manufacturers. Damaging human lives and ecosystems runs counter to the fundamental philosophy of sustainability, which is to preserve resources for the future of the planet.
People are becoming increasingly aware that climate change disproportionately affects low-income communities. Sustainable banks realize this and commit to instituting climate-resilient programs for the vulnerable communities they serve. They may offer financial services that provide these community members with affordable capital to run their businesses and support their families.
Sustainable banks also pledge to close the racial wealth gap. They support businesses and organizations run by minorities to help them create new jobs and establish wealth within their communities. They also put people from diverse gender and ethnic backgrounds in leadership positions and pay their staff a fair living wage.
Sustainable banks take transparency seriously. They publish details of the businesses they loan to so investors and regular customers alike know how their money is being used. When customers see that their bank invests in activities that reflect their values, they have more trust in their bank.
Sustainable banking in 2020 is absolutely vital
2020 has been a year that has made sustainable banking absolutely vital for the future of our society. The COVID-19 pandemic exposed the shortcomings of the financial system to protect companies and keep jobs. Wildfires and floods destroyed thousands of homes in the US and many other parts of the world. Sustainable banking offers services that can help repair the damage that these crises have caused, and prevent future ones from happening.
These banks prioritize long-term community-focused goals over short term ones that only look at profits. 2020 has forced us all to re-examine our political systems and their effectiveness. In the short term, helping communities get back up on their feet and build resilient economies will be a priority. Sustainable banks have been building wealth in underserved communities for years, and their work has now become more important than ever.
In the longer term, installing climate-resilient systems will be essential to prevent the catastrophic warming of the climate. Sustainable banks are already leading this movement by not financing fossil fuel companies and industrial agribusinesses that contribute to climate change. They also invest in renewable energy programs all around the world, which is predicted to surge as the pandemic slowly comes to an end.
Which banks are environmentally friendly?
The increasing social consciousness of our society has prompted the growth of several environmentally friendly banks. Aspiration, Amalgamated Bank, and Spring Bank are three of the most environmentally friendly banks in the world right now.
Aspiration is an online neobank that focuses its efforts on reducing the climate impact that we create. It does not fund any company associated with fossil fuels because it believes that the expansion of the oil industry will cause the failure of the Paris Agreement.
Aspiration also offers unique climate positive services such as its commitment to plant a tree by rounding up on every dollar its customers spend. The bank invests heavily in clean energy programs and donates its earnings to environmental groups around the world.
You can check out some of these things here.
Amalgamated Bank is the largest union-owned bank in America that takes a strong stance against climate change. Just like Aspiration, it does not lend any money to oil companies and has made an explicit commitment to align its business practices with the goals of the Paris Agreement.
All of the bank’s operations are run using 100% renewable energy as part of its pledge to be 100% carbon neutral. Each year, Amalgamated invests hundreds of millions of dollars in solar farms and sustainable food businesses.
Based in New York City, Spring Bank is an officially carbon neutral bank that has no investments in fossil fuel companies. The money is instead invested in community businesses that help generate new jobs and distribute wealth within communities that need it most.
Spring Bank offers a green checking account that is completely paperless with zero maintenance fees.
Which banks are the most ethical?
In addition to environmentally friendly banks, people also look for ethical banks to save their money with. Triodos Bank, Beneficial State Bank, and Sunrise Banks are three of the most ethical banks on the planet.
Aspiration is built from the ground up on a foundation of ethical first principles. We’re focused on providing financial solutions to everyone, not just the wealthy few at the top.
We also offer investment products that are both sustainable and socially conscious, so while your money works for you, it also helps make the world a little bit better of a place to live. Lastly, Aspiration for every $10 our customers choose to pay us, we donate $1 to charities — and, specifically, we donate to charities that help Americans in need build better lives.
More info here.
Triodos Bank is a bank based in the Netherlands that is applauded by many experts to be the most transparent bank in the world. It publishes details of every organization, business, and charity it funds so that its customers can know how their money is being used.
Triodos only invests in enterprises that are making a positive impact on the world, from affordable housing projects to clean energy programs, to improve people’s quality of life.
Beneficial State Bank
Beneficial State Bank is a certified B Corporation and a member of the Community Development Financial Institutions Fund (CDFI) that commits to supporting diverse and minority-owned businesses.
They work closely with local communities to build wealth, giving 75%+ of their loans to organizations and businesses that are striving to make the world more socially just and environmentally friendly.
Based in Minnesota, Sunrise Banks is a CDFI that operates with a culture of giving back. Every year, they donate at least 2% of their net revenue to organizations working to reduce the wealth gap and build affordable housing.
This mission-driven bank aims to make banking a force for good by working closely with communities and helping individuals gain financial literacy.