You’ll find “Carbon neutral” among the many buzzwords banks are using in this day and age. Like a lot of industries, they’re starting to realize that their customers care about the carbon footprint of the companies that they do business with.
For many, the term carbon footprint evokes images of engines spewing fumes or the relentless drilling of the Earth’s crust for fossil fuel. A bank is none of that. It’s not a vehicle that consumes gasoline and gives off fumes. It’s not an airplane, either.
Then how does a bank have a carbon footprint, you may ask?
Well, a bank has offices and branches. They require electricity and if that doesn’t come from renewable sources, it’s contributing to the bank’s carbon footprint. The bank may also give out company vehicles to its executives. They could be gas guzzlers or they could be electric vehicles.
That’s not all that makes up a bank’s carbon footprint, though. The investments that they make also contribute to the global carbon footprint. For example, if they are investing primarily in fossil fuel companies, they are actively contributing to the destruction of the planet.
That’s why some of the world’s biggest financial institutions are now making vocal commitments to reduce their carbon footprint significantly. Here are some of the ways they plan to do that, and the banks that are actually making it happen.
Setting climate standards for the banking industry
In December 2019, a group of 631 institutional investors from across the globe with more than $37 trillion in assets under management issued a joint statement at the United Nations Climate Conference (COP25), calling on governments across the globe to contribute in the efforts to tackle climate change and achieve the objectives of the Paris Agreement.
However, it’s pertinent to note that banks and financial institutions have been among the biggest contributors to pollution and global warming under the investments they have made in fossil fuel companies.
The financial industry has yet to come to terms with its actual carbon footprint. The Carbon Disclosure Project, a nonprofit that maintains a global collection of carbon disclosures from companies and governments, conducted a survey in which it asked almost 700 financial institutions across the globe about their approach to “Scope 3” emissions.
They involve the greenhouse gas emissions from companies and projects that these institutions have in their portfolio, instead of their own offices or operations.
About half of the 332 firms that responded confirmed that they did not conduct any analysis of the climate impact of their investment portfolios. Only 84 financial institutions had public data available about the emissions of their portfolio.
So even if banks achieve complete sustainability in their operations, the companies that they’re giving billions of dollars to may not be taking similar steps.
That’s why climate activists like Greta Thunberg raise a valid concern that whether the commitments these organizations are making towards a sustainable future are genuine or mere lip-service simply because they fear being ostracised by the public backlash?
With some of the largest banks in the United States still lending out more than $240 billion to fossil fuel companies every year, that concern is difficult to ignore. Banks need to take visible steps and make significant changes to their business models to truly offset their carbon footprint. Here are some of the ways that this can be achieved.
Changing investment strategies
The time has come for banks and financial institutions to take stock of the environmental damage that their portfolio investments may be causing. Regulators in key markets across the globe are already devising new regulations that would compel banks to focus on this key issue.
In the United Kingdom, banks may have to pass a climate stress test. New climate change disclosures are also being developed in Europe and the United States which would require companies to detail their transition risk. This would be an estimate of how the company’s bottom line could be adversely affected by the shift from fossil fuels.
By simply withholding the billions of dollars that these institutions provide to companies and placing stringent checks on the sustainability of companies seeking investment, the banks will be able to apply a great deal of pressure on the global economy to decarbonize. The industry as a whole can thus play a substantial role in reducing its carbon footprint.
Increasing the use of sustainable materials
Bank cards are a dime a dozen. Most of us have several different credit and debit cards in our wallets. That’s in addition to a variety of other membership cards that we may have. These cards are unimposing objects, something to not even think about unless you’re doing something with it.
However, the environment certainly feels their impact. Some of you may be surprised to hear that over 30 million KG of PVC is used for manufacturing bank cards. These cards tend to ship with a lot of paperwork so a massive number of paper reams are also used for that.
This is also without taking into account the carbon emissions generated from shipping out the cards to customers. With the banking industry producing more than six billion cards across the globe every year, this is a carbon footprint of over 136,500 metric tons per year.
By simply using more sustainable materials in the manufacturing process, banks can significantly reduce their carbon footprint and also limit the impact that bank cards, an essential tool nonetheless, have on the environment.
Providing financing to sustainable businesses
It’s not just enough for banks to stop providing financing for businesses that aren’t doing enough for the environment. There’s a lot more that needs to be done.
Banks actively need to provide financing to sustainable businesses, even those that may not have fully established themselves. Startups present the best opportunity for us to break new ground in the fight against climate change.
However, it can often be difficult for such startups to obtain the financing that they require to pursue groundbreaking research. That’s because either their business models are unproven or because they’re working on untested technologies.
It represents a significant risk for banks that always look for the maximum return possible on the funds that they invest. Having said that, to further enhance efforts to reduce their carbon footprint, banks also need to provide financing to such businesses to help them off the ground.
This is something that a lot of the big banks and financial institutions have realized. Many have committed billions in new funding for such companies over the next decade.
Choose a bank that helps you offset your carbon footprint
While we obviously can’t save the planet on our own, there are lots of little things we can do to offset the impact we have on the environment Whether that be by reducing our intake of single-use plastic, shifting to renewable energy sources for our homes and electric cars or simply by supporting initiatives that help the planet.
We can also play a part in this noble endeavor by choosing to use financial solutions that share the same social values we have about planetary sustainability.
As a neobank, Aspiration remains committed to clean money. No customer deposits are used to fund fossil fuel projects.
Aspiration also works with leading reforestation partners across the globe to enable customers to plant a tree with every transaction that they make on their debit card.
Speaking of debit cards, the Aspiration Plus debit card is made from recycled ocean plastic. In addition to offering up to 1.00% APY, the Aspiration Plus cash management account includes their Planet Protection feature.
Planet Protection will tally up all of the carbon output from your gas purchases and then automatically buy offsets to help you counter the climate impact.
Open a cash management account with Aspiration today and play your role in the green banking revolution.