Sustainability Banking: How Green Initiatives Are Changing the Banking Industry

You may or may not already be aware that when you deposit your hard-earned money the bank then lends it out so they can make money themselves.

Traditional big banks, such as Chase, Citigroup, and Bank of America and PNC, to name a few, have for decades been big backers of big oil, and use the funds you deposit with them to support fossil fuel extraction and other environmentally harmful initiatives. 

If you’re someone who cares about climate action and a more sustainable future, banking with these types of financial institutions presents an ethical dilemma. 

On one hand, you want your money to be safe and have access to all the great financial services that banks offer. On the other hand, you don’t want your money to contribute to carbon emissions and fund projects that have a negative environmental impact.

So, what can you do? Fortunately, there is a new trend on the rise called sustainable banking, and technology-enabled online financial services companies are leading the way. 

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What Is Sustainable Banking and How Are Banks Becoming More Sustainable?

Sustainable banking, or sustainable finance, can take many forms and incorporate varying degrees of commitment. Generally, there are seven steps a financial services provider can take towards sustainability. Each step is exponentially more difficult to accomplish, though the most sustainable banks are those that actively engage in each step. 

1. Donations to environmental nonprofits 
2. Setting net zero carbon targets
3. Minimizing Scope 1 and Scope 2 emissions
4. Using vendors that emphasize sustainability
5. Eliminating financing of fossil fuel and other environmentally harmful sectors
6. Proactively supporting climate-positive lending
7. Creating climate-focused deposit products

Donations to environmental organizations 

Donations to environmental nonprofits have been the most common form of support from banks to promote sustainability. Though not directly connected to their own work or business practices, donations are an important revenue source for leading environmental nonprofits to increase their own research and efforts on the frontlines of climate science. Donations to environmental nonprofits, often through bank-led foundations, are one of the easiest methods a bank can take to promote its own sustainability. 

Setting Net Zero Carbon Targets

Another easy step any business (including a bank!) can take towards adopting sustainability is to set net zero targets that ladder up over time. Banks and other businesses can achieve net zero targets easily by buying carbon offsets in the voluntary carbon markets. 

While carbon offsets themselves are certainly not a bad thing, this strategy generally gives businesses the ability to avoid more meaningful change and to continue to emit pollutants into the atmosphere at the same rate. And since offsets are generally becoming less expensive year after year, companies are sometimes able to expend the same amount of money while staying true to their public commitment.

Minimizing Scope 1 and Scope 2 emissions

Minimizing Scope 1 and Scope 2 emissions is an important step a bank can take towards becoming more sustainable.

Scope 1 emissions are direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization. Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling.

Scope 1 emissions include things like investing in energy efficiency systems to reduce the energy consumption of their offices while Scope 2 emissions include things like ensuring that the energy source is derived from renewable technologies. 

Using vendors that emphasize sustainability

For a bank to truly be considered green, they should integrate sustainability into their own day-to-day operations. Sustainability is a buzzword, and there are financial institutions who talk the talk but don’t walk the walk when it comes to sustainable banking practices.Using vendors that emphasize sustainability is an effective method to reduce a bank’s Scope 3 emissions and for a bank to become truly green. Vendor selection is a common method for values-alignment promoted by Certified B Corporations around the globe. 

Scope 3 emissions are the result of activities from assets not owned or controlled by the bank but indirectly linked through its value chain. Scope 3 emissions include all sources not within an organization’s scope 1 and 2 boundary.

For a bank, vendors might include using recycled paper and sustainable office supplies or might include policies limiting carbon-intensive travel. 

Eliminating financing of fossil fuel and other environmentally harmful sectors

One of the most effective actions a bank can take to become more sustainable is to refrain from financing companies or projects that engage in fossil fuel and other extractive industries. The loans a bank makes references the other side of a bank’s Scope 3 emissions that is infrequently referenced or understood. 

For many banks, support of fossil fuel and other carbon-intensive, extractive industries has been highly profitable for decades, and remains a major source of business and profit. Examples of these sectors include: 

• Fossil fuel extraction
• Fast fashion
• Industrial agriculture
• Industrial livestock production
• Generic real estate
  

Banks are indirectly responsible for the emissions of the projects and businesses that they fund. Those banks that can eliminate financing of these industries are taking an important and necessary step towards sustainability. 

Proactively supporting climate-positive lending 

One of the most important ways a bank can embrace sustainability is to support climate-positive projects, sectors or companies. Just like banks are indirectly responsible for the emissions of extractive companies and industries, they are indirectly responsible and can benefit by supporting regenerative companies. Examples of these sectors include: 

• Renewable energy
• Regenerative agriculture
• Electric transportation
• Weather resilience
• Building electrification
• Energy efficiency overhauls

Those banks that can support climate-positive alternatives with low-cost capital play one of the most important roles for a financial services company.

Creating climate-focused deposit or credit products

In order to achieve the goal of a completely sustainable society, every individual and every business must commit to sustainable practices and reduce their own carbon footprint to work collectively towards a low-carbon economy.

Bank’s play a unique role in our transition by developing deposit or credit products that engage more of their customers. This might include debit cards and credit cards. 

How Sustainable Finance Is Changing the Banking Sector

With the advent of new financial technologies, consumers have more options than ever when it comes to the financial services they choose to use. For people who care about their money’s environmental impact, there are alternatives to banking with the big guys. 

Green banking alternatives, like Atmos, are creating a global alliance of businesses in the banking industry committed to supporting environmental sustainability and forming a sustainable economy. 

You can now open a bank account with a sustainable bank in a matter of minutes, right from your mobile device or computer from the comfort of your own home. The benefits of sustainable banking are plentiful, and for most people, it represents one of the most impactful climate actions people can take!

Benefits of sustainable banking:

• Know that your money is supporting sustainability efforts
• Helps reduce your own carbon footprint!
• Provides perks like cashback rewards on day-to-day purchases from sustainable businesses
• Supports the growth of a larger green finance market by reallocating capital away from big banks and industrial sectors and towards clean technology and regenerative practices
  

By offering products that appeal to more people around the world and leading with impact-oriented vision and values, these companies are steadily exerting pressure on mainstream financial institutions to be more sustainable.

Final Words on Sustainable Banking

Big banks have an undeniable influence over the global economy, and the huge sums of money they manage are often largely used to support environmentally harmful initiatives, such as fossil fuel extraction.

However, we have the power to change the way our money is used in the world without sacrificing any of the banking convenience we’ve come to expect. 

With enough people, we can collectively create the global transition towards sustainable banking that will greatly reduce the risks climate change poses for us and future generations.