The global financial crisis (GFC) of 2007-8 exposed gaps in traditional finance systems, the hypocrisy of banking bailouts and left regular people high and dry. This bitter taste has remained, with further questions over the years around what financial institutions are actually doing with people’s money.
Many financial organisations globally have traditionally invested your money (in the billions each year) in companies that are harmful to the climate crisis – fossil fuels, nuclear weapons and sweatshop labour.
They also don’t want you to find out.
Many of us put our money into savings and superannuation but don’t think about it what happens to it once it’s there.
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“Most Australians want to see action taken on climate change. But the vast majority are unaware that the custodians of our money, companies like banks and superannuation funds, almost exclusively invest in coal, oil and gas and highly polluting companies,” – Julien Vincent, Market Forces
Ethical banking
A new banking model however has recently come on to the scene, dubbed ‘ethical banking’, focusing on new ways of banking through socially and environmentally responsible investments.
A recent peer-reviewed article analysed sustainable and conventional banking in Europe, finding that ethical banking is growing more than traditional banking and with more confidence (greater liquidity and solvency) and the same rewards.
Ethical is a very subjective term, however, the general idea is anything negative relating to climate change, animals and human rights.
Ethics are a very complex subject, especially for organisations that on one hand may be called ‘ethical’ but also still invest in ‘unethical’ practices. For example, Westpac often wins ‘ethical’ banking awards for their community work, yet also have loaned $5,396m globally since 2016 to fossil fuels.
A term commonly related to ‘ethical’ banking is fossil fuel divestment, the idea of removing money from organisations that support the fossil fuel industry. The movement has already got 1244 institutions with trillion of dollars on board.
“As the global fossil fuel divestment push gathers momentum, Australia’s financial sector is being forced to re-evaluate its support for fossil fuels. But for an economy heavily dependant on resource extraction, this is no easy feat.”– Charlotte Grieve, The Sydney Morning Herald 2020
What can we do about it?
As an individual, what you do with your money makes a big difference to people and the planet. For the purposes of this article, ethics will focus on mitigating the climate crisis i.e. fossil fuel divestment. Below is an overview guide of where to start with values-based financing (or ‘ethical’ banking).
If you do make the switch, it’s very important to let your current provider know why so they can feedback to the top.
Banking
Banks make (big) money by ‘looking after’ people’s money, investing it and using that stored money to lend to other people (sometimes big corporations).
If you want to do the work yourself in finding an ‘ethical’ bank overall, think about what is important to you i.e. climate change, animals, human rights, and then go through the bank’s investment policies on their website.
A bank should clearly state where your money is going and what they do and don’t invest it.
Thankfully, there are also alternative sites that can also do the hard yards for you. In terms of fossil fuels, this site (Market Forces) has made a clear chart of banks that do and don’t have a record of funding fossil fuels (with the handy Take Action link to thank them or send an enquiry. In Australia, you might know the ‘big four’ banks include ANZ, Commonwealth Bank, Westpac and NAB, all of which loan to fossil fuels globally.
Bank Australia is commonly cited as Australia’s cleanest and most responsible banking.
There is a selection of digital-only banking institutions which are climate-friendly in terms of investments overall (for example, ME Bank). For specific products and accounts, banks can still be considered with specific greener options. For example, Commonwealth bank has a Green Mortgage Initiative (rewards for homeowners with solar panels), Bank Australia’s Car Loan (lower rates for electric, hybrid or low emission cars) or Bendigo Bank has a Green Personal Loan (lower rates for green energy-efficient options such as greywater treatment systems).
Superannuation
In Australia, personal superannuation is money put aside whilst working to use later in life for retirement income. These funds are invested by organisations (your fund manager) on your behalf.
Values-based investments are on the rise, with 88% of young Australians (18-34) stating they would be willing to switch to a super fund that invests aligned to their values. Firstly, take some time to understand how your super works i.e. annual fees and fund earnings.
Next, figure out what your super fund manager is investing your money in. Similar to banking, your super manager/organisation should have clear policies on what they do and don’t invest in.
Some funds may outright not invest in specific sectors such as fossil fuels or, they may do both but invest in greener areas such as renewable energy. This can get really confusing as there’s no real definition of ‘ethical’ for funds.
The Guardian has a really handy chart in this article that highlights accredited ‘ethical’ super funds and what they do/don’t invest in (Australian Ethical and Future Super and Verve Super are often at the top). It should be noted that most people worry about the return from investing in ‘ethical’ or ‘greener’ options, but they actually can get pretty similar returns if not better. Always compare and weigh up your options based on returns and values.
Health insurance
Considering that the WHO has predicted that climate change will cause 250,000 additional deaths per year in the future, it’s no wonder private health insurers are divesting from fossil fuels. If you have a private health insurer, check their policies on if they invest in fossil fuels.
Again, Market Forces give a good indication of what major Health Insurers are up to. Medibank recently announced a shift to “low-carbon” investments and NIB and HCF have removed fossil fuels from their international portfolio (but not Australian shares hmm…).
Stocks & Shares
Globally, investments from the private sector are being nestled into environmental, social and governance (ESG) strategies i.e. things that will be tackling climate change.
Instead of divesting, investing in ‘positive’ or ‘ethical’ funds are a form of positive screening. Alice Ross in the Financial Times states that there are two approaches to investing to address climate change, passively i.e. avoiding oil/gas/coal companies or, actively i.e. investing in smart companies that are solving environmental problems.
There are some seriously good investments to be made in companies that also happen to be shaking up polluting industries, for example Beyond Meat’s (alternative meat) stock went up 700%. Many investment apps are starting to package up climate-friendly portfolios, meaning you don’t even need to do the hard yards.
