5 Steps to Become Active With “Sustainable Finance”
2019 can be marked as the year that has raised the issue of climate change finally to the top of the agenda of media and the public. If you live in one of the Western metropoles these days, going on the streets to demonstrate, buying organic products, using plastic-free packages, or taking (night)trains instead of planes might have become the common behavior (or at least pledges) among your friends and families.
While these individual engagements are crucial to communicate to the industry that we as consumers demand more sustainable products and practices from the economy and politics, their influence on reducing global carbon dioxide (CO2) emissions to fight climate change are limited - not least because of insufficient involvement among the broader public.
What is needed instead is a strong signal to the economy that we as citizens no longer support polluting industries and unsustainable economies. How can we do this? By carefully watching how our money and investments are used for industry and economic purposes.
In fact, about half of global CO2 emissions can be allocated to electricity and heat production (e.g., including oil and gas industry), whereas more than a third of the toxic global methane (CH4) emissions (104 times greater than CO2) can be attributed to agriculture. Hence, if we as individuals want to stop our planet from heating up and preventing nature and ecosystems from collapsing, we should also watch in which industries our money is invested.
5 Steps to Become Active
Let’s be honest – although many of us care about the environment and sustainability, only few of us really know what our banks, pension funds or asset managers are doing with our money.
Are you a client of a commercial/retail bank (cf. using savings and checking accounts)?
Are you invested in employer-sponsored retirement plans or pay into a pension scheme?
Do you hold stocks or investments in mutual funds or ETFs?
If any of these questions apply (and I assume at least one does), then you should start rethinking your financial activities and align them with your sustainable everyday behavior.
The following 5 steps will help you to make a real difference in moving our society and economy towards a more sustainable future:
1. Check whether your bank is invested in unsustainable industries or companies (e.g., fossil fuel, gas, steel etc.) or what your bank does to show responsibility vis-à-vis our environment and society. You can do this by dropping an email to your bank’s customer services, asking a bank employee at one of your banks’ branches, or have a conversation with your personal financial advisor of the bank.
2. Switch your bank if your bank is blurry in its comments or does not provide you with a satisfying answer. If you don’t know which bank can be considered ethical or green in your country, you can check out ratings by independent organizations such as the WWF for Switzerland or Austria, Ethical Consumer for the UK, Vebraucherzentrale in Germany, or the Rainforest Action Network for a global overview.
3. Check your investments. Depending on your financial status, income or interest in investments, you might be more or less invested in global stock markets. If you manage your own portfolio, you should re-consider the companies you’re invested in; if your investments are handled by an asset manager, you should discuss with him or her how to reshuffle your portfolio to meet ethical and green standards. Questions that you can ask yourself or your asset manager when planning to reallocate your assets are:
How do the companies I am invested in deal with climate risk (e.g., stranded assets, physical harm, scarcity of resources)?
Do the companies show responsibility with regard to the environment and society (e.g., reduction of CO2 emissions, investing in social/educational products)?
Are the values and norms of the companies in line with my own (e.g., no coal or fossil fuel production, nuclear energy, governing ethics: diversity, equality etc.)
What positive short-term or long-term effects for the environment and society will my investment bring about (e.g., renewable energy, improving health/education, fighting hunger, etc.)?
Based on what criteria do the companies measure their contribution to a sustainable future?
Which criteria does your asset manager use to identify sustainable investments?
I am aware that it might not be easy to find satisfying answers to all of these questions–neither based on a burdensome and time-consuming research by yourself nor by your asset manager. Hence, if you feel overwhelmed by these questions, I would advise you to consult an ethical or green bank that equally provides investment opportunities for your personal finances. Given that most of these banks have year-long experience and an expertise on issues related to sustainable investments, they can be considered the first point of contact, in my opinion.
4. Tell your friends and family! Reading this blog and becoming aware of the importance of your finances to fight climate change is already the first step. Now that you know how to become active (and hopefully also will, after reading this blog), it’s time to tell your friends and family to take action, too. Only by creating awareness for sustainable finance among a large community around the world, we can really make a difference. We have witnessed the power of the crowd in Fridays for Future, now we also have to act collectively to move Sustainable Finance ahead.
5. Get involved! Many of us are already active in the streets, demonstrating for policy changes to safe our planet. What is needed now is to turn our attention towards the financial sector and urge financial actors (e.g., banks, asset managers, institutional investors) to move capital into renewable and green projects and investments. Furthermore, if you are a holder of shares of a company and you have the right to vote at (annual) general meetings, take part and don’t hesitate to ask critical questions to the board of directors. Likewise, you can become active locally, inquiring how your regional politicians and representatives are active in moving your village, town or county to a greener economic future. Lastly, and probably easier than acting individually, you can consider to becoming a member of citizens’ initiatives and charities (e.g., ShareAction in the UK, Finanzwende in Germany, or Finance Watch in Europe) to support the movement of responsible investment and a sustainable financial future.