When it comes to tackling climate change and other modern crises, a lot of the burden has been on individuals to change their behaviour. But while remembering to turn off your lights is great, it just doesn’t offset an electrical grid reliant on coal.
This is where green finance comes in. Banks and other financial institutions play a significant role in choosing which industries get funded – and which don’t.
So if you’re interested in creating meaningful change, choosing who gets to use your money and how can be a crucial part of the puzzle.
Here’s what you need to know about going green with your finances.
Green, ethical, and sustainable finance are all umbrella terms for money management services or products that are conscientious about their impacts.
Whether it’s investing in climate change solutions, going carbon neutral, or simply rewarding customers for eco-friendly behaviours, banks and other institutions have many different ways to ‘green’ their business.
These terms are often used interchangeably, but there are a few subtle differences between them.
You might also see a firm claim it only makes ESG investments (environment, social, and governance), which means it funds initiatives focused on these specific and sustainable areas.
Either way, these industry buzzwords are good ones to look out for if you’re keen to park your money in a more conscientious place.
Because modern crises like climate change affect every part of our society, every part of our society needs solutions. Some examples of sustainable initiatives include:
Though this may sound like a lot, many of these issues feed into each other and break down into the three broad ESG categories. Luckily this means by supporting at least one, you’re putting your dollars toward a solution that could help in multiple ways.
Unfortunately, there’s no one universal standard for sustainability, which can make classifying green finance tricky. In Australia, there also isn’t a comprehensive regulatory framework for how organisations can transition to a more sustainable model, which has resulted in a lot of confusion – and weak progress.
For instance, the Australian Prudential Regulation Authority (APRA) – a government body in charge of supervising banks, superannuation funds, and insurance providers – recently found that nearly a quarter of surveyed institutions didn’t have ways to measure and monitor their progress towards sustainability.
Without a clear way of moving forward, any climate-related targets these institutions had were often left vague and unattainable – despite nearly 75% of institutions claiming they had targets in place.
“The survey findings indicate that most survey participants are taking this issue seriously,” says APRA deputy chair Helen Rowell, “however they also underline that this remains a new and evolving area of risk management.”
So without solid regulation, how do we measure a bank’s level of social responsibility?
Green money stamps of approval
Luckily, there are a few international frameworks we can use, and many have already been incorporated by Australian institutions.
For example, the Task Force on Climate-related Financial Disclosures (TCFD) gives institutions guidance on how to set and achieve measurable climate targets.
The Corporate Sustainability Reporting portfolio from UNEP does a similar thing to the TCFD.
There is also the Climate Bonds Standard and Certification Scheme, which assesses loans, bonds, and other debt-creating products for how well they align with the 2015 Paris Agreement.
Look out for institutions that have been “Climate Bonds Certified” to see if they meet this goal. Institutions might also mention they align with the Climate Bonds Standard (CBS) or Climate Bonds Initiative (CBI).
Other important standards include:
Corporations have cottoned onto how good sustainability can be for their public image. As such, some engage in ‘greenwashing’, which means they advertise themselves or their goods/services as more eco-friendly than they are.
This is a form of marketing spin and can be extremely misleading for well-intentioned customers.
Some classic warning signs of greenwashing include:
While it can be annoying to do extra research just to see through a bank’s advertising, it’s still better than getting duped by good PR.
If you’re wary of greenwashing and want to find the real deal, there are some ways to know if a bank, super fund, or insurance provider is sustainable.
Check with green regulators
Start by having a look at APRA or Market Forces to see how an institution stacks up from a regulatory perspective.
Market Forces in particular makes it easier to see whether an institution invests in (or is owned by someone who invests in) problematic industries like fossil fuels.
HOT TIP: Pay attention to “positive screens” (i.e. what an institution definitely invests in) and “negative screens” (what they don’t).
Read the documents
Next, look deeper at the relevant product disclosure statements (PDS), financial service guides (FSG), and any sustainable or responsible banking policy documents to know exactly what an institution will do with your money. These should all be available through an institution’s website or in-person offices.
The PDS and FSG will also have general terms and conditions and other important information for you to review, too. Treat these like you would any other financial product – don’t go all in on green promises alone.
Consider the definitions
When reading, pay attention to how the institution defines terms like sustainability, particularly if you’re thinking of switching to a green bank.
Sometimes institutions will market their whole business as sustainable, while others will only offer specific financial products with a greener focus. Look for action items and measurable goals at a macro level, not just vague promises.
Look for green stamps of approval
Accreditation can help lend claims legitimacy, too. Does the institution meet any international standards of sustainability, such as through APRA, UNEP, the CBI, or the TCFD?
Compare what’s out there
Lastly, compare whatever you find to other options on the market. This can give you crucial context for how something performs (or doesn’t) in the wider world.
There are plenty of ways to go green with your money, whether it’s switching banks, accounts, loans, supers, or insurance policies. Let’s break down some of the options (though this list is by no means comprehensive).
Australia has quite a few ethical bank options to choose from. Some of the best and most popular include:
Each of these banks offers services like savings accounts, term deposits, and loan options, which gives you plenty of ways to get involved. If you find one you like, it’s easier to switch banks than you think.
Credit cards and Buy Now Pay Later (BNPL) have also become new areas for conscientious consumers.
Credit cards taken out through sustainable banks can make good options, especially if they come with a low-interest rate, zero fees, and eco-friendly features like Gateway Bank’s non-plastic debit card.
Digital payment leader Visa launched a way for credit customers through eligible banks to measure and offset their carbon footprint. It as also announced a pledge to reach net-zero emissions by 2040, which if successful, would beat the Paris Agreement by a full decade.
As for BNPL, Humm and Brighte both offer green options such as loans for the purchase and installation of solar panels. The providers won Mozo Experts Choice BNPL Awards in 2022 in the “Major Purchases” and “Specialist Services” categories respectively.
Nothing gets you thinking of the future quite like a home loan, so it makes sense borrowers have been interested in going green.
While the big banks have been slower on the uptake, there are plenty of smaller lenders who offer green home loans, including:
Gateway Bank also shines here again, since they won a 2022 Mozo Experts Choice Best Banking Award in the “Green Home Loan” category.
If you’re thinking about refinancing to a green home loan, make sure you seek consultation from a mortgage specialist and compare features and eligibility criteria to other options on the market.
Going green with your energy is a crucial part of voting with your dollars since greenhouse gas emissions are the main culprit behind rapid climate change.
While Australia’s electrical grid is still largely reliant on fossil fuels like coal and gas, renewables like solar, wind, and hydropower have made up increasingly large shares of the market. In fact, for roughly half an hour in August 2022, solar was the top provider of electricity in Australia.
If you want to switch to a sustainable energy option, there are a few ways to do it (aside from installing solar panels on your roof).
Firstly, you could sign up for a government-accredited GreenPower Plan, which supplements a percentage of your electricity with a renewable energy source local to your area.
GreenPower Plans don’t convert all your power to clean energy and can be a tad more expensive than standard electricity (anywhere from 5c – 8c more per kWh). However, even choosing a 10% GreenPower option can help invest in greening Australia’s grid.
You could also compare energy providers and switch to one that uses clean sources or supports sustainable energy initiatives.
If you want a good place to start, the 2021 Mozo Experts Choice Energy Awards feature some green and solar-friendly winners for New South Wales, Victoria, Tasmania, Queensland, South Australia, and the ACT.
The 2022 Mozo People’s Choice Awards also boast some of the best renewable energy providers, as voted by your fellow Australians.
Find energy plans available in your area in just seconds.
If you’re more of the share-trading type, investing in ESG spaces can be a great way to make some ethical returns. Mozo has also rounded up the best share-trading platforms for when you’re ready to dive in.
Another long-term investment to consider greening is your superannuation fund. The ideal ethical super will positively screen for sustainable investments like clean energy while negatively screening against exploitative or polluting ones like live exports or fossil fuels.
If you’re looking for a place to start, there are some Mozo People’s Choice Award-winning super funds from 2022 that claim to invest in ethical areas.
Yes, it does pay to go green. Last year, Mozo found you could save up to $2,300 a year by switching your personal finance products to more ethical options.
Many of these options, such as CommBank’s Green Home Offer, reward customers for eco-friendly behaviours with sharper rates and added benefits. So while it depends on what you’re looking for and your situation, going green could save you money.
Besides, climate change is expensive: wild weather drives up home and car insurance premiums and jeopardises billions of dollars worth of property. For a cheaper future, we need to save our present.
There are significant benefits to green banking, both for your finances and the planet. For instance, sustainable banking can be:
However, there are some drawbacks to keep in mind. Green financial services and products:
Ultimately, any financial decision has to make sense for you and your unique situation. But it doesn’t have to be all or nothing – even opting for just one greener product now can make a huge difference later.
Nothing inspires hope for the future like green initiatives. Even big banks like CommBank have begun to take steps towards greener products, which is a major indication sustainability is seen as not just necessary, but profitable. In a capitalist system, that’s how change happens.
But while it’s fantastic to look forward to the possibilities once the industry broadens and green money becomes standard practice, it’s also important to keep in mind this is all happening now. Sustainability may be the future of finance, but it’s also the present. Climate change can feel massive and scary, so when anxiety sets in, it’s time to get proactive.
If you’re interested in greening your finances, we’ve linked some places you can start below.
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Coming from a diverse background in filmmaking, music production, and creative writing, Evlin is passionate about putting money-matters in relatable, personal contexts. Budget what? Finance who? She’s keen to find out!
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