On a daily basis, each of us tries to positively transform our way of life, whether by recycling, choosing alternative means of transport to reduce pollution, or cutting down on our meat consumption.
But have you ever considered the impact of your bank on the environment? Throughout this article, you’ll learn that if you have your money invested in banks, life insurances or savings plans then you are often unwittingly funding fossil fuels. Nevertheless, many green Neobanks are starting to come to light to meet this need for transparency and responsible investment.
The European Commission is aware of the problem of the environmental impact of banks and is starting to integrate rules on this subject. On October 27, 2021, the European Commission presented its EU Banking package which includes Environmental, Social and Corporate Governance (ESG) criteria. Indeed, the European Commission asks banks to systematically integrate ESG criteria in their risk management. This will allow more transparency in order to monitor what banks are doing. Banks will also have to undergo climate tests to check that they are able to face these environmental risks.
In addition, the European deputy Pierre Larrouturou did a hunger strike for the introduction of a tax on financial transactions, in order to make a statement against the negative impact of banks. This law could, according to him, make the European Union earn 57 billion euros per year, which would help finance the European Green Deal.
Do you really know the impact of your money on the environment?
You are proud of your savings, but do you really know what your “sleeping money” is used for? Has contactless made your life easier? Each of your payments contributes to increasing your carbon footprint. Banks are at the heart of the economy and they shape a whole model of society through their investment and financing choices. By providing financial support to companies, projects, individuals, or governments, banks are responsible for important gas emissions. Banks’ emissions correspond to the main economic activities they carry out, by lending to or investing in a company. They can finance companies by injecting new money using tools such as project finance or business loans, but also support economic activities through investments in the financial markets. This was demonstrated as the world’s largest 60 private banks channelled $3.6 trillion into fossil fuel projects and companies during the period 2016-2022. The financing and investment into unsustainable activities such as fossil fuels is clearly incompatible with the 1.5 degree warming target and is a way in which a bank contributes to generating greenhouse gas emissions. In 2020, OXFAM found that the greenhouse gas emissions from the financing and investment activities of the six main French banks, including BNP Paribas, reached more than 3.3 billion tons of CO2, which is almost 8 times more than the whole of France. As banks use our savings to invest in unsustainable practices, we must be held personally accountable for how our money is used.
What sanctions for the banks?
Unlike private actors, banks are for the moment not being punished for their unsustainable behavior. In fact, for the private sector, there is the carbon market. It sets quotas according to which the actors more than certain levels pay a penalty, while those polluting less than this quota receive bonuses. However, the allowances are currently considered too low to efficiently encourage actors. Additionally, the carbon market system was set up to target ‘big polluters’, which banks are, but only focused on scope 1 and 2 of the GHG emission. Scope 1 corresponds to direct GHG emissions; scope 2 corresponds to indirect emissions related to energy consumptions. But we need to implement scope 3: other indirect emissions. In fact, by focusing only on scope 1 and 2, only the banks’ offices’ pollution is taken into account, which doesn’t represent much. Whereas, if the carbon market were to take scope 3 into account, banks would have to pay the carbon tax on their polluting investments.
During COP 26, Mark Carney presented the Glasgow Financial Alliance for Net Zero (GFANZ). This is a coalition of around 450 financial institutions (banks, insurance companies, asset managers, etc.) from 45 countries representing 112,000 billion euros, which have committed to achieving carbon neutrality by 2050 and participating in the ecological transition. These institutions will have to publicly report on their progress and the greenhouse gas (GHG) emissions they finance each year.
Unfortunately, while this figure of 112,000 billion euros sounds ideal, it corresponds to the total assets managed by GFANZ members, and not to the amount dedicated to the ecological transition. Moreover, this agreement does not include a ban on investments in fossil fuels.
We encourage you to stay informed about the actions of these financial actors.
What solutions and how to promote a more sustainable banking system?
In recent years, the number of ‘sustainable’ Neobanks have risen in popularity amongst young people. Many of these firms have been accused of greenwashing and simply using ‘green’ as a marketing ploy. However, FinTech’s may provide more sustainable alternatives to traditional banks. They help their consumers to track their personal carbon footprint at each purchase, even offering more sustainable solutions to reduce their footprints such as moving to local producers. They sometimes offer alternative credit cards made of sustainable raw materials such as wood rather than using a traditional PVC card to prevent more plastic going to landfill. These companies have banned any funding towards traditional unsustainable practices
such as the production of fossil fuels, coal and oil extraction, chemical pesticides, as well as investments into countries that have a history of human right violation. However, we can observe that many Neobanks take this a step further and only invest deposits in corporations that explicitly further the ecological transition, with a stringent two-part scanning process for their investments. Their current investments are focused on renewable energy, thermal renovation of buildings and public transport within Europe, allowing for both ecological and social benefits. The majority of their customers are young people and young families. Such start-ups present an exciting opportunity for young people to get involved in financial markets and use their savings to directly mitigate climate change. Helios is one example of a Neobank that shows how sustainable finance, if used effectively, can be one of our strongest assets to counteract the climate crisis and bring about real change that involves our generation.
The financial ecosystem is gradually starting to improve. Indeed, the EU taxonomy, the Sustainable Finance Disclosure Regulation and the EU Benchmarks, go towards a better traceability of financial flows, but we have to monitor the greenwashing of the actors and countries, and the promises that are not kept.
Written by Alice Kettlewell, Charles Deguimp and Tahina Rakotomavo
5th May 2022
