The most ethical and sustainable banks around the world in 2021

Did you ever consider that you could be inadvertently helping the fossil fuels or weapons industry with your savings account? Did you know that by switching to a sustainable bank you can likely save several tons of CO2 per year?

Sustainable banking is not a commonly used term and even when it is used, the definition and interpretation is a bit fuzzy. In this article, we hope to delve a bit into banking and how it has an enormous impact on your carbon footprint without your even being aware. So what is sustainable banking? 

First, we need to understand how banks (normal or sustainable) make money.

How do banks make money?

Fees: Banks charge customers various fees that contribute to their revenue. There are account fees, ATM fees, application fees for loans, penalty charges, inactivity fees, paper statements, or commissions on investments.

Borrowing and lending: The most conventional and typical way however for banks to make money is through borrowing and lending. Banks ‘borrow’ the money we deposit into our accounts and they lend it out to other customers. They make profit by charging much higher rates of interest on home loans, auto loans, student loans, business loans, or personal loans than the amount of interest they pay to customers with savings accounts, which is typically below 1% annually. In some countries banks earn even more with credit cards. For example, average annual percentage rates for credit cards in the US is about 15%.1 

Investments: In addition to Corporate lending, Banks also assist with raising debt and equity and for corporations or other entities in exchange for a fee. This aspect of banking has the biggest impact socially and also affects our individual impact on the environment. 

What is ethical/sustainable banking?

The GLS bank, the oldest sustainable bank, was already founded in 1974. However, in recent years, due to greater awareness and demand, more banks have started investing not just to make great profits, but also quite consciously in projects that have a clear social and environmental impact. 

Here are four key differences on how a sustainable bank differs from a normal bank. 

Inclusion criteria: Inclusion means supporting (i.e. investing in or giving loans to) companies that are doing something good for the people and the planet while also making profit. Examples include green roofs, ecosystem-based rainwater collection systems and eco-tourism.  

Exclusion criteria: Exclusion criteria come into play while granting loans or making investments. For example, ecological banks usually exclude investments in coal, petroleum, nuclear power, genetic engineering or industrial animal husbandry. Other exclusion criteria include companies involved in the creation of weapons, child labour, gambling or pornography. In their report Dirty Profits 7 the NGO Facing Finance lays out in detail how investments made by some of the major European banks can be tied to weapons exports to countries involved, for example, in the war in Yemen. Think about this: You might be sponsoring a war with your bank account!!! 

Holistic approach to daily operations: These banking institutions implement sustainable banking not just in their activities relating to external interactions with their clients and the types of projects they fund, but also in their internal daily operations. For instance offering vegetarian and vegan options at the company canteen or powering their offices with green energy.2

Transparency: The impact banks have on their clients’ operations is huge. By extension this leads them to have massive influence over the economy as a whole, but also over social and environmental activities. The fact that many banks don’t inform the public about their own practises or about their clients’ activities for which they provide financing is – to put it mildly – troublesome. 

In contrast, many ethical and sustainable banks have adopted transparency policies that give their customers a good understanding of where their money is being invested and what impact that translates into. For example, Triodos bank publishes every loan they give out on their website so their customers can see which projects their money is being used to finance.3

How is this related to my carbon footprint?

A study by the Verbraucherzentrale Bremen (the consumer center in Bremen, Germany) on the carbon footprint of investment funds shows that switching just €1000 to a more sustainable fund could have an impact of up to 741 kg of CO2 per year. Similarly, switching your savings account to a more sustainable bank will correspond to saving 100-200 kg of CO2 per year for every €1000 you own.4 This number is somewhat smaller, since only part of your money is used for investments. But it is still significant: If you have savings of €10 000 that impact is 1-2 tons of CO2 per year. For a €10 000 investment in a more sustainable fund, you could be saving up to 7 ton of CO2 per year. Considering that the average per capita footprint for most western countries lies between 7 and 16 tons of CO2 per year – the impact of changing your bank bank account or investment strategy cannot be overstated. 

The relation between income and carbon footprint

A study by Oxfam found that your carbon footprint is strongly correlated with your wealth and income. The average lifestyle consumption of the richest 1% is 175 times higher than that of the poorest 10%. I.e. the more money you have, the more likely it is that your footprint is well above average. At the same time: The more money you have, the bigger the difference you can make by consciously deciding where your money is saved or invested. 

I want to learn more!

Check out Episode 2 of our podcast, How to Make a Difference. In this episode we speak with Florian Koss, Head of Communication and Marketing at the Triodos Bank Germany. He talks about sustainable banks, how they differ from normal banks and about how banks can have a positive social impact.

I want to change my bank account / investment fund – Whom can I trust?

Money matters can be daunting enough without the added complexity of trying to figure out which banks and funds can be trusted to share your values. We put together a long list of resources for your convenience – we researched sustainable banks, fair finance guides and rating pages for sustainable investments. This list is most certainly not complete, but we give you our promise that we only added suggestions if we truly believe they are trustworthy. 

Your country is not listed? Message us – we will try to help! 

Know of a sustainable bank/fund we haven’t listed? Let us know – we will evaluate your suggestion! 

America

  • United States of America (USA)

Asia

Europe

Resources

1) See ElitePersonalFinance

2) For example the GLS Bank covers their electricity needs 100% with green electricity, the food in their canteen is 100% organic and every day there is at least one vegetarian and vegan dish. Check out their Sustainability Report 2019 (in German)

3) See Know where your money goes

4) Climate impact of changing your bank account: Investing in Climate Change – Dutch Banks Compared

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