When you think about trying to reduce your carbon footprint, what comes to mind?
Do you think about carpooling or driving less? Do you think about eating less beef? How about flying less or consuming less?
Those are all good ways to consider changing your behavior to help the planet. But one way often goes overlooked in that all-important quest: changing your financial habits.
Just as money makes the world go round, it can make your carbon footprint go down.
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How your pocket and the planet are tied
When we put our money to work, we often just see a bunch of spreadsheets and numbers without considering where that money goes or what it’s used for.
For most of us, banks are the main middlemen who connect our pocketbooks to the world. If you have a savings and/or checking account, that money is typically used for loans to other customers.
This seems straightforward enough, right? Savings and checking accounts are operated within banks’ consumer banking arms, which are usually separated by law from their investment arms.
And it’s here where the connections between your pocket and our planet emerge.
These investment arms are where banks get to take risks that can make the bank big bucks (or cost the bank a lot). And since the shackles are off in this investment world, banks often disregard the health of the planet in favor of short-term profits.
Since the Paris Agreement was adopted in 2015, banks have handed trillions of dollars to fossil fuel companies - $3.8 trillion according to a landmark report by the Rainforest Action Network.
Fossil fuels are of course not the only unsavory way big banks make money. Depending on your values, you might not like investments in things like military projects, weapons, abusive sweatshops, or predatory businesses.
So while it’s hard for you as a customer to directly influence how big banks invest (since a regulatory wall separates your retail dollars from the bank’s investment arm), you can make a statement with your dollars by moving your money somewhere else.
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A quick way to make an impact with your money
How can you safely deposit your money without feeling guilty about the impact it’s having on the planet?
One good solution is local banks and credit unions. These institutions cater to a wider variety of customers that create a stronger accountability dynamic than what you’ll find with a big bank.
Local banks and credit unions allocate money to things that will help people and help the planet. They’re usually dedicated to community development, supporting good local jobs in fields like clean energy, and providing capital to communities that big banks often overlook. When you hand them money, you’ll know where it’s going and you’ll feel good about it.
Credit unions are particularly planet-friendly given how they’re structured. They’re member-owned and not-for-profit, which means better interest rates for you and more ethical and sustainable investing for all stakeholders.
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How to make an impact with your portfolio
What if you either can’t switch your bank or are looking for another way to use your money for good? Well, look no further than your portfolio. If you have investments, you can direct those investments to help rather than hurt the planet.
If you feel so inclined, ask yourself if you really know what you’re invested in. Chances are, there’s something not to like in your portfolio. If, for example, you have invested in index funds, you might be invested in hundreds of companies you know nothing about.
For a long time, it was hard for individual investors to have much control over their investments. You often had to pay expensive fees to invest in a company (or a handful of companies). Plus, few if any of those companies were operating with any concern for the planet beyond their bottom lines.
Now, as societal trends give individual investors more agency, you have much more control over where and how you can invest. You have more publicly-traded companies doing good by the planet. And you have a bevy of funds that trade with the overarching purpose of being eco-friendly. These are often categorized under the bucket of ESG investing or impact investing. They’re your not-to-secret avenue to growing your net worth without feeling guilty about it.
If you don’t feel comfortable or have other reasons for not investing in funds, you can create your own. Since there are lots of people who get paid to figure out which companies have a good impact on the planet, you can enjoy the fruits of their labor...for free!
This takes some homework (and some confidence), but if you really want to wipe your hands clean and feel great about your investments, there’s no better way than to do it all on your own and take advantage of the bountiful information at your fingertips.
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Wrapping up
I could go on and on about how your money is an underlooked but powerful lever of your impact. But you get the drift: the status quo of our financial system feeds into some of the most damaging activities our society perpetuates in conflict with the vision of a just, clean, and sustainable future that we desperately need to carry out.
So if you’ve found yourself searching for new ways to reduce your footprint, don’t overlook your pocketbook. It’s great to focus on more widely discussed avenues like eating less meat or driving less, but if you want to truly magnify your positive impact on the people and planet around you, your money is a great place to start!