Making Money Moves: How Sustainable Financing Has the Potential to Change the Climate Landscape
Is your money supporting carbon emissions without you knowing it?
Most of us don’t know what our money is doing while we’re not using it. Sitting in a bank account, it seems passive. Neutral. But it isn’t. Turns out, where you put your money has real-world environmental consequences.
Our banks have been hard at work investing in fossil fuel pipelines, underwriting coal plants, and financing deforestation-linked supply chains—all with the money we deposit in good faith. For many institutions, these “financed emissions” are hundreds or even thousands of times greater than their direct operational footprint.
How is this possible?
Sustainability, Accountability, and the Financial Sector
In a 2024 sustainability analysis of 119 U.S. banking institutions, Bank.Green found that 88% of banks performed poorly when it came to fossil fuel investments (financed emissions), policies related to harmful industries, and internal governance regarding climate issues. Of this same group, 84% directly contributed to fossil fuel financing or did not disclose their investments.
Lack of disclosure requirements overall makes transparency in the financial sector murky at best. According to Bank.Green, “many large U.S. banks obfuscate their fossil fuel investments and emissions data… [They] offer vague reassurances that they are addressing the climate crisis, but without providing hard data on how much they are actually lending to fossil fuels versus renewable energy…”
Not great.
But what does this mean from a practical perspective? What are financed emissions anyway, and what are their real-world impacts?
What Are Financed Emissions?
Financed emissions, also frequently called portfolio emissions, are greenhouse gas emissions linked to a finance institution’s investments. When you save your money in a bank, banks can tap into your funds to invest in a variety of sectors, as well as to lend out to people for loans. The trade-off is the interest you earn by saving your money with that bank. As the consumer, you don’t get a say where your bank invests, and often these investments are difficult to find or undisclosed entirely. This means that your banking institution can be investing in sectors, companies, projects, and people that don’t align with your morals or values.
Including fossil fuels.
It’s long been thought that the finance industry—though often not focused on as the center of the climate story—can and should play a pivotal role in climate solutions and the transition to new, more sustainable ways of life (such as renewable energy). But this means financial institutions will have to divest (reduce investments) in unsustainable sectors, first.
“One global study found that, in 2022, reported emissions related to institutions’ financing activities were, on average, 750 times greater than their direct emissions. This disparity varied by region, with North American financial institutions reporting financed emissions being, on average, 11,000 times greater than operational emissions.”
As it turns out, how your bank invests its money—your money—has a major effect on overall carbon emissions.
How Sustainable Finance Can Help
The finance sector is large and impactful. Where money is stored influences how it is invested, what projects are greenlit, and, as a result, how much carbon is emitted. By prioritizing sustainable investments, such as renewable energy, and investing in companies with strong ESG (environmental, social, and governance) standards, we can shift the influence and demand away from fossil fuels and other carbon-heavy markets, industries, and businesses.
The good news? This is already happening. A huge boom took place between 2020 and 2021 during which the creation of sustainable finance bonds—an investment tool that enables corporations and governments to raise money for sustainable projects—rose by more than $327 billion to a total of $859 billion. Of these bonds, green bonds (bonds specifically designed for environmental sustainability projects) saw the highest creation rate with a total value of around $481 billion.
Currently, the ESG investing market is valued at more than $35 trillion (yes, with a “t”) and is predicted to rise to $167 trillion by 2034.
Why Should This Matter to You?
The main argument against stocks and bonds with ESG criteria is, often, that they don’t perform as well—or don’t have as high of a return—as those that are not focused on sustainability. However, not only do recent studies show this to be false, this argument also doesn’t take into consideration the very real, very influential undercurrent of most investments: public opinion.
The desire to shift to a more sustainable, socially conscious approach to investing is already here. As of 2024, institutional investors accounted for more than 57% of all assets under sustainable investment strategies, demonstrating the start of a significant shift away from carbon-heavy markets for professional investors, banks and credit unions, pension funds, hedge funds, and the like.
Sustainable Finance and EarthShare’s DAF
If you’re reading this, it’s because you already created your account on our custom donor advised fund platform—congrats! What you might not realize is that, in addition to helping support environmental initiatives just by having an account, all funds stored in your DAF are held with a mission-aligned bank that’s equally passionate about sustainability and community and social wellness.
At the end of the day, the actions of one individual (with the strong exception of billionaires) are not enough to change the course of our planet. However, we all have a role to play in implementing the solutions that can. Having a better understanding of the role your money plays in the climate crisis and the positive changes we all can make to support a healthier future is a great first step.
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