As COP26 approaches, here’s how you can align your faith with your finances
Whether a person has billions to invest, like the Vatican itself, whether they are responsible for the small budgets of the church, or looking after their personal finances, the choice of bank is important. There are few ways for savers and investors to have a greater impact on the world around them than by choosing their banking partner.
For those who care about issues like climate change, nature and health and have found a bank that shares their values, every pound they have on deposit can have a positive impact on the world around them. If a bank does not share these values, investor money can be used to finance activities they find objectionable, such as fossil fuel extraction or factory farming.
With climate change, ecological destruction and the economic impact of the pandemic causing increased poverty and suffering, it has never been more important to think carefully about saving and investing.
Rainforest Action Network Report, Bet on climate chaos, notes that in the five years since the Paris Agreement on Climate Change the world’s largest banks, including JP Morgan Chase and Barclays, have funded fossil fuels to the tune of $ 3.8 trillion. Several of these banks are also signatories of the United Nations Principles for Responsible Banking, designed to help banks make a positive impact on society, in direct contradiction to their support for industries like coal, oil and gas.
Findings like these are a major concern, and it’s no wonder that many faith groups are keen to ensure that their investments, and increasingly their banking relationships, reflect their values.
Last year, 47 faith-based institutions from 21 countries announced they were pulling out – withdrawing all their money – from fossil fuels. This is the largest joint divestment ever by religious leaders in history, but it is just the latest expression of the growing faith-based climate action movement. In fact, 190 Catholic institutions around the world have opted out of fossil fuels, according to the Catholic Global Climate Pact (GCCM).
Last June, the Vatican released its first-ever set of comprehensive environmental guidelines that frame investing in fossil fuels as an ethical choice. The guidelines suggest that the ethical commitments of Catholic institutions should lead to avoiding supporting businesses that harm human or social ecology (eg, abortion and weapons) and environmental ecology (eg, fuels). fossils).
What constitutes a sustainable bank is, to some extent, in the eye of the beholder, but there are widely accepted principles that set it apart from traditional banking.
The first is the concept of impact banking. Sustainable banks often reserve part of their funding for activities with a positive social and environmental impact, such as developing cleaner energy or supporting education while avoiding funding certain activities, such as businesses. questionable mining.
Sustainable banks are also transparent in their operations – they provide information on the type of projects and businesses to which they lend, so clients can ensure they are adhering to their stated values. Another thing to look for is the magnitude of the bank’s profits. Truly sustainable banks generally do not distribute large profits to shareholders. They also tend to limit the gaps in the remuneration of executives and employees.
Although genuinely sustainable banks are increasingly well known, few are known and many operate in Europe. Networks like Global Alliance for Securities Banking and the European Federation of Ethical and Alternative Banks and Finance have useful lists of banks and Ethical consumer produces a useful guide, although it is necessary to subscribe to access the information.
Other examples of networks that may include sustainable banks are cooperative banks – owned by their clients; credit unions, where members are required to share a common bond such as locality, employer, religion or profession and ccommunity development banks, which provide access to financially underserved communities.
One of the best-known sustainable banks is Triodos, a Certified B Corp, which means it wants to have a positive impact on the environment, and a bank that publishes all of its investments on its website.
Although sustainable banks are increasingly well known, many of them are privately owned and therefore have limited disclosures, so it is more difficult to find independent reviews and analysis from well-known organizations that assess their values. specific or their solvency.
Sustainable banks also tend to be smaller, regionally focused, and less diverse than their traditional counterparts. They are also often less complex and know their customers better. On the other hand, some offer lower than market interest rates on deposits. It might not matter much at a time when interest rates are low enough, but it won’t always be.
A concern that we sometimes hear about sustainable finance is that it offers lower returns on investment. However, Adam Robbins of Triodos Bank disputes this:
“A lot of times people assume that you have to give up decent returns to do good with your money,” he says. “But it’s not philanthropy, it’s about people, planet and profit. Research confirms this, showing that sustainable funds often generate better returns than more traditional funds. “
Last year, the financial services firm Morningstar compared more than 4,900 investment funds, looking at average returns, success rates, and “hold-ups” over a 10-year period to 2019. He found that almost 60% of sustainable funds had beaten their traditional average surviving peer.
With COP26 described as the “last best chance” to face the climate crisis, our choice of bank is more critical than ever. Sustainable banking allows us to align our finances with our values in ways that traditional banking, the evidence shows, simply cannot. Over time that might change, but for now, aligning your faith with your finances probably means finding a sustainable bank.
Faith Invest’s new report, The state of sustainable banking, explains in more detail what to look for in a sustainable bank and how to encourage more banks to operate more sustainably. All institutional asset owners who want to know more are also welcome to our June event.