In this article, we will review the concept of sustainable finance. Sustainability is a concept that has taken hold recently, whether the topic is home building or economics. In general, sustainability means meeting the needs of the present without compromising the ability to meet the future’s needs. There are three sustainability pillars—economic, social, and environmental—although they are informally known as the three P’s—profits, people, and planet. When you’re reading about financial sustainability, you’ll also see the abbreviation ESG, which is the integration of environment, society, and governance into investment or business decisions.
Most sustainability is focused on the environmental component—the drive towards clean energy, the use of recyclable materials, and the global commitment to reducing the carbon footprint.
Banking, loosely defined as commercial, financial transactions, is traditionally the most old-school of the old-school professions. While technology has altered the landscape for medicine, commerce, and the service industries, banks haven’t shifted their business models much—they’re just about the only industry that still adheres to a five day a week, nine-to-five schedule. Yes, they have ATMs and mobile apps, but the fundamental ways that financial institutions function have not changed with the times.
What is Sustainable Finance and Banking?
This hidebound business approach is finally starting to change, as sustainable banking is becoming more and more a necessity for financial institutions. Consumers are interested in doing business with companies that do good, and banks are no exception. Much like the first-generation oil companies that have morphed into energy conglomerates as businesses have moved away from carbon-extravagant fossil fuels, financial institutions are seeing the benefits of sustainable banking practices.
Sustainable banking, then, is a 21st-century approach to finance. These banks (retail, commercial, investment, etc.) are working to ensure economic efficiencies and competitiveness in a prosperous environment both today and long-term. Their overarching mission is to protect and restore ecological systems, encourage cultural diversity, and promoting social well-being. To put it more simply, sustainable finance is all about contributing to sustainable development and value creation for the three P’s—people, planet, and profits.
When you’re reading about financial sustainability, you’ll also see the abbreviation ESG, which is the integration of environment, society, and governance into investment or business decisions. The ESG ideal is for financial institutions to make decisions that equally benefit both their clients and society.
Challenges For Sustainable Banking
One of the biggest challenges for sustainable investing is that fiduciaries, such as asset managers and financial institutions, contend that ESG is not part of their defined fiduciary duties. The tide is turning, though, and they are beginning to integrate ESG practices as a form of their financial services. Globally, banks and other financial institutions are transitioning to socially responsible investing—partially because of the bad publicity related to environmentally damaging “sin stocks” and partly because the tech boom made other investment options more profitable. The U.S. has been slow to embrace green investing, although the European Investment Bank and the World Bank began issuing “green bonds” in 2007. Since then, the market for sustainable, low-carbon industries has boomed to $160 billion.
Mobile banking is an excellent example of on-the-ground sustainable banking—it delivers financial services with a low environmental impact and practically zero carbon emissions. It’s how millennials and succeeding generations of U.S. consumers manage their finances and is the future of most financial services.
Community Banking Is A Foundation For Sustainable Finance and Investing
By definition, a community bank is sustainable—they function for the community’s benefit. They’re typically owned and managed by the members of rural and underserved communities that lack another banking option. This gives community banks a leg up on understanding and meeting their customers’ financial needs. According to the Independent Community Bankers of America, there are almost 5,000 of these institutions in the U.S. today, with $5 trillion in assets and $4 trillion in deposits. Half of these community lenders are in counties with fewer than 50,000 residents.
Community banks offer a limited portfolio of services—checking and saving, mortgages, personal and small business loans, and some credit cards. Customers need to look elsewhere for more sophisticated services, like insurance or investing.
Objectives of Sustainable Finance
What is the point of sustainable banking? At its core, sustainability in finance is to coexist with society in managing the social and environmental impact of business practices and investing. Even the most responsible institutions fall short of the ideal balance in impact but strive to tilt the scales towards their sustainable investment goals. It’s crucial for businesses and banks alike to recognize that sustainability is not a niche in the financial services market, like private equity or clean tech investing, but rather the core of global initiatives that encompass business, industry, finance, and government.
There are several avenues for financial services providers to engage in sustainable financing. Here are a few of the most popular.
- Sustainable funds
- Green bonds
- Impact investing
- Active ownership
Some institutions also offer financial credits for sustainable projects, and there are some initiatives to reinvent the entire financial system to be greener and more sustainable.
Aspiration: Sustainable Cash Management Services
For consumers who are looking for a sustainable financial institution, Aspiration is a good option. It’s sustainable and ethically and socially conscious. Here are a couple of reasons. First, the company exists entirely on a digital platform, so there are no branches or ATMs to add to the carbon footprint. Second, they walk the walk—their debit cards are even made from recycled ocean plastic. Aspiration also seeks to help their customers “make money and make a difference” simultaneously.
Some of the Aspiration business model highlights are that they provide digital spend and save services, investment products, and a cashback program when you shop with partner retailers. Here are two more reasons Aspiration leads the way in sustainable banking.
- A commitment to donate 10% of the company’s earnings to non-profit organizations that generate economic opportunity.
- Customers can donate to the charities of their choice via their Aspiration account. You can give as much or as little as you like.
The best part of being an Aspiration customer is the Spend and Save Account. These are some of the benefits.
- Reforest As You Shop: Every time you swipe your recycled green debit card, they’ll plant a tree.
- Neutralize Your Drive: Carbon offsets for when you buy gas with Planet Protection.
- Get Extra Cash Back: Up to 10% cashback when you shop with mission-focused merchants like Warby Parker, TOMS, and more.
- Boost Your Savings: Up to 1.00% annual rate on your savings account.
- Lower ATM fees
Spend and Save Plan
Aspiration customers can customize their account plans. There’s a Pay What is Fair plan, where you can open an account fee-free. With the Aspiration mobile app, you can deposit checks, sign up for bill pay services, and track your environmental impact. Deposits are FDIC insured up to $2.4 million. You can also upgrade your account for as little as $7 per month, or $69 annually. Aspiration Plus plan benefits include free ATM banking at Allpoints ATMs and one free out-of-network withdrawal per month.
Aspiration definitely gives customers the Three P’s—people, planet, profit—with the added boost of checking your planet footprint on your phone via the app. Check it out today—you can open your account in about five minutes.