Dear Dot,
I’m really impressed when I hear about universities divesting from big oil. I know that the biggest impact I could make would be to follow suit. Why is it I’m having such a hard time making these changes? Between our mortgage, checking accounts/savings, auto loan, retirement accounts, and credit cards, I think we bank with all of the top offenders. Help me make a change. I don’t know how or where to begin.
–Overwhelmed, Santa Monica, CA
Dear Overwhelmed,
Cheers to the waves that the divestment movement has made in recent years. As Bluedot’s Lily Olsen wrote in “The Power of Divestment”, more than 1,300 institutions with assets over $14.6 trillion have thus far committed to divest. The beauty of this movement is its chain effect — with each entity that pulls financial support from Big Oil, others are inspired to join, and one of those people is you.
Before we get into the nitty gritty of how to actually start making financial adjustments, let’s just recap divestment basics. Depriving fossil fuel companies of funds applies economic pressure, serving as a powerful force in the transition away from atmosphere-destroying fuel sources to more sustainable alternatives.
You want to be part of this change. It makes sense — but does it also make cents? Let’s consider investing, specifically. For years, investors believed environmentally conscious investing to be antithetical to financial growth. A report by BlackRock, the world’s largest asset manager, found that portfolios divested from fossil fuels actually saw greater returns than those not divested. In plain English, Overwhelmed, this means that NOT putting your money in fossil fuels can be the smarter financial decision.
There is also the “carbon bubble” to account for. With all investments, you are betting on future value. If international agreements on climate change are met and societies transition to cleaner energy sources, fossil fuel investments will lose their value. This has led many economists to theorize that if fossil fuel investments remain as astronomically high as they are now, it could generate a global economic crisis. Whether or not countries fulfill these agreements on their promised timelines, the global economy will inevitably need to transition away from oil at some point. That black gold of yesteryear will not fuel the future.
Now, who exactly should we divest from? Well, the biggest offenders, according to the Sierra Club and Rainforest Alliance’s “Banking on Climate Chaos” report, the top three oil fossil fuel superfans are JPMorgan Chase, Citibank, and Wells Fargo. These banks have financed $317 billion, $237 billion, and $223 billion in fossil fuels respectively since the Paris Agreement’s signing in 2016. That’s a lot of green financing something inherently anti-green, if you know what I mean. (Curious about your bank's record? Find out here!)
So what are your options?
A growing number of environmentally-conscious banks, credit cards, and financial services are gaining traction. Highly-rated, B Corps-certified banks include Amalgamated, Ando, and Beneficial State Bank. Aspiration, while not a bank, offers a “Spend and Save” account, where clients’ money is protected by the Federal Deposit Insurance Corp (FDIC). In fact, all of these are FDIC insured so up to $250,000 is insured per bank account, which is standard. Their “Pay What Is Fair” fee model allows clients to choose how much to pay — even if that’s zero. A Forbes review found that their interest rate on savings was competitive with traditional banks. With the Aspiration Zero Credit Card, every time you swipe, the company will plant a tree. You can track your carbon footprint in the app, and each month you reach carbon zero (basically by making climate-wise purchases such that your tree-planting swipes cancel out your CO2-emitting buys), Aspiration gives you up to 1% cash back on all your purchases. Aspiration also offers investment accounts. Lucky for us, Overwhelmed, Business Insider has reviewed and compared these institutions, making it easier to choose.
Building pressure has extracted promises from some of the biggest offenders to change their ways. JPMorgan, for example, pledged carbon neutrality in its investments by 2050. Good for you, JPMorgan. We only have to wait another quarter century for you to make this change. Clearly, my overwhelmed friend, it’s up to us to do something in the meantime.
Now to practical questions: Which aspects of our financial lives should we change? How should we make these changes?
Alas, I’d love to give you a one-size-fits-all checklist for how to become financially eco-conscious. But, as with any financial decisions, greenifying your financial practices is oh-so-personal. How to switch, what to switch, what has the greatest impact really does depend on your specific financial situation.
Luke Murphy, Managing Director at Martha’s Vineyard Savings Bank, has one suggestion to get the process started: Make a list. That’s easy enough. I love lists! Write down your specific values that you want to consider when handling your money. From there you’ll be able to decide whether specific investments, banks, and credit cards support the issues — environmental or otherwise — that matter most to you. Murphy sticks to this general guidance as, in his position, he cannot tell us which issues we should stand for. Some of us might prioritize women-run businesses, another might want to support a fair and humane prison system. For you and me, Overwhelmed, high on that value list is simply don’t put money in fossil fuels.
You mentioned a few financial arenas rife with potential to divest. While there are no clear-cut answers for when and how to transition, there are some general things to take into consideration. Murphy has to be careful not to offer specific advice and I barely made it through high school calculus, but here's what the smart people say:
First off, when it comes to your retirement funds, the difficulty you face in divesting from certain companies and reinvesting in others will depend on the type of account you have. If it’s a 401k, it could be trickier than a Roth IRA, for example, as there are simply more steps to rearrange your portfolio. When it comes to your retirement funds and considering where to move your investments, it depends on your values. One person might have tremendous faith in nuclear power and another might see greater potential in solar or wind. This is where that handy dandy list comes in. And remember to diversify, Murphy says.
With loans as well, including the mortgage and auto loans you mentioned, it depends on the economy and your personal risk evaluations. “You’d have to take into consideration, ‘Am I willing to take on potentially a higher interest rate if it means having the personal gratification of knowing I’m with a green bank or a bank that is more sustainable in my personal views?’” Murphy says.
It’s not the type of bank itself — green or otherwise — that necessarily means a higher or lower interest rate but rather moving your loans to a new bank that can create a rate change. It is unpredictable. Whether or not you should do this could also depend on how much your mortgage is. If you have a sizable mortgage, it could make a significant impact to start making those payments to a bank that aligns with your values. On the other hand, this could create greater personal financial risk, depending on what the institution’s mortgage rates and fees are. “The solution would be to find an institution that has Community/ESG interests aligned with one’s own values, and which also provides competitive pricing and mortgage rates,” Murphy says.
Switching out your credit cards can be more of a headache than, say, closing out your savings account and switching to a bank that doesn’t fund fossil fuels. This is because you risk a hit to your credit score by closing out your old card. This, like so much else, is case by case. If you have a good credit score, it might not impact you much to close out your current card and get an environmentally-focused replacement, and it might even help you qualify for better interest rates. There are a lot of factors to weigh, such as whether you have mountains of credit card debt.
There is no single solution. “One person could have hundreds of thousands of dollars in credit card debt. In this case refinancing the credit card debt could make a dramatic difference,” Murphy says.
The transition to new savings accounts is pretty straightforward. If you’re looking at a socially responsible bank, compare interest rates, fees, features, and benefits to those of your current bank and, weighing all factors, decide if you’re able to switch.
Now that we’re thinking about what it could look like to make a change in where we put our money, how to get started? What should we prioritize? A green credit card? A new bank to keep our savings? Refinancing that mortgage? Again, (I know, I know …) it all depends.
“From a financial planning standpoint that’s where a certified financial planner and wealth advisor could really come in handy,” Murphy suggests. “What they do is they roll their sleeves up on an individual basis and understand what the assets are, what the liabilities are for that individual, and then they can go in with a scalpel and fine-tune where you can make impact.”
There might be a lot of details to sort through ahead as you consider how to green up your finances. Thankfully there’s a tangible action you can take today: jot down a few bullet points on that list. That simple step will point you in the right direction.
Divestingly,
Dot
