How Financial Institutions Can Help Combat Climate Change

By TechFunnel Contributors - Published on July 15, 2021
article is about Financial Institutions Can Help Combat Climate Change

There is often an assumption held by ordinary people that finance and positive environmental change are oxymorons. that the finance industry exists to serve the bottom line and nothing else.

This has slowly been changing over the last several years, however, as many banks and financial institutions, including green and sustainable banks, as well as impact private equity and hedge funds, have sought to put their sizable pools of capital towards helping humanity combat climate change.

Below are some of the ways that are already happening and what other financial institutions can do to throw their weight behind this cause.

  1. Invest in Green Energy Companies

    When it comes to commercial and investment banks investing their money for a change, there are essentially two options they have: investment in green energy companies and divestment from carbon-intensive ones. The latter will be discussed in the section below but investing in green energy and other sustainable companies is the first step that financial institutions can take towards combating climate change.

    There is a growing number of green banks and related financial entities around the world that are already making major changes to where they invest their capital, whose guiding principles when it comes to investing are minimizing and mitigating environmental and related social damage.

  2. Divest From Fossil Fuel Sectors

    The other side of the green investing coin is divesting from companies that sustain the fossil fuel status quo. There are many banks worldwide that have already agreed to stop investing in the fossil fuel industries, but a staggering amount of money continues to be poured into fossil fuel companies and projects. Since the beginning of 2016, global banks have lent more than $1.6 trillion to fossil fuel companies.

    Divestiture is an important part of changing the paradigm and putting the world on a path to more widespread green and renewable energy. Getting banks to divest will require pressure from investors, clients, and governments to make sure the finance industry acts as a driver for change–a role the world needs it to play.

  3. Favorable Lending to Sustainable Businesses

    Financial institutions can also have a more indirect impact on climate change by supporting and helping to capitalize businesses that are engaged in sustainable initiatives. These include new sustainable businesses applying for credit and loans and existing businesses that require capital to reorient their businesses towards more environmentally friendly models, including upgrades to infrastructure, vehicle fleets, and other capital equipment.

    By providing better loan terms, banks can make it easier for businesses of all sizes to do their part in the fight against climate change. This type of financing is commonly referred to as “green financing”, and it is a core philosophical component of green banking. There are already many green loan options available, depending on the jurisdiction, but it will take a critical mass of financial institutions to implement these policies on a large scale if the financial services industry is to make a difference.

  4. Provide Green Investment Opportunities to Clients

    In addition to green loans to business and commercial clients, banks can also provide their brokerage and retail clients with access to green investing opportunities. Green mutual funds and other impact funds are usually the best way to give retail investors access to sustainable investments.

    Banks can also offer credit card options to their retail clients that allow them to choose cards partnered with green charities or NGOs. The average retail client and investor do not have a lot of options when it comes to making a green impact with their capital, so banks can help by providing access to larger funds.

Final Thought

The finance industry has an outsized role to play in combating climate change. As the providers and facilitators of international capital, they can choose to invest in or divest from the industries and companies that are having the most significant negative impact on the environment. Many banks worldwide, and particularly small local banks, are already starting to try to live up to their responsibilities as change agents, but many of the most visible global banks continue to funnel money into climate and environment-destroying ventures. It is a mistake to think world governments can help mitigate the impact of climate change on their own. The world needs the finance industry.

TechFunnel Contributors

TechFunnel Contributors | TechFunnel.com is an ambitious publication dedicated to the evolving landscape of marketing and technology in business and in life. We are dedicated to sharing unbiased information, research, and expert commentary that helps executives and professionals stay on top of the rapidly evolving marketplace, leverage technology for productivity, and add value to their knowledge base.

TechFunnel Contributors

TechFunnel Contributors | TechFunnel.com is an ambitious publication dedicated to the evolving landscape of marketing and technology in business and in life. We are dedicate...

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