3 Ways Your Financial Decisions Can Impact Climate Change

Finance Tips

In recent years, our financial decisions have been driven by far more than simply the best price. People consider ethical trading, sustainability practices, and of course, the impact on the environment, specifically climate change.

Do you think about how your financial decisions affect climate change?
Do you think about how your financial decisions affect climate change?

Despite more attention to the rapidly changing climate, many people still don’t think about how their financial decisions directly impact climate change. And why would you? It’s hard enough to earn money and determine how, when, and where to spend or invest it. Adding another variable into the mix can complicate that and make those decisions even more difficult. Nevertheless, it’s essential to understand how your financial decisions can affect climate change.

Here are three tips for making sure your financial decisions can help fight climate change:

1. Choose your investments wisely

Who says that putting your money to work has to come at the cost of harming the environment? Green infrastructure and renewable energy aren’t just a boon to the environment and our cities—it’s a growing sector, attracting hundreds of billions of euros. By investing directly in green and renewable energy, you can help reduce your carbon footprint, in addition to diversifying your portfolio.

If you’re hesitant about investing in renewable energy stocks or don’t know where to start, ESG (Environmental, Social, and Governance) funds are a great option. An important component of ESG funds is meeting specific environmental standards, making them a great way to utilize your investment portfolio to help fight climate change.

Solar power stocks can help you diversify your portfolio while helping reduce carbon emissions.
Solar power stocks can help you diversify your portfolio while helping reduce carbon emissions.

If you want to be more specific, consider renewable energy and green stocks. You can choose individual energy companies involved in solar, hydroelectric, or wind power or take a broader approach by investing in a renewable energy index like the European Renewable Energy Index (ERIX).

Finally, for those who don’t want to put money into green stocks or ESG funds, your investment choices can still be relevant to climate change. If shrinking your carbon footprint is a priority, avoiding investment in coal, oil, and gas companies can be a great way to make a meaningful contribution.

2. Beware of the companies you bank with

You might not think paying a visit to the local branch of your bank could have environmental ramifications. Unfortunately, it can. By doing business with a bank, you could be contributing part of the capital that can go toward financing fossil fuel companies. In fact, most of the world’s largest banks continue to invest billions in fossil fuels each year, despite the adoption of the Paris Climate Accords in 2015.

Most large banks are still investing billions in fossil fuels every year.
Most large banks are still investing billions in fossil fuels every year.

While some big banks have prioritized reducing their investment in companies involved in the fossil fuel life cycle, others, including BNP Paribas, have opened up the financing floodgates to fossil fuels. In 2020, BNP Paribas provided €35.3B to fossil fuel companies, increasing over 40% from 2019. Meanwhile, Deutsche Bank committed to completely cutting its global business activities in coal mining by 2025.

Banking with climate-conscious companies is another way to reduce the size of your carbon footprint and help support the shift away from non-renewable energy sources.

3. Make daily eco-friendly decisions

As a consumer, your daily decisions impact the environment. Our simple daily activities can affect climate change, from the food you eat to the clothing you buy to how you move around your city.

Every day, we make choices about what to eat and drink. You already know that single-use plastic bottles and cans are a scourge on the environment, but they’re not the only culprit in the climate change case. For example, when it comes to your diet, choosing more sustainable foods, like beans and locally grown organic produce, can help minimize the use of pesticides and chemicals, transportation energy, and waste. Additionally, avoiding highly processed foods requiring heavy industrial production can also benefit the environment.

While clothing is a less obvious contributor to global carbon emissions, the clothing industry accounts for about 10% of total annual carbon emissions worldwide. Clothing production often involves using many synthetic materials and dyes, which take a toll on the environment, not to mention the challenges associated with the complex clothing supply chain and the fact that most clothing is far from biodegradable. As a consumer, you can help the environment by purchasing clothing made from sustainable sources and reusing or recycling unwanted articles of clothing.

Using public transport is a cheaper and more eco-friendly way of commuting.
Using public transport is a cheaper and more eco-friendly way of commuting.

Another daily activity affecting climate change is transport. If you’re able to walk or ride your bicycle to work, you’ll be doing the environment a huge favor by eliminating fossil fuel emissions from your daily commute. Public transit is an excellent alternative for those whose commute can’t be made by foot or bicycle. If you must drive to work, electric vehicles are more environmentally friendly and have grown in popularity in recent years. For those driving vehicles with combustible engines, you can still do your part by carpooling when possible. Fortunately, when it comes to transportation, the most eco-friendly modes of getting around are also almost always the least expensive.

Awareness is key

Tackling climate change requires ongoing effort, and the most important thing you can do is be aware of how your financial decisions affect climate change. Even seemingly harmless decisions like depositing a check at your bank or buying a new pair of jeans can have devastating environmental implications if done by everyone on the planet.

By addressing your daily financial decisions and how they impact the environment, you can make better choices that contribute to a greener, better, more hospitable tomorrow.