Sustainable finance: How banking and investment choices can cut your carbon footprint
Sustainable finance is emerging as one of the most powerful yet overlooked tools for tackling climate change. Creating a more sustainable future requires input from all industries, with the finance sector being an important key player. Finance-related emissions have been found to be one of the largest contributors to many organisations’ total emissions. Yet, for a long time, the finance sector’s impact on us and our environment has been largely underestimated and overlooked.
The majority of attention in the journey to reach net zero and become a more responsible business has focused on reducing operational emissions – the day-to-day energy, water, and gas use in buildings. But green banking and responsible investment shine a light on the less-discussed but highly significant sustainability impacts of finances. Acting responsibly with money benefits both society and the planet.
What is Sustainable Finance or Responsible Investment?
Sustainable finance is defined as ‘investment decisions that take into account the environmental, social and governance (ESG) factors of an economic activity or project’. It’s aim is to minimise the negative impacts the use of money, in its different forms, can have on people and the world around us, while maximising the positive.
Why Sustainable Finance is important?
‘For most businesses and individuals, the biggest source of emissions is from where they keep their cash’ (The Mothertree, 2024).
This is due to how invested money is being used and what it is supporting. Research shows that ‘the banking industry continues to fund climate change at staggering levels’ (Which? 2024). ‘Lending and underwriting to over 4,200 fossil fuel companies by the world’s 60 largest banks reached $705bn in 2023, up from $669bn in 2022’ (Which? 2024).
Sustainable finance not only contributes to fewer emissions, and therefore a healthier environment, but it also helps benefit society – another vital part of sustainable development. Important positive societal impacts of sustainability include improved living standards, reduced conflict and the recognition of human rights. Research also shows there can be higher interest rates on banks that are greener, supporting the saying that ‘it pays to be green’.
Some banks have also been found to be responsible for funding things such as cluster munitions and large deforestation projects. Others are being investigated over human rights issues. So by switching to ethical banking and impact investing, you can reduce emissions, protect human rights, and even improve returns. Sustainable finance supports renewable energy, community wellbeing, and fair labour practices – all key pillars of sustainable development.
‘Globally there is approximately £37 trillion in pensions (about 7% of the global economy). Anywhere between 4% and 10% of that is invested in oil and gas’ (The Mothertree 2024).
Why Businesses Don’t Always Bank Green
Common barriers include feeling overwhelmed, sceptical about “greenwashing”- doubt whether the more sustainable option really is more sustainable or whether it is just being labelled as such as a profit-making strategy; or unsure of where to start. Others prefer sticking with familiar banks despite knowing they aren’t the most sustainable option.
The scale of the challenge ahead in terms of mitigating climate change might seem daunting and overwhelming, with staff feeling demoralised if they cannot see their peers making change. Time, energy and patience, is also a contributing factor when carrying out research on sustainable finance and the effort it takes to take action.
Actions You Can Take Towards More Sustainable Finance
There certainly is not a ‘one size fits all’ approach when it comes to sustainable finance/investment. Different businesses and organisations will have different priorities and requirements and their path to becoming more sustainable will reflect this. Cazenove Capital (2024) divides the broad actions one might take into 3 different categories – ‘Exclude’, ‘Invest in Solutions’ and ‘Influence’.
When choosing which type of action to follow, it is important to think about the desired outcome for your organisation. Do you wish to alter your ‘Portfolio (Organisational) Sustainability’? Do you wish to have ‘Real World Impact’? Depending on which of these are prioritised, or often both, this will determine the type of sustainable finance action you might take. So, what do the 3 above actions mean and how do they affect portfolio/real world sustainability?
1. Exclude/reduce unsustainable, carbon intensive assets (negative screening)
This means reducing the amount of money invested in companies that deal with fossil fuels, such as oil and gas. Or in terms of social sustainability, this could refer to reducing the money invested in companies which have poor working standards or human rights scandals for example. Investing in more sustainable assets will reduce portfolio emissions/portfolio harm and will send a positive social signal to your customers, partners, and employees. However, this action may not have real world impact if the shares in the unsustainable business are simply sold to someone else and it keeps business operating as usual.
How can my organisation implement this kind of action?
The company Switch it Green are very helpful in signposting to greener banks. They have information on different banks’ fossil fuel credentials and provide instructions on how to switch to a greener bank. Organisations such as The Ethical Consumer ‘rate the ethical and environmental record of 28 UK current accounts, with recommended buys and who to avoid’. They ‘look at digital banking, which banks own which brands, fossil fuel investments, tax avoidance, unequal pay’, and also importantly, how to easily switch accounts (see here towards the end of the webpage for how to switch).
2. Increase allocation of investments to climate/ sustainability (impact investing)
This means investing money in activities/schemes which have the intention of improving sustainability in some way. These might include renewable energy projects (wind/solar farms etc) or community health/wellbeing projects. This action will likely reduce emissions and achieve a positive sustainable impact. Whilst the investment will have a positive impact, however, it will not impact your direct emissions based on your operational activities.
How can my organisation implement this kind of action?
For ideas on where and how these kinds investments can be made, Sustainability Magazine outlines the top 10 Social Impact Investing Opportunities across the globe and the companies to contact. Researching and comparing a range of different impact investment funds is helpful – more UK funds can be found here. It is recommended to work with a financial advisor or investment manager who has experience with impact investing. They can help you to identify potential investment opportunities and develop a customised investment strategy.
3. Influence and engagement
This approach means keeping your investments where they are, even if they’re not currently the most sustainable, but using your position as an investor to influence change. Through active ownership, you can encourage the companies you’re invested in to cut their emissions and operate more sustainably. Effective engagement and clear communication are key here, and they can lead to meaningful, measurable results. For example, you might write directly to your bank or investment provider to outline your expectations and request action.
Both your portfolio sustainability and real-world sustainability can benefit from this strategy. The balance of approaches you take – whether excluding, investing in solutions, or influencing – will depend on your organisation’s goals, but influence is especially powerful because it drives change on two fronts: your own footprint and the wider world.
It’s easy to think an organisation’s influence won’t make much difference, but when more and more businesses take this step, the collective impact is significant.
By embracing sustainable finance, your organisation can align its money with its values, cut its carbon footprint, and contribute to a fairer, greener future.
There is lots of information available online (see sources below) to help you make the decision that is right for you, including our two recent webinars on responsible banking and investing found here:
A Quick Guide to Responsible Banking and Investment
Pensions & Bank Accounts: Your hidden tools to tackle climate change?
This article was written by Hana Adler, Sustainability Consultant at iiE.
Sources:
Mothertree (2024) Home | MotherTree
Cazenove Capital (2024) Wealth Management – Cazenove Capital
Switch It Green (2025) Switch It Green | Green Banking Platform
Aspiration (2025) Climate-Friendly Investing Guide: 4 Proven Strategies to Get Started
Which? (2024) Is your bank funding climate change? – Which? News
Profit Impact (2025) 10 UK Impact Investing groups that you should bookmark today! | Profit Impact