What is Sustainable Finance?
Updated: Aug 3, 2020
If you’re interested in contributing to a more sustainable future or fighting against the climate crisis, it is likely that you have tried your best to live more sustainably in a number of ways; whether it’s eating a vegan or vegetarian diet, cutting out flying, wearing sustainable & ethically produced clothes, cutting out plastic usage or living a low waste lifestyle… the list goes on. But have you thought about sustainable finances yet?
First, it is important to understand how a bank works. Each time you make a deposit, your bank essentially borrows some of that money from your account and lends it out to other borrowers, whether it’s an auto or home loan, a personal loan, or credit. Remember that time you took out a loan from your bank? The money you borrowed was collected from the deposits of other customers. The interest you paid on the loan balance added up as a perfect source of revenue for the bank, part of which they repaid back to those deposit makers.
But who do these banks lend to? How do they make the decisions? As you can imagine, the decisions happening behind closed doors are not necessarily made with the planet at-heart. Many banks traditionally lent funds to companies in the fossil fuel industry (alongside other institutions of course), and although a lot of them have cleaned-up their acts, a recent report from Unearthed has found that familiar High-Street bank Barclays is the most exposed bank in Europe to the crisis facing the US shale oil industry.
Bloomberg financial data analysed by Unearthed shows that the British high street giant has been involved in active loans to Texan oil producers worth $63.1 billion in total value - more than any other European bank. Of this, an estimated $247.5m is still owed to Barclays by the oil giant, the highest amount from such loans of any bank in Europe.
And it’s bigger than just the loans from Barclays… Unearthed’s analysis showed that in total, European banks have been involved in active loans to the Texan oil industry – one of the most environmentally damaging industries on the planet – worth over $83bn.
So, do you know where and how your money is being used? Is it being loaned to a company opening coal power plants? A logging business that contributes to the deforestation of the Amazon rainforest? You may be rallying for the climate and protesting your heart out for the environment, whilst your money could be used to fund projects that would never align with your values. Until now, consumers have been largely separated from understanding the power of their own finances.
This is where mattrvest comes in. Mayur Singh, an ex-investment banker who has 10+ years of experience in the finance world, and Diane Delava, a former UN Belgian Youth Delegate, are working on developing mattrvest, an ecosystem for sustainable finance, with the hope that they could create real change in the transition to a climate-neutral economy; enabling people to invest their money in a sustainable way.
The concept behind all this is that it will change the way people bank today, from what they invest in to where their money is stored and how their money is used. Ultimately, the idea behind mattrvest is to help you plan, save, and invest in what matters to you, while also understanding the impact your money has on the environment. Furthermore, mattrvest dispenses financial education and helps their users on their journey to become more financially sustainable.
In a world that faces growing and urgent challenges from climate change, along with social inequality, sustainable finance is growing in importance. It’s a $31tn sector today, and growing rapidly - with more awareness being raised about making sustainable choices when it comes to where you store your money, (especially in Europe, mattrvest’s target market).
So what is sustainable finance? It’s the channelling of capital (money) flows towards projects with a clearly defined environmental or social benefit. By engaging in sustainable finance, issuers and investors alike can contribute toward a better future.
The problem, and inspiration for mattrvest, Mayur says, is that ‘no matter how much people do on the consumption side, it may not be enough to conquer the climate crisis’. For example, he gives the example of a stainless steel straw: ‘It ultimately takes more energy to make than the amount of plastic straws it is potentially replacing’. He makes the point that it is important that people change their behaviour and implement sustainable lifestyles, but that sustainable finance may be able to have a greater effect in the long run when it comes to combating climate change.
There have been some great movements in the space of sustainable finance recently however, and some sustainable accounts have already been around for a couple of years. One example is nutmeg - an online investment & savings bank, with a socially responsible investing option. As their website puts it, ‘...our investment team continuously scores every portfolio for environmental, social and governance principles, using thousands of data points across key ESG issues.’ But the difference here is that we are talking about an investment account as opposed to an everyday account for managing spending… (and remember - your capital is at risk!)
Like many of us, Mayur believes that change is not happening fast enough, and we need an acceleration, hence the creation of mattrvest; an ecosystem for sustainable finance, financial institutions, financial advisors, NGOs who do research with sustainability and tracking, and other green startups. If everyone comes together, people can have saving/financial journeys that are completely sustainable.
But what difference can it all make? According to calculations made by Nordea’s sustainable finance team, moving your pension savings to sustainable funds could potentially save 2,223 tonnes of CO2 emissions!
Climate benefits aside for a minute, another benefit of sustainable finance has been that it gives better returns to people than conventional finance. Even in the COVID-19 crisis, as the markets have crashed, green bonds have remained strong in face of the crisis. The Financial Times reports that “the outperformance of ESG assets has been a notable bright spot” in the time of COVID-19. An analysis from UBS shows that green bonds have held up quite well — with nearly identical returns to traditional investment grade corporate bonds and significantly less volatility.
So, what do you think? Ready to find out more about sustainable finance? Sign up here to join the mattrvest community, check out their their #mymoneymyplanet campaign, and take another step forward today on your climate warrior journey.