Eco-Friendly Guide to Finances and Saving
- Environmentally Friendly Financial Services
Applying environmentally conscious habits to the way you budget and manage your finances can revolutionize the way you approach green living. Aligning your personal finance and green living goals means that your money won’t be used in a way that goes against the eco-friendly principles you care about.
Even if you’re not quite prepared or able to embrace environmental practices in all facets of your life, making even small changes to how and where you spend your money can go a long way towards making a difference and reducing your carbon footprint.
To aid you in your quest to incorporate green living finance principles in ways that work for you, this guide offers expert advice and insight, valuable tools and resources designed to help you develop a "green" approach to your finances.
Environmentally Friendly Financial Options
The future of our environment depends largely on our spending habits today. There are many different ways to do your part and use environmentally friendly financial products and services. While this is not an exhaustive list, each of these options provides economic and environmental benefits for you as a consumer.
A green investment strategy involves not only focusing on financial returns but also on business practices that incorporate environmental and social benefits. This mode of investing is often referred to as environmental, social and governance (ESG) and socially responsible investing (SRI). The terms ESG and SRI are sometimes used interchangeably. Some of the ways investors invest in businesses that incorporate sustainable and ethical practices include:
- Considering financial projects or investments that will have a direct impact on poor or disadvantaged communities and individuals.
- Only investing in businesses that have taken proper steps to adhere to eco-friendly practices.
These steps could include measures such as reducing greenhouse gases or factoring climate change into their corporate planning.
Pros and Cons of Sustainable Investing
ESG investing has its pros and cons. An advantage of being a sustainable investor could be the long term growth. Brown Brother Harriman forecasts that companies showing ESG initiative and performing well will prove to be the world's most valuable companies and thus gain significant value over time. A disadvantage that sustainable investors face, however, is the lack of diversification in these stock groups. Investing solely in ESG means you're usually limited to the exclusivity of the limited companies that participate.
Deciding if sustainable investing is a good fit depends on your risk tolerance and how you view a company. A few questions to consider include:
- How comfortable are you with a lack of diversification in your portfolio?
- Is your ESG assessment based more on performance or ESG aspects?
- Are you looking at a company as they are today or how they may be in the future?
- What are your rules and objectives for the ESG companies you invest in?
Taking the time to assess your investment style and how you operate the best when it comes to your finances will tell you if investing solely in ESG companies is a smart move.
Just as you would take out a home equity loan to finance a home improvement project, green loans can finance energy-efficient home improvements. Green loans are lending with an environmentally friendly planned use. There are plenty of ways to use a green loan. The project you plan to use it on is what makes green loans "green." Projects backed by a green loan could include a variety of uses such as installing solar panels, water-saving systems, LED lighting or Energy Star appliances.
Green Loan Advantages
The advantage of a green loan is that you can achieve green financing through a government-insured FHA or conventional loan program. They are open to borrowers without the need for cash upfront or home equity, and they are offered with historically low interest rates. The downside is they are limited to environmentally friendly uses, such as those previously mentioned. You can't use a green loan for a standard home upgrade or debt consolidation in the same way you would use a traditional loan.
See If You Qualify
The quickest way to see if you could benefit from a green loan is to consider what outdated systems and items in your home could be upgraded with more eco-friendly models. You could save money in the long run and make your home greener. You can also have a green contractor inspect your home and suggest home upgrades that will leave a smaller carbon footprint than what you currently have. Talk with your lender and see if your need qualifies under the requirements for a green loan.
Buying a home built with the environment in mind can be another way to make an eco-friendly investment. A green mortgage is an environmentally friendly way to finance your home or home improvements while reducing your carbon footprint.
As opposed to conventional loans, green mortgages are a green way to save money by lessening your home's overall energy usage. This could include adding in Energy Star appliances or incorporating a green heating and air conditioning system with programmable thermostats to save hundreds of dollars on your utility bill each year.
Having a green mortgage offers plenty of advantages, but namely, they stand as a green loan that can turn your home into a green investment, saving you on your monthly bills when you qualify for a green mortgage.
The money you save yearly from having energy-efficient appliances, water-saving systems and utility savings can be used to pay down your mortgage. They can serve as a marketing plus when it comes time to sell. The downside to this is figuring out if the upgrades outweigh the total savings they yield. For example, if you're buying a water-saving sprinkler system that costs you $2,000, then it should deliver savings of over $2,000 in its lifetime.
If you already qualify for a conventional mortgage, you should be eligible for a green mortgage loan. The best way to see if this is an efficient move is to look at the increase in home value the upgrades would bring versus the upgrades' costs.
Green Credit Cards
A discussion of green finance wouldn't be complete if it didn't include a mention of green credit cards. A green credit card offers green-friendly rewards.
Unlike standard rewards points that you usually earn from credit cards, green credit cards can benefit the environment. With credit cards like the Sustain: Green Mastercard, your points can translate into carbon offsets that help heal the planet. The Sustain: Green card rewards users with carbon offsets that can be applied to fund rainforest preservation. Arthur Newman, CEO of Sustain: Green said in a press release, "Just by using our card for purchases they would make anyway, consumers can shrink their carbon footprint for free, every day, while also helping to preserve rainforests critical to combating climate change. We hope they will use the card in conjunction with other carbon reduction lifestyle changes, such as fuel-efficient transportation choices."
Responsible and Sustainable Banking
Sustainable banking encompasses more than just return and risk; it also considers impact. Similar to the process we see in sustainable investing, sustainable banking uses ESG and SFI to influence strategic decisions. Not too long ago, banks realized that they were setting themselves up for failure by not looking at the environmental impact of their actions. As time passes, it becomes more evident that consumers were not just concerned with their risk and return but also how it affected the world around them.
As a part of the environmental finance initiative many have adopted, sustainable banking is another way consumers can decide how their spending affects the environment. With certain socially responsible banks, you don't have to worry about your money being used to finance industries that harm the environment. Instead, your funds will be used to invest in community development, give-back donation programs and projects that contribute to an eco-friendly objective.
Depending on which institution you use, you may forgo some of the conveniences that a conventional bank offers. These conveniences include free accounts, online-only banking versus brick-and-mortar storefronts and fees for ATM usage.
With some SRI banks offering traditional checking accounts, low fees and high rates, there's a good possibility you won't miss the switch. Plus, you can have peace of mind knowing the institution you support also supports social responsibility.
Add Green to Your Daily Living
There are additional options to consider when you choose to support a green lifestyle. When adopting green habits, there is no one-size-fits-all approach. Aside from ensuring your investments and finances are adhering to green finance standards, there are smaller-scale options as well. While some of these options may seem unconventional or untested, each can provide financial and environmental benefits for you as a consumer.
When hearing "donation," many people might think of a financial donation. However, there are several eco-friendly donations you can make that don't involve touching your pocketbook. For example, taking the time to donate your clothes, old appliances, furniture or even a car can be beneficial.
Some might assume that these types of donations don't qualify as eco-friendly. The truth is a good number of resources go into creating, packaging and shipping these items. Plus, by donating instead of dumping, you're essentially keeping them out of landfills and junkyards where there's potential for them to cause more pollution. Also, there is the bonus of receiving tax-credit for charitable donations to specific organizations.
Responsible retailers are gaining in popularity, and they are going out of their way to make environmental choices. Everyone does their fair amount of shopping. By putting your money back into a retailer that does their part, you are essentially helping them in this respect.
Different retailers have different ways of being sustainable and socially responsible. For example, some supermarkets partner with agriculture programs to help Americans make healthier and more sustainable choices. Others, such as clothing retailers, make commitments to produce zero waste and become carbon neutral. They are also stepping away from offering "fast fashion," which means trendy, cheap clothing made in sweatshops overseas and usually only worn a few times by consumers.
Repair and Repurpose
Commonly known as upcycling, repurposing everyday products is another green way to save money. If a product can't be used for its original purpose, get creative and find a new way to use it. Also, taking the opportunity to repair an item instead of prematurely throwing it away keeps landfills from getting bigger and pollution from rising. While it may cost money to make a small repair or upcycle an item, cutting down on trash, manufacturing effects on the environment and the cost of purchasing a whole new item far outweighs the cost.
4 Ways to Save Money and Reduce Your Carbon Footprint
It's been widely said that reducing your carbon footprint is good for the environment, but why? Your carbon footprint is a measure of how much carbon dioxide you put into the environment. Carbon footprints are created by traveling, consumer habits and waste. Reducing your carbon footprint is an active approach to living that keeps unnecessary carbon dioxide from entering the atmosphere. This is accomplished through evaluating your habits from a broader perspective, much like the triple bottom line concept.
The triple bottom line accounts for three parts: social, environmental and financial. These all coincide and affect each other either directly or passively through other means. Taking the initiative in all three areas can have a drastic effect on your carbon footprint and serve people and the planet better both now and in the future. Below are some specific examples of money-saving activities that reduce your carbon footprint with economic and environmental benefits that overlap using the triple bottom line concept.
Carpooling, popularly now known as ride-sharing, is one way to both save money and emissions. According to rideshare.org, depending on where you live and how much you drive, you could be saving over $1,500 annually. The U.S. could save an average of 33 million gallons in gas each day if the average commuting vehicle carried one extra person. Then, there's the household saving. The average household uses 1,143 gallons of gas per year. Multiply that by the average price of gas per gallon, and you're looking at significant savings.
2. Eat Less Meat and Dairy
While there is research that proves a diet consisting of heavy amounts of meat can lead to obesity, cancer and heart disease, it's also contributing to greenhouse emissions. According to the Food and Agriculture Organization of the United Nations, global livestock's total emissions equaled 14.5% of all anthropogenic emissions. This amounts to a total of 7.1 gigatonnes of carbon dioxide per year.
You can cut costs from your budget by reducing your meat intake as well. Some vegetarians who have cut out meat altogether report saving nearly $1,000 per year living a meat-free lifestyle. Depending on how much less meat and dairy you want to consume, you can find plenty of ways to supplement your diet and wallet by making this lifestyle change. The best ways to see a price reduction in your grocery budget this way includes buying dry goods in bulk, taking advantage of sales, buying frozen instead of fresh vegetables and creating a meal plan and shopping list before going to the grocery store.
3. Take Public Transportation
To piggyback off the ride-share initiative, the original staple in carpooling is that of public transportation. Although some may see larger vehicles emitting more pollution, this is not the case. Actually, transit vehicles emit less pollution per person than a traditional car would with separate emissions. This is also good news for your bank account. The U.S. Department of Transportation reports that users can save over $10,000 annually by utilizing public transportation rather than owning a vehicle. The average American family spends about 19% of its household income on transportation, which drops to 9% if you live in an area with an effective public transportation system.
4. Shop Local
Giving back to the community can happen in a variety of ways. One fundamental way is by shopping local and contributing back to the community economy. By shopping local, you are keeping money in the community, contributing to local jobs, a unique town character and a cleaner environment. Shopping locally usually means the goods or products are made locally and are cheaper to buy because you're avoiding shipping costs. Local businesses might also offer local discounts in some areas and price matching to compete with bigger chains. Additionally, you can get a shorter commute or can walk to your local shop to purchase items or have them delivered. Plus, never dismiss the added bonus of better customer service and personability that you get from local shop owners as opposed to big chains.
Experts Discuss Green Finance
How is green personal finance beneficial?
Tackling personal financial issues can be challenging, and we have found that using the United Nations sustainable development goals as a framework helps connect our individual decisions to something larger than ourselves. By viewing individual decisions through this lens, and connecting our spending to its impacts on people and the planet, we can build a deeper and more sustainable relationship with money.
What does green personal finance mean to you?
I work in personal finance, so for me, green personal finance is the parameters surrounding responsible investing and investing in green companies. In our industry, this is often measured by reviewing a company’s ESG policy. ESG is an investment strategy that considers environmental, social and corporate governance as part of investment analysis alongside traditional analysis methods.
This would include looking at what specific companies are doing to better themselves in the green space and would specifically encompass company policy on greenhouse gas emissions, recycling and the energy efficiency of that company as well as measuring and improving raw material use and pollution.
Our money is a powerful tool to express our values and influence change in the world. In each of the four basic uses of money, spend, save, invest and give, you have a variety of green options.
A number of innovative companies have made it easier to invest with their values in mind, making it easier to follow a green personal finance path.
Today, companies such as Interactive Advisors (the company cited by Investopedia as "Best for Responsible Investing") makes it easy for you to invest in an asset allocation portfolio that takes Socially Responsible Investing into consideration.
If you really want to be green and invest with a better planet as one of your principles, now you can invest in companies that focus on reducing greenhouse gas emissions, building energy-efficient products, reducing energy footprints, using alternative energy sources and conserving water.
Being green doesn't have to be more expensive. There are plenty of ways to save money and still invest greenly.
At Interactive Advisors, for example, for a minimum investment of just $100 and annual management fees of only 0.11% you can invest in ready-made portfolios, such as the ones mentioned above, and go green. To translate, if you invest $5,000, the management fee will run you $10.50 a year.
Why is it important to incorporate the green initiative into your personal life?
Going green in my personal life has been an ongoing process, one that I'm more committed to every day. As I learn more and more, I can look back on my progress and see the convenient excuses I used to come up with to justify some less-than-green choices I made in the past. I can also see how big corporations are employing similar excuses for their own choices and the gigantic impact they can have on the planet. It makes me recognize that what happens at the individual level also happens on a much bigger, macro-level with these giant companies. By looking at myself first, I get a perspective that helps me stay focused and determined in my work at coolperx. I've become much more present and intentional in my life since moving from a place of apathy to active sustainable living. It's contributed to more joy and more empowerment in my life.
For example, I know that a large portion of my personal carbon footprint came from the food I consumed. Things like single-use plastic containers that make it simple for manufacturers to deliver food to my house are not often recyclable.
The responsibility of properly disposing of these containers has been placed on the individual. In many areas of the country, like rural North Carolina, where I grew up, recycling programs don't even exist, let alone one that will recycle various types of plastics.
I've started buying more from the Farmer's Market and bringing my own washable containers and totes to carry my items. I choose recipes with my husband and daughter, and shopping is a whole family experience. We don't take our grocery runs for granted, and we don't have to throw away food that we've over-purchased because we choose carefully and only pick what we need for the week. Our diet has immediately improved, and so has our household carbon footprint.
How have you used green personal finance?
Common Interests is a certified B corp specializing in sustainable, responsible and impact investing with a focus on personal financial planning. You might say I’ve made green personal finance my life’s work. This focus has enabled us to be at the forefront of the impact investing movement, and as practitioners with a deep specialization in sustainable investing, we have been able to engage with our partners and others in the financial services industry to create change through shareholder advocacy. We also work to tell the stories of impact investing, through a film festival we helped put on at the United Nations last December.
How can you save money by making the switch?
In the personal finance space, investors may not necessarily save money by moving to ESG based investments, but rather the possibility of achieving better investment returns.
If we look at the recent coronavirus outbreak, stocks with better ESG ratings still fell but outperformed the benchmark in the period between February 19th & March 26th as the outbreak started to spread across the globe. In fact, 94% of sustainable indices outperformed their parent benchmarks between January and March 2020, thus showing you that not only is there an accelerating demand for sustainable investments, but that investing in these funds is likely to lead to better financial outcomes for investors.
How can people incorporate eco-friendly aspects into personal finances?
While a quick Google search will give you plenty of advice for green non-profits and consumer options, a lesser-known money move is aligning your banking decisions with your values. Currently, in America, there’s about $15 trillion on deposit at banks. Banks use these deposits to make loans to individuals and businesses. You can make a statement with your banking deposit by choosing a bank aligned with your green values.
Also, sustainable investing has been a choice for a few decades and now is one of the fastest-growing investment options. Calvert, one of many choices, has a great impact tool on their website that shows you how their investment choices contribute to a reduction in water and fossil fuel usage.
The bonus news is that while there’s conflicting data as to what performs better, during the first quarter of 2020, sustainable choices outperformed their traditional investment choice options.
Number one, invest online, and request that all communication come to you electronically. There's rarely a need to print out paper anymore. Number two, invest with green values. This used to be difficult but now takes a few mouse clicks to achieve.
And finally, pick investments that align with your values. Interactive Brokers and its robo-adviser unit interactive advisers are on the leading edge of this trend. They provide free tools, research and inexpensive portfolios with low minimums to let you do this easily. But there are many other green investing options, so if you want to be green when you invest, it's as easy as taking shorter showers, recycling and turning the lights out.
What's the quickest way consumers can change their buying habits?
I recommend that you become conscious of your buying habits. The catchphrase "vote with your dollar" accurately conveys our relationship with manufacturers and suppliers (like your local grocery stores). It is a good way to create change on a larger scale. Things like choosing a bike over a car or keeping a composting bin are good, but they won't sustainably change the larger consumer marketplace, at least not quickly. My advice is to buy organic and locally grown produce, buy loose carrots and apples. Choose produce in paper containers, not plastic clamshells. Don't buy bottled or boxed water. Carry a recyclable water bottle that you fill at home. Buy powdered laundry detergent, not liquid. And don't sign up for subscriptions that encourage you to buy more than you need. Product subscription services add to the waste problem, both with our budgets and environmental resources.
What is your approach to green-only investing?
There are a number of approaches to “green” investing, and we need to balance our financial and extra-financial goals. In my firm, we begin with modern portfolio theory and build risk-based investment portfolios, which we design to perform in line with our clients’ tolerance for risk. We then work with our clients on the ethical side of investing and talk about what approaches we want to take. Even within our “deepest green” clients, there are a few core disagreements, especially over issues of divestment or engagement. We believe in creating impact through shareholder advocacy, but also offer a set of portfolios that are fully fossil-fuel-free for clients who want to divest.
As green and ESG investing become more widely accepted terms in the financial services industry, they are being used to “greenwash,” or present as sustainable investments that do not work to improve the human condition. Investors who truly care about these issues should work with a specialist that goes beyond the “top line” ESG scores to look at the issues that matter to investors to look past the marketing jargon that has become all too common and find investments that truly align with their values and financial goals.
Some investors have the luxury of having a longer time horizon or the ability to take on more risk. For those clients, we seek out high-impact investments that can have a measurable, long term impact on our planet.
What are some best practices you use to stay green with your finances?
Seek investment outcomes that are genuinely sustainable and don’t treat sustainability as a tick box exercise when choosing your investments.
Familiarize yourself with different types of green and ESG investments available to you.
Align yourself to an adviser and company that can provide you with a range of green finance options.
It is a growing trend, and both companies and individuals need to align themselves with the future of the world and how to make a positive change in their own businesses and personal lives.
In the industry, socially responsible investing (SRI) is often used interchangeably with ESG investing, ethical investing, sustainable investing, green investing or impact investing. But it isn't always clear what this means for you or your investments.
At Interactive Advisors, we believe investors are catalysts for change in the behavior and the companies they invest in. Our approach centers on investing in companies that operate businesses with socially desirable products and services as well as the incorporation of ESG factors into investment decision-making, thus incentivizing better practices from the companies.
We want to empower investors to make more conscious investment decisions and we offer various easy, transparent and low-cost ways for you to express your values.
Our sister company, Interactive Brokers, lets you check your portfolio to see how green your investments are. If your portfolio does not align with your values, the company's technology will instantly recommend alternatives.
What is the biggest return on the investment of living more sustainably?
The biggest return is my ability to be present and have more gratitude and joy in my life. When my husband, daughter and I select recipes and go to the Farmer's Market together, we are more connected and appreciate the meals we eat together.
It's also true that choosing more sustainable actions in my daily life has its own challenges. Puget Sound Energy, our local power company, uses a significant amount of coal to provide electricity to Seattle. We pay to "upgrade" for their more environmentally friendly option, so that's an additional expense. To offset some of the extra costs in our budget, we don't buy items that need to be replaced frequently and don't over consume. I've observed that as people are shifting toward sustainability in their lifestyles, they feel like they need to buy a lot of things to prepare themselves and their lives for a greener lifestyle. They buy multiple reusable grocery bags and water bottles. I suggest starting with just one or two of these items. That is what I did, and it has saved me money, time and the stress of having to make too many choices.
Do you think it’s worth it to go green on every aspect of life or is there a happy medium?
It is critically important to evaluate where we create the most impact through our decisions. Too often, the changes we’re asked to make aren’t all that impactful, although they come at high cost or effort. Every person and business should evaluate their footprint and work on the issues that are either creating the most harm or are the easiest to change. Our sustainability journey began in 2014 when we first became a certified B corporation. The B impact assessment served as a roadmap for us to evaluate our business’s footprint and identified areas we could work on to improve. I think other businesses and individuals can use our journey as a roadmap. We’re extremely proud of our work, and the change in our scores over time is the result of years of hard work. Each business and person is different, but the starting point is the same: get a baseline reading on your impacts and figure out where to start.
How can people incorporate eco-friendly aspects into personal finances?
Principally, the best thing that can be done is being aware of what you are investing in. Taking the time to review and change is a hugely positive step that will benefit both the individual investors and the world in the future.
There are many good companies making positive steps in the green finance space. As an example, the recent call to action on the Business for Nature website provides a gateway for businesses like Microsoft, Diageo and Hitachi to sign up to support each other in urging governments to adopt policies now to reverse nature loss.
Investors can invest in other asset classes such as green bonds that exist to raise money for climate and environmental projects. They are issued by governments, corporations and financial institutions. In fact, last year it was even announced that there would be a ‘“rhino impact bond” intended to transfer the risk of funding conservation from donors to impact investors by linking conservation performance to financial performance. These positive steps will go some way to help us all invest in a world worth living in.
What about outside of the home or office? How can people live everyday life more sustainably?
When I'm out in a social setting or just being a tourist in my own city, I bring water, and I don't buy things packaged for convenience while I'm on the go, including coffee. I enjoy my treats sitting down, and that usually means I am not dealing with packaging that needs to be thrown away and that I'm not wasting money on high priced convenience foods.
Additional Resources for Environmental Finance
There are many resources available to aid you on your green finance journey. Taking the time to do research can help you be more knowledgeable about spending better and saving your money in an eco-friendly way. Below are some resources to get you started.
- 1% for the Planet: Created by Patagonia founder Yvon Chouinard and Craig Mathews, founder of Blue Ribbon Flies, 1% for the Planet helps corporations give to environmental causes.
- Green America: This nonprofit organization focuses on harnessing financial power to facilitate environmental responsibility and social justice.
- Zero Waste Home: Best-selling author Bea Johnson offers advice and resources for living a zero-waste lifestyle.
- Earth Easy: This company makes caring for the earth easy by offering tips, products, news and project how-tos for eco-friendly living.
- Going Zero Waste: This blog focuses on sustainable living and zero waste by breaking it down into manageable steps.
- Energy Star: This site provides information for Energy Star energy rating on products and homes.
- Green Finance Platform: This site provides information regarding eco-friendly finance practices.
- Institute for Sustainable Communities: The Institute for Sustainable Communities facilitates communities addressing environmental, economic and social challenges.
About the Author
Ashlyn Jackson is a financial writer and civil engineer. She's on a mission to show others how to save and spend smarter through budgeting and purposeful money habits. She is also a proud Texas A&M Aggie currently pursuing her MBA. She enjoys spending time with her friends every chance she gets, and you can find more of her work on her website, DearYoungProfessional.com.
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