Green, ethical, and sustainable banking: the ultimate guide to eco-friendly money in 2023
- Green finance is an umbrella term for money management products and practices that are environmentally and socially responsible.
- There are many ways to get into green finance, such as through investments, home and car loans, or savings accounts.
- Green finance has become a popular option for savvy Australians thanks to climate change.
- Many major banks and financial institutions have started incorporating green money into their business, but there’s still a long way to go.
Introduction: why is green finance important?
When it comes to tackling climate change and other modern crises, a lot of the burden has been on individuals to change their behaviour. But while remembering to turn off your lights is great, it just doesn’t offset an electrical grid reliant on coal.
This is where green finance comes in. Banks and other financial institutions play a significant role in choosing which industries get funded – and which don’t.
So if you’re interested in creating meaningful change, choosing who gets to use your money and how can be a crucial part of the puzzle.
Here’s what you need to know about going green with your finances.
- What is green, ethical, or sustainable finance?
- What are some green or ethical practices to look out for?
- How is green, sustainable or ethical banking measured?
- What is greenwashing, and how do you spot it?
- How to check whether your bank or superannuation is actually green
- What are some ways to turn your finances green?
- Can you save money by banking green?
- What are the pros and cons of green finance?
- Is going green the future of finance?
What is green, ethical, or sustainable finance?
Green, ethical, and sustainable finance are all umbrella terms for money management services or products that are conscientious about their impacts.
Whether it’s investing in climate change solutions, going carbon neutral, or simply rewarding customers for eco-friendly behaviours, banks and other institutions have many different ways to ‘green’ their business.
These terms are often used interchangeably, but there are a few subtle differences between them.
- Green finance specifically means the institution invests in or supports environmentally responsible industries and solutions, like carbon capture or clean energy.
- Ethical finance is broader, generally encompassing humanitarian and social issues like animal welfare or equal rights.
- Sustainable finance is the most inclusive overall term according to the United Nations Environment Programme (UNEP), since it includes all of the above and more, such as economic and governance considerations.
You might also see a firm claim it only makes ESG investments (environment, social, and governance), which means it funds initiatives focused on these specific and sustainable areas.
Either way, these industry buzzwords are good ones to look out for if you’re keen to park your money in a more conscientious place.
What are some green or ethical practices to look out for?
Because modern crises like climate change affect every part of our society, every part of our society needs solutions. Some examples of sustainable initiatives include:
- Clean or renewable energy, such as solar, wind, hydroelectric, or nuclear power.
- Zero waste, such as recycling.
- Workers’ rights.
- Humanitarian aid.
- Electric vehicles.
- Carbon capture and storage.
- Climate justice.
- Green scientific research.
- Charity or non-profit donations.
- Equal rights.
- Anti-modern slavery solutions.
- Animal rights.
Though this may sound like a lot, many of these issues feed into each other and break down into the three broad ESG categories. Luckily this means by supporting at least one, you’re putting your dollars toward a solution that could help in multiple ways.
How is green, sustainable or ethical banking measured?
Unfortunately, there’s no one universal standard for sustainability, which can make classifying green finance tricky.
In Australia, there also isn’t a comprehensive regulatory framework for how organisations can transition to a more sustainable model, which has resulted in a lot of confusion – and weak progress.
For instance, the Australian Prudential Regulation Authority (APRA) – a government body in charge of supervising banks, superannuation funds, and insurance providers – recently found that nearly a quarter of surveyed institutions didn't have ways to measure and monitor their progress towards sustainability.
Without a clear way of moving forward, any climate-related targets these institutions had were often left vague and unattainable – despite nearly 75% of institutions claiming they had targets in place, and all major banks standing to lose money due to climate change.
“The survey findings indicate that most survey participants are taking this issue seriously,” says APRA deputy chair Helen Rowell, “however they also underline that this remains a new and evolving area of risk management.”
So without solid regulation, how do we measure a bank’s level of social responsibility?
Green money stamps of approval
Luckily, there are a few international frameworks we can use, and many have already been incorporated by Australian institutions.
For example, the Task Force on Climate-related Financial Disclosures (TCFD) gives institutions guidance on how to set and achieve measurable climate targets. The Corporate Sustainability Reporting portfolio from UNEP does a similar thing.
There is also the Climate Bonds Standard and Certification Scheme, which assesses loans, bonds, and other debt-creating products for how well they align with the 2015 Paris Agreement.
Look out for institutions that have been “Climate Bonds Certified” to see if they meet this goal. Institutions might also mention they align with the Climate Bonds Standard (CBS) or Climate Bonds Initiative (CBI).
Other important standards include:
- The sustainable finance guidelines of the International Capital Market Association (ICMA).
- Certification through the B Corporation (BCorp).
- Membership to the Global Alliance for Banking on Values (GABV).
What is greenwashing, and how do you spot it?
Corporations have cottoned onto how good sustainability can be for their public image. As such, some engage in ‘greenwashing’, which means they advertise themselves or their goods/services as more eco-friendly than they are.
This is a form of marketing spin and can be extremely misleading for well-intentioned customers.
Some classic warning signs of greenwashing include:
- Vague but fluffy language. Throwing out terms like “natural”, “ethical”, and “eco-friendly” may sound good, but what do they truly mean? Coal is technically all-natural, but its overconsumption is still bad for the environment.
- Talking the talk but not walking the walk. Some banks will make claims over their greenness without fully backing them up with practice. For instance, they may not directly invest in fossil fuels, but they still invest in corporations that do.
- Outgreening the competition. The bar can be pretty low, so simply saying you’re better than the competition isn’t often saying much.
- Overuse of ‘green’ images or designs. The human eye can see more shades of green than any other colour, and the institution’s branding seems determined to use every. Single. One.
- Lack of evidence. Unsubstantiated claims are a massive red flag. While something may sound good in theory, is it scientifically backed up? What do the experts say?
While it can be annoying to do extra research just to see through a bank’s advertising, it’s still better than getting duped by good PR.
How to check whether your bank or superannuation is actually green
If you’re wary of greenwashing and want to find the real deal, there are some ways to know if a bank, super fund, or insurance provider is sustainable.
Check with green regulators
Market Forces in particular makes it easier to see whether an institution invests in (or is owned by someone who invests in) problematic industries like fossil fuels.
HOT TIP: Pay attention to “positive screens” (i.e. what an institution definitely invests in) and “negative screens” (what they don’t).
Read the documents
Next, look deeper at the relevant product disclosure statements (PDS), financial service guides (FSG), and any sustainable or responsible banking policy documents to know exactly what an institution will do with your money. These should all be available through an institution's website or in-person offices.
The PDS and FSG will also have general terms and conditions and other important information for you to review, too. Treat these like you would any other financial product – don’t go all in on green promises alone.
Consider the definitions
When reading, pay attention to how the institution defines terms like sustainability, particularly if you’re thinking of switching to a green bank.
Sometimes institutions will market their whole business as sustainable, while others will only offer specific financial products with a greener focus. Look for action items and measurable goals at a macro level, not just vague promises.
Look for green stamps of approval
Accreditation can help lend claims legitimacy, too. Does the institution meet any international standards of sustainability, such as through APRA, UNEP, the CBI, or the TCFD?
Compare what’s out there
Lastly, compare whatever you find to other options on the market. This can give you crucial context for how something performs (or doesn’t) in the wider world.
What are some ways to turn your finances green?
There are plenty of ways to go green with your money, whether it’s switching banks, accounts, loans, supers, or insurance policies. Let’s break down some of the options (though this list is by no means comprehensive).
Australia has quite a few ethical bank options to choose from. Some of the best or most popular include:
- Bank Australia. Won a 2022 Mozo Experts Choice Banking Apps & Tech Award in the Excellent Banking App category and four 2023 Mozo People’s Choice Banking Awards for “Most Recommended”, “Outstanding Customer Satisfaction”, "Highly Trusted", and "Excellent Customer Service".
- Teachers Mutual Bank, which is consistently ranked as one of the top sustainable banks in Australia and won three Mozo Experts Choice Awards (one car loan, one personal loan, and one credit yard) in 2022.
- Gateway Bank. Won a 2022 Mozo Experts Choice Best Banking Award for Australia’s Best Small Mutual Bank.
- Bendigo Bank. Won a 2023 Mozo Peoples Choice Banking Awards for "Excellent Customer Service".
- Suncorp, whose Carbon Insights Account won Exceptional Everyday Account and Banking Innovation of the Year at the 2023 Mozo Experts Choice Savings Awards.
Each of these banks offers services like savings accounts, term deposits, and loan options, which gives you plenty of ways to get involved. If you find one you like, it’s easier to switch banks than you think.
Green credit cards, BNPL, and personal loans
Credit cards, Buy Now Pay Later (BNPL), and green personal loans have also become new areas for conscientious consumers.
Credit cards taken out through sustainable banks can make good options, especially if they come with a low-interest rate, zero fees, and eco-friendly features like Gateway Bank’s non-plastic debit card. Check out our sustainable credit card hub for more information.
Digital payment leader Visa launched a way for credit customers through eligible banks to measure and offset their carbon footprint. It as also announced a pledge to reach net-zero emissions by 2040, which if successful, would beat the Paris Agreement by a full decade.
As for BNPL, Humm and Brighte both offer green options such as loans for the purchase and installation of solar panels. The providers won Mozo Experts Choice BNPL Awards in 2022 in the “Major Purchases” and "Specialist Services" categories respectively.
Green home loans
Nothing gets you thinking of the future quite like a home loan, so it makes sense borrowers have been interested in going green.
While the big banks have been slower on the uptake, there are plenty of smaller lenders who offer green home loans, including:
- Bank Australia
- Regional Australia Bank
Gateway Bank also shines here again, since they won a 2023 Mozo Experts Choice Home Loans Award in the “Green Home Loan” category. So did Bank Australia!
If you’re thinking about refinancing to a green home loan, make sure you seek consultation from a mortgage specialist and compare features and eligibility criteria to other options on the market. Your dwelling will like have to meet green housing standards, like a 7+ energy star rating from the National Housing Energy Rating Scheme or Green Star Home certification.
Green energy providers
Going green with your energy is a crucial part of voting with your dollars since greenhouse gas emissions are the main culprit behind rapid climate change.
While Australia’s electrical grid is still largely reliant on fossil fuels like coal and gas, renewables like solar, wind, and hydropower have made up increasingly large shares of the market. In fact, for roughly half an hour in August 2022, solar was the top provider of electricity in Australia.
If you want to switch to a sustainable energy option, there are a few ways to do it (aside from installing solar panels on your roof).
Firstly, you could sign up for a government-accredited GreenPower Plan, which supplements a percentage of your electricity with a renewable energy source local to your area.
GreenPower Plans don’t convert all your power to clean energy and can be a tad more expensive than standard electricity (anywhere from 5c - 8c more per kWh). However, even choosing a 10% GreenPower option can help invest in greening Australia’s grid.
You could also compare energy providers and switch to one that uses clean sources or supports sustainable energy initiatives.
If you want a good place to start, the 2022 Mozo Experts Choice Energy Awards feature some green and solar-friendly winners for New South Wales, Victoria, Tasmania, Queensland, South Australia, and the ACT.
The 2023 Mozo People’s Choice Awards also boast some of the best renewable energy providers, as voted by your fellow Australians.
Green ESG investing
If you’re more of the share-trading type, investing in ESG spaces can be a great way to make some ethical returns. Mozo has also rounded up the best share-trading platforms for when you’re ready to dive in.
Ethical superannuation funds
Another long-term investment to consider greening is your superannuation fund. The ideal ethical super will positively screen for sustainable investments like clean energy while negatively screening against exploitative or polluting ones like live exports or fossil fuels.
Can you save money by banking green?
Yes, it does pay to go green. In 2021, Mozo found you could save up to $2,300 a year by switching your personal finance products to more ethical options.
Many of these options, such as CommBank’s Green Home Offer, reward customers for eco-friendly behaviours with sharper rates and added benefits. So while it depends on what you’re looking for and your situation, going green could save you money.
Besides, climate change is expensive: wild weather drives up home and car insurance premiums and jeopardises billions of dollars worth of property. For a cheaper future, we need to save our present.
What are the pros and cons of green finance?
There are significant benefits to green banking, both for your finances and the planet. For instance, sustainable banking can be:
- Great for the environment. By diverting money and support away from problematic industries, you can help protect the environment and mitigate the effects of climate change.
- Great for humans. Climate change carries deadly consequences, so sustainability is about more than just the planet. By supporting green initiatives, you’re helping make life better for other people around the world.
- Great for your money. To stay profitable, sustainable banks have had to get clever about how they handle your money, whether it’s offering you special green savings or investing in solutions that’ll only become more important as time goes on, like electric vehicles.
- Transparent about investment and banking practices. You know what your money is doing and why, which can be refreshing and informative.
However, there are some drawbacks to keep in mind. Green financial services and products:
- Might have expensive fees or lower initial returns. Not every green financial option is available to everyone, whether it’s because green prices are prohibitive or initial interest returns just aren’t as attractive, especially short-term. Conscientiousness can sometimes be a privilege.
- Might not have as many options available. Sustainable banking is still relatively new, so choices are somewhat limited for now – but they are getting better and broader!
- Can contain traps in the fine print. Sometimes the nuance can be covered up by a clever green marketing campaign. Cast a careful eye over the fine print so you know what you’re getting into before switching.
Ultimately, any financial decision has to make sense for you and your unique situation. But it doesn’t have to be all or nothing – even opting for just one greener product now can make a huge difference later.
Is going green the future of finance?
Nothing inspires hope for the future like green initiatives. Even big banks like CommBank have begun to take steps towards greener products, which is a major indication sustainability is seen as not just necessary, but profitable. In a capitalist system, that’s how change happens.
But while it’s fantastic to look forward to the possibilities once the industry broadens and green money becomes standard practice, it’s also important to keep in mind this is all happening now. Sustainability may be the future of finance, but it’s also the present. Climate change can feel massive and scary, so when anxiety sets in, it’s time to get proactive.
If you’re interested in greening your finances, we’ve linked some places you can start below.
Keen to green your money? Here’s where you can start
More FAQs about green finance
What is the difference between green finance and sustainable finance?
These buzzwords sound similar (and often get used interchangeably), but have subtly different meanings. "Green" finance focuses more on the environmental side of things, while "sustainable" finance is a broad umbrella term for financial products and products that are environmentally and socially responsible.
It's a little like "all thumbs are fingers, but not all fingers are thumbs". An eco-conscious investment like renewable energy could be considered both green and sustainable, whereas investing in social justice organisations would fall under sustainability (not green finance).
What is the most ethical bank in Australia?
Without a standard way of classifying green banks in Australia, this question is a little tricky to answer. However, there are a few financial institutions rated highly for their green, ethical, and sustainable business. These include Bank Australia, Gateway Bank, Teacher's Mutual Bank, Bendigo Bank, and Beyond Bank.
Other smaller mutuals and state banks have been notably green, too, especially compared to the big banks, which often get a significant portion of their business from exploitative industries like weapons, mining, and fossil fuels.
To check whether a bank is ethical, look at where it invests its money and whether it has been certified by any ethical organisations like B Corp.
What is an ESG score?
ESG stands for "environment, social, and governance" and indicates which sustainable issues an organisation, bank, or security supports. An ESG score is an objective measure of how well the particular organisation invests in these areas. Because there is no one universal standard for assign ESG scores in Australia, corporations come up with their own scoring systems.
Institutions will use ESG scores in their advertising to show how sustainable they are. When researching whether an organisation is sustainable, look into how they calculate their ESG scores and how it compares to similar organisations on the market. This will tell you how competitive and green their practices are.
Which Australian banks DO NOT invest in fossil fuels?
Many Australian banks and credit unions don't invest in fossil fuels, including some that used to previously but don't anymore. This includes Bank Australia, Auside, Bank First, Teacher's Mutual Credit Union, Gateway Bank, Greater Bank, Heritage Bank, Hume Bank, IMB, Move Bank, P&N Bank, Newcastle Permanent, QBank and Qudos Bank, Queensland Country Bank, RACQ Bank, Sydney Mutual Bank, Southern Cross Credit Union, and more.
However, just because a bank says they don't directly invest in fossil fuels, doesn't mean they can't fund them indirectly (such as by investing in companies that do invest in fossil fuels). Always check a bank's green and investment policy documents so you know exactly where your money is going.
MarketForces has a complete list of banks that do and do not invest in fossil fuels (though keep in mind it hasn't been updated since 2020).
Do banks fund wars?
Banks can sometimes directly or indirectly benefit from war. This includes lending to warring governments, earning commissions from selling war bonds, or financing weapons manufacturers or other war profiteers supplying goods and services to the military. Banks may also invest in other companies who invest in or receive funds from these areas.
To check if your bank helps fund wars, read through their investment and ethical business policy documents. Research how they have responded to international military conflicts and whether they have a history of funding weapons development or problematic organisations. You can also reach out to them directly and ask what their rules are for which industries/companies receive investments and why.
How hard is it to switch banks?
Switching banks daunts a lot of people because they fear getting wrapped up in red tape or slapped with exit fees. For this reason, many Australians are often more likely to break up with their partners than their banks.
However, the switching process is much simpler than you may think. Once you've compared bank accounts and found one you're happy with, simply apply to open an account with the new bank, change over regular payments like employment income or bills, and close your old bank account. Your new bank may even assist you in the process: they're getting your new business, after all.
Is greenwashing illegal?
Greenwashing is the practice of misleading consumers by advertising a service or product as more sustainable, ethical, or eco-friendly than it truly is. In the strictest definition, greenwashing is technically illegal because it's a breach of Australian consumer law. The Australian Competition & Consumer Commission (ACCC) has rigorous rules for organisations surrounding how they can advertise their green products, what language they can use, and what claims they can make – even how they format pictures and graphics.
If you suspect a company has greenwashed its marketing, you can report it to the ACCC by filing a consumer complaint. The ACCC will investigate the incident and determine if action is needed, such as amending or pulling the campaign, or fining the responsible party.