Wednesday 28 / May / 2025
Paris: Personal finance is a climate blind spot for many — lagging behind decisions on things like diet, travel or shopping when it comes to individual action.
Yet when it comes to lowering a personal carbon footprint, moving to a sustainable pension provider can be 20 times more effective than the combined impact of giving up flying, going vegetarian or switching energy provider, according to analysis from UK campaign group Make My Money Matter.
What role do banks have in funding fossil fuels?
The world's 60 biggest banks are estimated to have committed $705 billion (€619 billion) to the fossil fuel industry in 2023, and $6.9 trillion since the Paris Agreement was reached in 2015.
Much of this is funding expansion plans that fly in the face of science's unequivocal climate warnings.
"We all have pots of money that are contributing to this in various ways without our knowledge a lot of the time," said Adam McGibbon, campaign strategist at US-based research and advocacy organisation Oil Change International, adding that it could be in the form of current accounts, pensions or insurance policies that are reinvested into the fossil fuel industry.
Yet experts note the difficulty in precisely quantifying personal finance's contribution to fossil fuel funding due to complex financial systems and individual circumstances.
This is largely because it is through the corporate rather than retail side of a bank's operations — where individual customers' money is held — that they usually lend money or underwrite bonds for companies developing fossil fuel projects, explained Quentin Aubineau, policy analyst at BankTrack, an international NGO documenting the financial activities of commercial banks.
However, McGibbon added that banks are still using our money to grow their business, create more revenue and attract investors. He said our savings might at the very least be "used to inflate the balance sheet of a bank, which will then allow them to service corporate clients" with links to fossil fuels.
Is there a link between our cash and rising global temperatures?
When it comes to investments, some personal finances go directly into the fossil fuel industry via stocks or bonds, said Carmen Nuzzo, executive director of the Transition Pathway Initiative Centre in the UK, which researches progress made by the financial and corporate world to low-carbon economy.
"This includes investment in oil and gas companies, which have been very attractive and profitable in recent years ... as well as investment in other companies that rely heavily on fossil fuel for their production or service provision, such as steel or aviation," said Nuzzo.
Many people will also be funding fossil fuels through savings going into pension funds that invest in "brown" companies — those within the highest greenhouse gas and carbon-emitting industries. Pensions are usually held and controlled by either the state, employers or private companies.
"You pay into a pension pot, that money is invested on your behalf and some of that may end up being invested in companies that make sure that your retirement will be one where you live in an unstable, difficult world," said McGibbon.
Recent studies have estimated that in a world of 4 degrees Celsius (7.2 degrees Fahrenheit) warming, an average person will be 40% poorer and that pension fund returns in the US and Canada could fall up to 50% by 2040, due to the exposure of assets to extreme climate events.
Pension funds are among the world's largest investors in fossil fuels, with an estimated $46 trillion plowed into the industry and holding 30% of its shares, according to Climate Safe Pensions, a divestment campaign based in the US and Canada. They were also found to be among the leading funders of fossil fuel expansion across Africa.
In 2023, the German investigative platform Correctiv revealed that 10 out of 16 German federal states invested pension funds in fossil fuel activities.
What are green finance alternatives?
While green banks don't always have the most favorable conditions, among climate-conscious people there is a growing appetite for sustainable financial alternatives, said Katrin Ganswindt, a finance researcher at the German NGO Urgewald.
Among the growing pool of green banks are those that pledge to stop lending to fossil fuel companies and invest in climate-friendly activities.
Online tools such as bank.green have also emerged to help consumers compare the environmental credentials of different banks.
But overcoming a lack of financial knowledge is still one of the key challenges, explained Nuzzo.
"In the countries where most people have a pension, individuals do not keep track of where their pension assets are being invested .... or they might not review their options regularly."
Things such as pensions that invest in the long-term are effective places to make a change, said Ganswindt. "Pension funds have a big effect because they invest large sums."
Make My Money Matter estimated that the UK's pension industry could invest €1.2 trillion into renewable energy and climate solutions by 2035.
The green pension landscape is, however, evolving.
In the Netherlands, pension funds for civil servants and teachers as well as health care workers have divested from fossil fuel companies, and in the UK, large pension schemes are also now required to report their climate risks.
What is 'green' and 'sustainable,' and what is 'greenlaundering'?
Yet despite growing awareness and green finance options, there is still a lack of standards and regulation in this space, said Franziska Mager, senior researcher at Tax Justice Network, a UK advocacy group working against tax avoidance.
"Even if you're banking with a 'green' bank, you might be surprised to find out where your money is invested — if you're able to find out, that is. Let alone what the big players define as sustainable," she said.
A recent paper she co-authored on "greenlaundering" in the banking industry said the existence of opaque financial practices — including the use of secrecy jurisdictions, a type of tax haven — obscure the true scale of fossil fuel financing.
When it comes to ETFs — a type of investment fund traded on the stock market — you have been able to say it is "green" and it can mean nothing," said Ganswindt.
There has, however, been recent progress when it comes to transparency, she added, pointing to new EU guidelines that will regulate which companies are allowed into funds that are labeled green or sustainable.
Ultimately, personal finances likely make up a small fraction of the enormous sums of funding fossil fuels — but that is not the point of actions like switching your bank to a greener provider, explained Ganswindt. It's about sending a message.
"Certainly, there's some power as customers, but we have way more power as citizens," said McGibbon. "So great to move to a greener bank, great to move to a greener pension scheme. But ultimately, we could have much more power as citizens, changing the way we vote, demanding the politicians regulate the financial sector."
