A guide to greener banking: I divested my personal finances and you can too – here's how
What if your money was quietly fuelling the climate crisis – and you had no idea?
If you bank with one of the big four or have retirement savings in superannuation, there's a good chance it is. In Australia, many major banks and most default super funds continue to invest in fossil fuel companies and their coal, oil and gas projects, driving global warming.
That's where the global divestment movement comes in.
Divestment means shifting your money out of harmful industries and into more ethical, climate-positive alternatives. It's the opposite of investment – you simply pull your capital out of companies or funds that contribute to environmental or social harm.
Over the past few years, I've delved into divesting my personal finances and learned some key ways this shift can make a real difference.
If you only tackle one area of divestment, make it your super – it's often your largest pool of money beyond property, and too often it's channelled into fossil fuels.
The climate lobby group Market Forces estimates $150bn of Australians' retirement savings – roughly $6,200 per member account on average – could be tied up in 190 global companies driving the most climate damage. And such investment is growing, meaning our retirement savings are increasingly being used to create a more polluted world to retire into.
One way to find a better option is to use the Market Forces comparison tool. It profiles more than 70 fund options, pinpointing just seven that fully exclude fossil fuels and the so-called 'Climate Wreckers Index' of the world's worst polluters.
Using this type of information, I divested from a large Australian super fund which has known investments in fossil fuels and moved to a fund that excludes major polluters such as Woodside, Whitehaven Coal, Santos, Origin and AGL.
Justin Medcalf, co-founder of Ethical Advisers' Co-op and Unless Financial, says to beware the 'devil in the detail'. For example, some funds use a tiered threshold screening, which may allow investment in companies earning limited amounts of their revenue from coal mining.
'A lot of investors assume that having a screening process in place means zero exposure to fossil fuels. It can be a rude surprise to discover there is still exposure,' Medcalf says. 'Ultimately, there is no perfect portfolio. For now, it's 'how do we create the best version of something that isn't perfect?''
All four of Australia's big banks – ANZ, Commonwealth Bank, NAB and Westpac – pour billions into fossil fuel projects each year, as do many other major players.
In 2021, when searching for my first mortgage, I saw the chance to divest from a big four bank and switch to a more ethical option. I told my broker I wanted a home loan that was both competitive and backed by a bank that doesn't fund fossil fuels. We landed on one of the few with a cleaner track record.
To find out where your bank stands, use Market Forces' Compare Banks tool. It includes a 'tell them to stop' button, so you can quickly send a message and easily demand change. That's crucial, says Medcalf. 'A lot of people move their money but don't say anything, so the bank never knows why. A key part of the divestment movement is communicating,' he says.
And it works. Just last year, Commonwealth Bank broke ranks and announced it would stop financing fossil fuel companies that don't comply with Paris climate goals. 'That was quite a considerable win and a lot of that is attributed to the divestment movement,' Medcalf says.
If you're investing in shares, ETFs or managed funds, beware of greenwashing. Many mainstream investment products – even those labelled 'sustainable' or 'balanced' – still include major polluters.
Tools like the Responsible Investment Association of Australasia's certification and the Ethical Advisers' Co-op's Leaf rating can help you find investment products and services that meet high standards of environmental, social and ethical performance.
'We need a mindset shift,' Medcalf says. 'Rather than thinking 'what can I avoid?', think 'what can I actively invest in?' Yes, we want to avoid industries that aren't creating a positive future, but we can also get behind the industries of the future.'
And divesting doesn't have to mean missing out financially – it may even boost your returns. RIAA's 2024 Benchmarking Report shows responsible investment funds have outperformed mainstream ones by 3% over 10 years, and 1.5% over five years.
For long-term investors, especially those in their 30s and 40s, Medcalf says it makes sense to start factoring in environmental risk. Fossil fuel assets are increasingly seen as vulnerable, with tightening regulations and the growing risk of becoming 'stranded' and unprofitable.
If you want to go a step further, consider strategically buying into a polluting company along with fellow shareholder activists who then band together to demand change from the inside. You can get started with as little as $500 using the Sustainable Investment Exchange (SIX) platform.
Whether you divest, reinvest or become an activist shareholder, the point is the same: your money is powerful and you can actively choose whether it props up harmful industries or helps build a better future.
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