5 Questions To Ask About Financial Sustainability

When it comes to financial sustainability, you’re going to want to know as much as possible. As the negative effects of climate change exacerbate, financial sectors are (finally) starting to shift their investments toward Environmental, Social, and Governance (ESG) considerations. 

Sustainable finance is the process of taking ESG considerations into account when making viable investments. That means putting money into companies that develop renewable energy, hire and promote employ members of marginalized communities, and infrastructure that will help protect humans in at-risk environments. 

This is a very serious, very complicated issue that we are running out of time to meaningfully tackle. There is also the risk that many of these efforts are performative (see: greenwashing), we have to make sure we are keeping those in power accountable. 

Once again, we bring in our favorite finance expert, Danetha Doe Chief Economist at Clever Real Estate and creator of Money & Mimosas. There is a lot to consider when financing sustainability – and she’s here to break it down in a digestible way. 

Here are 5 questions you should ask when considering financing sustainability, as explained by Danetha Doe. 

Are these investments profitable? Or is this just charity for rich folks to pat themselves on the back?

Imperial College of London’s business school ran a multi-country analysis comparing the returns from each country’s largest fossil fuel and renewable energy stocks over the last 10 years. They found that renewable energy stocks delivered higher returns for both 5 and 10-year time periods. 

Some people such as Kara Swisher and Chamath Palihapitiya think the next trillionaire will be someone that cracks a major problem in green energy. And for better or for worse, Elon is the richest person in the world based primarily on Tesla’s value. 

All this to say, the answer is YES. You can care about the planet and make money at the same time.

Will these investments actually help the environment in tangible ways? How soon?

Broadly, yes, these investments will help – and are helping – the environment in tangible ways. Investing in solar panels, rainwater harvesting, and electric vehicles while divesting from fossil fuels will help to reduce the pollution from power plants. 

The timeline of course correcting the damage that has already been done depends on a lot of factors. addition to investments from individuals, we need governmental bodies, Wall Street, and other parts of the private sector to continue to get on board. 

President Biden’s Inflation Reduction Act includes environmental measures that will go a long way to support climate change efforts. The fashion industry, one of the biggest pollution culprits, has started to place a bigger emphasis on resale which will help to reduce waste. Wall Street has pumped out ESG funds that are more greenwashing than helpful, so we will need to hold them accountable. 

As an individual, the way you choose to spend and invest your money will go a long way because it will force corporations to prioritize sustainability efforts.

Will taxing the wealthiest people their fair share help? Would something like a ban on private jets help?

The short answer is maybe. The corporate tax structure may need to be reviewed, but I’m a bigger fan of adding fees to resource use to cover the externalities and then redistributing those funds to climate change efforts. For example, Kourtney Kardashian exceeded her water allotment budget by 101,000 gallons in June. Instead of increasing her base income tax percentage, maybe there’s a fee of $1,000 for each gallon over the allotment budget. The $101,000,000 fee is then redistributed to technology companies solving the freshwater scarcity crisis. 

Instead of banning private jets, you should have to pay a carbon fee for each ride. These fees might not stop the behavior, but they could finance the changes needed to get us to a greener future.

There are wealthy people who are actively trying to help with climate change efforts. Instead of penalizing all of them with a blanket tax, I suggest adding fees to resource use.

What kind of expenses will we be looking at if we fail to address climate change?

Deloitte’s report shows that inaction will cost the U.S. economy $14.5 trillion by 2070. Utility officials in Illinois estimate the warmer summers could cost locals an additional $11 billion over the next 30 years. By 2040, extreme heat in Arizona could add up to $110 to residents’ electric bills each year, according to the Environmental Defense Fund.

The Federal Reserve Bank of Chicago predicts homeowner’s insurance premiums to rise due to climate change. In fact, some insurers have already stopped covering parts of California deemed too risky because of wildfires

Why me? Why do I have to make these changes? Should it just be the corporations since they’re the ones ruining the world?

This is an all-hands-on-deck scenario. Corporations should be held accountable, but they do respond to your spending and investing decisions. Greenwashing wouldn’t exist if corporations thought no one cared about the environment. At the very least, be selfish and think about the fact that the quality of the environment directly impacts you. The more you do your part, the greater chance you’ll have at being able to enjoy the beautiful outdoors without worrying about fire smoke ruining your lungs or extreme flooding wiping out your island vacation home.

Where Do We Go From Here?

Investing in ESG is critical – but we have to be selective where we divest and relentless in our pursuit to ensure accountability. Further things to consider when financing sustainability are: 

• Are these ESGs contributing to organizations or projects that counteract environmental harms perpetuated by the company? Or are they arbitrary investments that let them greenwash their reputation/only investments that provide “accreditation” over genuine impact?
• Are ESGs investing in genuine solutions, or projects that perpetuate inequities and environmental harm?
• Are companies engaging with ESGs also changing their own practices? Probably not: “They found that the companies in the ESG portfolios had worse compliance record for both labor and environmental rules. They also found that companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations.”
  • Also – looking at ESG investments relative to a company’s other investments is imperative.

We send many thanks to Danetha Doe for her expertise in the financial field and her lovely disposition. Be sure to check out Money & Mimosas for other financial tips! 

Big thank you to Molly Blondell for her perspective on sustainable finance as an expert in the field. 

We can solve the climate crisis – we have a lot of work ahead of us. Get involved in your community, start in your neighborhood. Organize a clean-up, press your local officials to get serious about recycling programs, any little thing you can do helps. 

Let’s get to work.