As part of our special blog series, Queen's Voices on COP26, Dr Theodor Cojoianu, Lecturer (Assistant Professor) in Finance, and Dr Lisa Sheenan, Lecturer, Queen's Business School, explain the role of finance - including personal finances - in the fight against climate change.

 

The significance of global warming and its negative effects on the planet and society need little explanation as nations, corporations and individuals across the world endeavour to become carbon neutral, that is achieving a state in which their emissions of harmful carbon dioxide are offset by the elimination of an equal amount.

But how exactly can Finance be utilised in the fight against climate change?

The appellation ‘Sustainable Finance’ combines two broad terms that both incorporate a number of areas. The first, ‘Sustainable’, in the context of climate change, generally refers to the ability of the human race to survive without inhibiting future generations from doing so and thus encompasses a range of societal, natural and economic issues. The term ‘Finance’ is equally as extensive, referring generally to money management and capturing a wide range of activities such as borrowing, lending, investing, saving and budgeting.

In an attempt to marry the two terms together, consider a quote made by Economist and Nobel Prize Laureate Robert J. Shiller in 2011:

“Finance is not merely about making money. It’s about achieving our deep goals and protecting the fruits of our labour. It’s about stewardship and, therefore, about achieving the good society.”

Regardless of how far-reaching these terms may seem, it is clear that Sustainability and Finance affect everyone’s quality of life to some extent, from increasing fuel costs to adverse weather events. Therefore, if we, as a society, agree that tackling climate change should be a common objective while acknowledging the power that Finance can yield in terms of achieving such goals, then it can be a powerful weapon in this fight.

But what does this look like in practice? On an institutional level, pension funds and asset owners have a big role to play, as does the de-funding of fossil fuels.

Here we will consider the issue from the perspective of personal finances, specifically how we as individuals can use our own money to work towards a sustainable future.

In terms of personal finances, this refers to the power that we have as consumers to influence change and involves evaluating our own spending habits to ensure that we are not supporting brands and companies that do not operate in a sustainable manner. In order to do this efficiently we must educate ourselves on what this means and take the time to research the enterprises that we choose to give our hard-earned cash to.

We should apply the same principles when deciding where to invest and hold our money, for example what bank to save in. One way to do this is to check an institution’s Environmental Social and Governance (ESG) score, which provides a numerical measure of how a company is performing in terms of these metrics. However, while these scores are useful they are subject to what has become known as ‘green washing’, an unfortunate trend which has seen companies present themselves as much more ‘green’ than they are in reality.

We should therefore complement these scores with additional measures such as:

• Is the company transparent in terms of disclosing its operations?
• Is the company fair trade?
• Are the company’s products animal-cruelty free?
• Does the company have any accredited certifications to attest to its sustainability?

While this additional research may seem time consuming these small changes can have a huge impact in terms of tackling climate change.

 

Dr Theodor Cojoianu and Dr Lisa Sheenan

Queen's Business School