Charter for Black Talent in Finance and the Professions

How to use your money to reduce your emissions

Presented By Innovate Finance

By changing how we think about money, we could have a positive impact on the world around us.

When Norwegian shoppers started to see red, amber or green notices on their receipts in 2021, a few eyebrows were raised. An online supermarket in the Nordic country had begun using the traffic light system to draw attention to the carbon emissions from products in shoppers’ baskets. A red notice indicated the basket contained above average emissions for groceries bought at the store, with a green notice indicating the basket scored better than average. The hope is that shoppers would be encouraged to switch from high-carbon buying habits to lower-carbon alternatives.

This kind of carbon-counting nudge tactic is catching on, because how we choose to spend our money on a daily basis can have a meaningful impact on our total carbon emissions. Earthchain, a carbon-tracking platform which breaks down the emissions related to daily spending making it easier for consumers to see how their money affects the climate, is one such example. 

Earthchain enables institutions that have spending data, like banks, retailers and fintech companies, to gain emissions insights from that data. “We can aggregate that into a report which allows you to break down your spending by a carbon budget rather than by a financial budget,” says Dan Graf, founder of Earthchain. “So, you can see, for example, which are the top five areas of your spending that are the most carbon intensive.”

Still startup sized, the company is working with one major bank in the UK to explore how this data could help their customers understand the impact of their spending, and has an app open to anyone which helps nudge consumers towards smarter behaviours.

Graf has worked in financial technology for over 20 years, building systems to process debit and credit card transactions in real time. In those roles, he was exposed to trillions of transactions. “You could watch a person walking down a high street in data. I had this feeling that wouldn't leave me that you can use that information to get some really exciting data about somebody's spending habits with respect to the climate,” he says.

Graf says that Earthchain has behavioural insights that they have gathered through app usage. For example, he says consumers are often surprised to see the difference in emissions from food products grown locally or imported. 

“I think consumers are not very well informed about the impact of their choices,” he says.


“People think that if a product was shipped a long way it is automatically bad. But, it's not always the case.”


For example, fruit and vegetables locally produced in season have low carbon costs. But, buying local fruit and vegetables out of season might be worse than buying imported products from other countries. Tomatoes produced out of season in the UK, for example, are grown in heated greenhouses which have higher total emissions than tomatoes grown in hotter places like Spain.

This is just one example which illustrates that the emissions associated with our spending choices are not always straightforward to calculate. Earthchain is able to capture some of this complexity by working with both retailers and banks. On the retailer side, they are able to see all the goods in consumers' shopping baskets and, with the help of postgraduate students at the University of Manchester, have developed an estimation engine that can calculate emissions from individual products.

“But, on the banking side it's a little bit like taking your glasses off – everything's a little bit more fuzzy,” says Graf. “But we temper that because we can also take consumer preferences and habits into account. So, if we know that the individual we're looking at has a vegan dietary habit and drives an electric vehicle, then we can also assume that their basket is not going to be full of prime rib beef.” So, between user, bank and retailer data, Earthchain is able to build up a profile of a consumer to give a best estimate of where their money enables emissions. 


Graf says that a good estimate is likely the best-case scenario. “Carbon footprinting is not an exact science,” he says.


“If anybody claims they can tell you down to the gram what your carbon emissions are, don't listen to them. What we're doing is giving guidance based on the best available data that we have.”

Graf says that awareness that there is a carbon cost to every financial transaction might encourage consumers to change how they use their money. Aside from daily spending, pensions, investments and savings work on longer timescales and therefore can take account of issues like climate change. 

A pension, for example, is a type of investment – a pension provider invests their customers’ savings in stocks and shares. Worldwide, $56tn (£41tn) is invested in pension funds – that's more than the GDP of the US, China, Japan, Germany and the UK combined, so collectively they have an enormous power to create positive change, says Daniel Lopez Dias, founder of Route2, a London-based sustainability insights company.

Switching from an average UK pension to a sustainable equivalent, for example, could result in a saving of 19 tonnes of CO2 equivalent (CO2e) each year. For many people, switching pensions is the simplest and most effective way to reduce their carbon emissions, says Lopez Dias. 

But arriving at a figure like this is no easy feat. If Lopez Dias were to calculate the emissions from an investment, in a perfect scenario, he would be able to see every single holding in the pension portfolio. For example, if a pension fund holds 1% of the shares of 10 companies, each of which are responsible for emitting 100 tonnes of carbon, then that fund is responsible for one tonne of carbon emissions.

“However, when it comes to looking across the pension industry, you don't have that level of information,” says Lopez Dias. “But you can get access to some of the major pension providers’ overviews of funds which might be 20% invested in technology, 10% in utilities and 30% in food manufacturing, or something like that. And then they will also tell you the geographic spread of their investments, for example, 80% in the UK, 5% in France, and 15% in the United States. 

From this, an estimate can be created of the carbon emissions that are enabled by the fund based on how it's allocating capital across different sectors and geographies. It might seem odd to think that people saving for their pension are contributing to the carbon emissions of large corporations, but Lopez Dias says it’s not such a stretch.

“We have taken the stance, and we think it's a fair stance, that if you own shares in a company [as pension-holders do] then you have some responsibility for the good and the bad,” says Lopez Dias. “Shareholders have the power to change the trajectory of a company.”

By switching from a fund more heavily invested in developed nations and in higher-carbon industries like fossil fuel companies, energy suppliers and mining organisations to lower-carbon industries and less developed nations, a saver could dramatically reduce their emissions over their saving lifetime. Fortunately, many pension providers are starting to offer more sustainable pensions and make switching easy.

Financial services can accelerate change at scale, ensuring money is deployed in line with climate targets, and promoting institutional investments in renewable energy projects and nature-positive solutions. Money has a lot of power to do some good if consumers become more aware of the ways their money impacts the climate, whether through the stocks in which their savings are invested or the transactions they make on a daily basis. Shifting our collective thinking could make positive changes.