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November 01, 2007

Green Financial Products Take Root in North America
    by Anne Moore Odell

A new report commissioned by UNEP FI lists green financial services and products as it makes the case for green banking's environmental, social, and economic benefits. -- There has never been a better time to invest greenbacks with the environment. The financial institutions that offer green financial products and services are well positioned to reap the benefits, both financially and environmentally. So says the new report, "Green Financial Products and Services: Current Trends and Future Opportunities in North America" from ICF International (ticker: ICFI).

Please support
our sponsorsThe report was produced for the United Nations Environment Programme Finance Initiative (UNEP FI). It was presented last week at UNEP FI's summit in Melbourne, Australia. The Summit was called to examine sustainable development for the financial services sector.

The UNEP FI is a collaboration between the private financial sector and the United Nations' Environment Programme. Its mission is to "identify, promote, and realize the adoption of best environmental and sustainability practice at all levels of financial institution operations." Currently, it has more than 160 financial institutional partners.

"We had a large gathering in Melbourne to discuss the challenges and opportunities around sustainable development in the financial sectors," said Lisa Petrovic, Programme Officer with the UNEP FI. "Before this report, the emphasis around climate change has been around the issue of risk. Now, with this report, we are starting to see business opportunities around climate change."

Focusing on global best practices in green finance, the report covers many aspects of the financial sector, including asset management, corporate and investment banking, insurance, project finance, and retail. Looking at green global benchmarks, it then examines how Canada and the United States are positioned to continue the green financial products currently offered and extend new types of products and services.

Based on research conducted early this year, the report draws on questionnaires submitted to UNEP FI North American Task Force Members (NATF). Its authors also conducted interviews with various members of NATF, and other regional UNEP FI Members, mainly European financial institutions. They also interviewed a handful of smaller, non-UNEP FI financial institutions with innovative product designs and experiences, including New Resource Bank (NRB) and Shorebank Pacific.

"In the context of this report, 'green' is solely in reference to environmentally oriented financial products and services or, more specifically, offerings by financial institutions that are designed to encourage environmentally sustainable practices and behavior among their clients," explained Katie Sullivan, Associate, at ICF International and one of the report's authors who traveled to the UNEP FI meeting in Australia

The take-away from the Melbourne meeting for Sullivan was the importance of ensuring products and services are linked to real, verifiable environmental benefits.

Because the report takes a wide view of the financial sector, many different products are examined, for example, energy efficiency mortgages, alternative energy venture capital, and eco-savings deposits.

A number of factors is helping drive the demand for green financial products, the report puts forth. An understanding and awareness about environmental challenge and solutions by stakeholders along with the increased media coverage about environmental challenges and solutions is one of the major factors. International principles and standards, for example the PRI and the Equator Principles, are also driving this trend. Specific countries likewise have environmental regulatory and disclosure requirements.

One of the best practices Sullivan pointed out in green financial products is the Australian bank mecu's goGreen auto loan. For each loan, the bank considers a GHG rating associated with the vehicle type and charges an interest rate accordingly. Another green consumer product noted in the report is the Barclaycar d Breathe, a credit card that donates 50% of its profits to organizations that work to reduce carbon dioxide emissions.

Financial institutions in the US and Canada have much to learn about green banking products and services, the report notes. They are behind European financial institutions that are blazing the green path.

"That financial institutions in North America are realizing the value in developing these types of green products," said Petrovic. "We're seeing a sea change in North America and you will see a lot of new products come out in the market over the next six months."

One reason financial institutions in the US are behind European institutions in their offerings of green financial products the report offers is the large size of US banks, which continue to grow with mergers and acquisitions. Because US banks have less regional competition than European banks, they have less reason to innovate and offer green products.

The US government also requires less transparency on environmental issues than European governments. European banks must publish a required annual sustainability report. US banks have also focused more on community development over the environment, the report states, although more US and Canadian banks are developing environmental programs.

One interesting chart, "Appendix 2: Environmental trends in North America," outlines the potential costs, implications, and potential opportunities of environmental trends. For instance, it lists water as an eco-area with the environmental trend being drought and more people without access to clean drinking water. The potential risks are the competing interests for water, while the potential opportunities are multi-stakeholder water management projects and businesses focused on desalination, water purification, containment removal, and water recycling.

The report concludes: "As environmental understanding and awareness grows in North America, so too will the demand for products and services aimed at facilitating the advancement of environmentally sustainable lives, livelihoods, and communities. At the same time, this demand will also expose new business opportunities, while leading to an increased diversification of products and services found in multiple sectors."

Green financial products are one of the most visible ways for financial institutions to work toward sustainable development. With green products, customers trust their financial institutions to protect both their money and the earth. This report makes a good case for the development of environmentally friendly financial products and services that will not only develop greener communities, but make money for financial institutions as well.

ICF International is a worldwide professional services company that works with governments and private companies. ICF consults in a number of different fields including climate change, the environment, energy and social programs.

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