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Green Trend Adoption Is Becoming More Essential For The Financial Services Industry

Forbes Technology Council

CEO at Urjanet, helping companies unlock the power of utility data to support climate action, financial inclusion, and data privacy.

Public concern for the environment and sustainable business practices have been on the rise in recent years. Going green is gradually becoming a core part of many business strategies, from retail and manufacturing to financial services. Compared to 37% in 2019, a 2020 EY report found that 52% of banks view environmental and climate change as an emerging risk over the next five years.

Green business practices are capable of more than generating positive public sentiment. By incorporating sustainability into decision-making, organizations have the opportunity to make not only a positive impact on the environment but also turn a profit. 

A study conducted by NYU Stern Center for Sustainable Business found that implementing sustainable practices often increased financial performance. Additionally, in 58% of their studies, there was a positive correlation between ESG (environmental, social and corporate governance) and financial performance. Current trends indicate that the financial services industry has the opportunity to both influence and benefit from implementing green-oriented initiatives. 

Financial Institutions Can Influence Green Adoption

As the world works toward recovering from the impact of the coronavirus pandemic, environmental and sustainability advocates are hopeful that this will be the opportunity to transition to clean energy. Companies have the chance to emerge even stronger and more resilient. This calls for more sustainable finance that banks and lenders can support. 

Climate advocacy groups push public financial institutions to align their investment policies with carbon emissions reductions and other sustainable development goals. A team leader from the environmental organization 350.org argues that as companies transition from fossil fuels to renewable energy, financial institutions can use their influence to lead the way. In recent years, lenders, banks and investors have realized that climate change extends beyond the climate crises. It’s also crucial to all parts of the economy.

At the 2020 Finance in Common Summit, managing director Kristalina Georgieva spoke on the role of public development banks in boosting sustainable and inclusive growth. They can set an example for other markets by increasing finance through investments in sustainability and green bonds and making changes to reach underserved populations proactively. 

Supporting Green Opportunities Can Accelerate Recovery

While interest and demand for sustainable investments gain momentum, so has green financing to support these efforts. Initiatives range from green bonds and large-scale industrial investments that target climate change to small personal loans that encourage consumers to buy more eco-friendly products. This growth in financial activity is driving business recovery, and according to Crédit Agricole CIB, green financing is expected to increase by 55% to roughly $726 billion in 2021. 

A great example of the financial services industry and environmental agencies working together for the greater good is the Fannie Mae Green Financing Business and Multifamily Green MBS. Using its position and reputation as a leader in the financial market, Fannie Mae provides financing to co-ops, apartment buildings and homes. Its funding supports property improvements for water and energy efficiency, green building certifications, affordable housing and more. 

Similar programs are driven by the federal government’s proposed infrastructure plan, which offers lenders the opportunity to increase lending and impact economic recovery. Top investment and financial services companies are taking steps to help their clients. JPMorgan aims to provide financial services for up to $2.5 trillion for companies and projects targeting climate change and social inequality. Goldman Sachs created a $750 billion fund for investing, advisory and financing activities to aid their clients in their climate action and inclusive growth efforts.

Eco-Friendly Finance Improves Inclusion And Sustainability

The pandemic revealed how critical sustainability is to continuity and preparedness. It also emphasized the need for greater financial inclusion, which can also benefit the banking and lending industry. Addressing the economic disparities revealed by the pandemic requires new ways to introduce financial inclusion to the more than 63 million people who are underbanked and lack traditional credit files. Many of these consumers are creditworthy and can be qualified through alternative data sources.

In the future, we may see eco-friendly scores for consumers as a part of loan screening processes that are considered alongside traditional credit scores. As for small businesses, Addisu Lashitew, a research fellow at the Brookings Institution, recommends creating a Small Business Green Recovery Fund that offers financial support through green grants, green bonds and green loans. The proposal calls for a $50 billion federal fund that promotes green investments among small businesses that advance climate change mitigation and other sustainability solutions.

A Step Toward An Eco-Friendly Business Strategy

A first step to making climate and sustainability a business strategy is adopting green initiatives within your organization. When concern for the environment is also an internal focus, it is more likely to impact all facets of decision-making.

Successful engagement of your organization in climate action and sustainability activities can be challenging, but there are ways to overcome the barriers. At Urjanet, we have observed three ingredients to driving participation: education, gamification and results.

• Education: Action is not possible without awareness. Employees need to understand the environmental challenges, the consequences of irresponsible behavior and how individual efforts can make a difference. We enlisted the help of an organization to conduct training at the office to launch our composting program.

• Gamification: Participating in green initiatives can also be fun. Our company hosted a vegan challenge to encourage employees to decrease their consumption of animal-based foods. Making programs competitive is always a great way to get more people involved and motivated.  

• Results: Publishing results is also crucial. For any program to be successful, everyone needs to understand the quantifiable impact their sacrifices had on reducing carbon emissions or water conservation. 

For financial service providers, these ingredients can also help improve the success of any green program. Educated customers are more likely to change behavior, and providing incentives encourages a desire to do more. Publishing results, both environmental and economic, not only allows you to measure your success but also demonstrates your organization's contributions to building a more green-conscious society and sustainable future.


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