The green revolution has been underway in the energy sector for two decades; now it’s transforming the financial sector.
If your bank is not making the transition, it risks missing out on lucrative and innovative opportunities in the new green economy.
Companies everywhere are building climate and sustainability into their business strategy and value propositions. New standards and operating models are being set. Just like the transition to the digital economy of the 2000s, the transition to the green economy will be all-encompassing and deeply transformative. Banks are an integral part of the broader economy, from household to national level, and those not urgently undergoing this essential transformation, risk becoming irrelevant in the changing commercial landscape.
To be clear, this decade will see nothing short of a sea-change in how businesses operate and where investments are made. Banks will only remain viable by greening their business and, to stay competitive and able to attract talent in the workforce and the best clients, they need to act now.
There are huge advantages for banks in leading this change, both in terms of reputational kudos and in financial risk reduction, such as limiting their exposure to bad loans. Greening a bank is about more than simply adding a few sustainable products, but help is available. Deep institutional change does involve time and effort, but it is essential and there are new business opportunities that early adopters can be part of.
“Green banks are the future. Climate change can no longer be viewed as just an environmental concern as it affects all economic sectors,” explains Borislav Kostadinov, Fund Director at Finance in Motion, advisor to the GGF. “But a green transformation needs everyone in the financial ecosystem to play their part.”
Governments know that reaching their NetZero emissions targets requires significant investments across all sectors of the economy, and greening the banking system is key to making these investments happen. As a result, the policy landscape is changing across the world, with new financial initiatives and regulations that shifts capital toward green objectives, and addresses climate-related and environmental financial risks.
This presents an excellent opportunity for banks to differentiate themselves in their local market by offering customers green lending packages and establishing a reputation for progressive environmental business services. GGF, the market leader in green finance, has a long track record in supporting its partners to make the green transition, and provides valuable technical advice and organisational assistance.
“We can help banks develop a green portfolio, by understanding what green products they can offer their clients, in the corporate, retail, households or other business space,” says Lachlan Cameron, Director at Finance in Motion, advisor to the GGF. “For instance, banks might specialise by offering householders loans for solar panels, or make green infrastructure investments with renewable energy companies.”
Riding the green wave
The trend around banking has already shifted in the EU and other major economies, with regulations that require institutions to analyse their finance chains for carbon emissions, and other climate risks – lending capital for a housing development on a floodplain, or a factory for combustion vehicles, is increasingly difficult and unattractive; whereas, investments in renewable power initiatives and energy-saving improvements, is becoming cheaper and easier. It means that when industries apply for finance, they are asked detailed questions about their carbon emissions and environmental impact.
While banking institutions in the EU must already comply with the existing regulatory framework for greening finance, those in neighbouring nations stand to benefit from adopting a green strategy now. Investors and lenders outside the EU can future-proof their businesses by aligning now with stricter EU regulations. Increasingly, this will give them better access to finance from the EU. Early adopters entering the green banking space stand to profit from long-term benefits, including a less-risky portfolio and reduced possibility of reputational damage from problematic investments.
“’Deep greening,’ or in other words, integrating sustainable finance principles provides a business opportunity for banks to build a strong portfolio of high-quality green assets, and win the most innovative clients by positioning themselves as distinctive market leaders in the green banking market,” says Kostadinov. “That’s why we are supporting financial institutions navigate sustainable finance developments as they create diverse green financial instruments.”