Climatic change and alternate energy methods designed to reduce the environmental impact are mentioned on virtually every news programming station. The idea of changing one's lifestyle to help save the environment has gained global support and generated many initiatives to "Go Green." Moreover, regulatory requirements and guidelines designed to reduce carbon emissions and curb waste are expected to be enacted and become increasingly more stringent as federal, state, and local governments pursue environmental cleanliness. This article defines the concept of going green for bankers, highlights the possibilities for business growth, examines the green consumer, explores potential regulatory requirements, and provides ideas and resources for implementation and further research into going green.
Going Green Defined
Going green refers to individual action that a person can consciously take to curb harmful effects on the environment through consumer habits, behavior, and lifestyle.1 Going green is predicated upon increasing sustainability while limiting environmental impact. The Environmental Protection Agency (EPA) defines sustainability as meeting the needs of the present without compromising the ability of future generations to meet their own needs.2 Many industries have embraced the concept, including the financial community.
Opportunity for Green Growth
Various industries have begun to address the impact that their products and services will ultimately have on the environment. Likewise, the number of environmentally conscious consumers is growing, creating greater demand for products and services that allow them to support environmentally sound efforts.
Businesses and investors have recognized that climate change is an increasingly important factor in every business decision, from corporate strategy to investment planning. Within the financial community, environmental concerns have largely served as a catalyst for innovation and opportunity.3 In fact, a recent article published in the American Banker suggests that almost all banks now highlight their efforts at sustainability in their annual reports.4
While going green or increasing sustainability may seem to be a daunting task, many in the financial industry believe that the promise of revenue growth and customer-base expansion could ultimately improve a bank's bottom line, thereby increasing shareholder activism. According to Jim Reichbach, the vice chairman of the banking and securities sector of Deloitte and Touche USA LLP, and Charles Lockwood, an environmentalist and real estate consultant, it's time for executives to see green for what it isâ€”a major opportunity for growth. Their assessment is further supported by statistics like Innovest's 2006 global list of the 100 most sustainable corporations, as these 100 corporations outperformed those listed in the World Index by a cumulative 80.0 percent.
In addition, a study conducted by the United Nations Environment Programme (UNEP) Finance Initiative in August 2007 details various innovative green financial products and services for retail banking, corporate and investment banking, asset management, and insurance.5 While the overall success of many of the innovative green products have not been fully validated, it is clear that there is a market for green products, driven mainly by the environmentally conscious consumer.
The Green Consumer
According to findings from the 2007 ImagePower Green Brands Survey conducted by WPP's Landor Associates; Penn, Schoen & Berland Associates; and Cohn & Wolfe, environmentally conscious consumers expect to double spending on green products and services within this year, raising such spending to $43 billion per month, or roughly $500 billion annually.6 Consumers who support sustainable businesses so their dollars can impact social and environmental concerns represent Lifestyles of Health and Sustainability, or LOHAS. They seek out companies that share their health, social, and environmental interests and priorities. In the United States, LOHAS consumers make up a $200+ billion marketplace for goods and services, and the LOHAS marketplace is expected to grow to $425 billion in three years and to $845 billion by 2015, according to research conducted by the Natural Marketing Institute.7
Tapping into the green marketplace does present unique challenges and risks. Steve Bishop, a global leader of Design for Sustainability at IDEO, an innovative design company, indicates that marketing directly to the green consumer can be challenging because the majority of consumers seek to satisfy their personal needs before considering those of the planet. Furthermore, he argues that companies should avoid focusing on a green niche and instead focus on green behaviors to which everyone can aspire.8 Many financial institutions have heeded such advice and have encouraged customers to adopt services like electronic bill pay and e-statements to eliminate waste.
While the green consumer represents opportunities for expansion and possible revenue growth, corporations are warned against greenwashing when introducing environmentally conscious products. Greenwashing is the act of misleading consumers on the environmental benefits of a product or service or on the company's environmental practices.
The Green Regulatory Environment
With growing environmental concerns and increased regulations for green building standards, which have been passed by major U.S. cities, additional mandates for increased energy efficiency and reduced greenhouse emissions for corporate facilities may not be far behind.9 Corporations are exploring ways to implement efficiency measures to save additional energy through their operations by reducing the need for carbon-emitting energy and increasing the use of greener technologies. Various financial services leaders have vowed to reduce their carbon emission footprint (i.e., reduce their emission of greenhouse gases into the atmosphere) within a specified period.
Over the past few years, the American political scene has undergone a major shift with respect to environmental issues, in which the mid-term U.S. elections created a circumstance where the question is not will carbon regulatory constraints be enacted, but how soon will these be implemented? Currently, there are a number of climate change bills being proposed in both the U.S. Senate and the House. Furthermore, the UNEP Finance initiative study suggests that the first North American banks to pursue corporatewide or productwide carbon neutrality will likely achieve reputational benefits and positive, widespread media exposure.10
Beyond the Hype: Implementing Positive Change
Beyond the recent "going green" marketing hype, there is the opportunity to recognize the impact of global climate change through research, education, and the reduction of greenhouse gas emissions. Banks can participate in these efforts in several ways, including developing a comprehensive program to reduce greenhouse emissions, purchasing electricity from renewable sources, adopting an energy-efficient appliance purchasing program, and committing to a policy that new construction conform to the U.S. Green Building Council Leadership in Energy and Environmental Design (LEED) Silver standards.11
The commitment to go green must be supported by effective policies and procedures throughout the bank. Furthermore, the directorate and senior management must carefully consider the various risks associated with introducing new green banking products and services, particularly the reputational risk associated with greenwashing, if the consumer perceives that there is no environmental benefit derived from the product or service being offered.
The directorate is ultimately responsible for determining the strategic direction of the organization and ensuring that capable senior management operates in accordance with the strategic objectives. Any commitment to going green or increasing sustainability must be well communicated by the directorate and should encompass all areas, including risk management, lending, investing, sustainable product use, facilities, and employee initiatives.
More information on environmental programs, strategies, studies, and initiatives is available through the following resources:
The CoStar study on green buildings
Learn more about your carbon footprint
The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.