As the world grapples with climate change, we’re seeing a growing demand for green finance solutions. This is an opportunity for credit unions to capitalize on this growing market and benefit from potential growth opportunities.
By embracing green finance, credit unions can increase their profile as responsible lenders and be part of the fight against climate change. Green finance involves offering financial products that support environmental sustainability and combat climate change – such as renewable energy investments or financing eco-friendly projects.
This type of finance also has the potential to generate significant returns by investing in businesses that prioritize environmental responsibility. Credit unions can take advantage of these economic opportunities while simultaneously helping to create a greener future.
Inflation Reduction Act Spurs Green Finance in 2023
Recently, community development financial institutions (CDFIs) and minority depository institutions (MDIs) will be using provisions from the Inflation Reduction Act to expand their green lending.
This is just the latest in a number of green finance initiatives that we are likely to see grow in 2023 and beyond. But what is green finance and how can you leverage these initiatives at your credit union to create the growth you can feel good about?
The Future of Banking
As interest rates climbed and then plateaued in 2022, so does short-term profitability. But if the last few years have taught us anything, it’s that nothing is certain even in the short term.
This is where green finance makes its move.
So much of the financial forecasting we previously relied on has garnered mixed results as of late. Because of this, credit unions and banks are looking for ways to diversify their services and appeal to members who have their eyes on the future.
In McKinsey’s “Global Banking Annual Review 2022,” analysts go through some of the major factors driving banking into a “new era.” The review recommends for banks and credit unions to evolve from “more traditional business models to more future-proof platforms.”
These future-proof business models include focus areas like differentiated customer relationships, new customer access, and revenue sources, and innovation based on truly entrepreneurial endeavors. But one of the biggest ways to future-proof, according to McKinsey, is to target “environmental transformations.”
These transformations are led by the growing need for sustainable and green finance initiatives.
CU Growth & Green Lending
According to the 2022 McKinsey report, “the volume of sustainable syndicated loans, including green loans and sustainability-linked loans, totaled $683 billion in 2021, up by more than 200 percent from 2020.” The volume of sustainable bonds was up by 80% from 2020.
Financial industry changes are often valued below many other industries, and that is partially due to the net losses that are recorded by certain subsections of the industry overall. Despite all that, sustainable debt markets fared better than the overall debt markets. This upward movement is not likely to slow in the coming years, as initiatives around the globe are harnessing green finance as a way to expand sustainable initiatives.
These initiatives also help credit unions share in the investment and building of resiliency in the communities they serve. As consumer behavior and green initiatives gain traction, it also creates opportunities for credit unions to be on the front lines, supporting and financing those changes in areas that need it the most.
Why CUs Should Promote Green Lending Now
The McKinsey report goes on to talk about how the growing market for green finance also shows that few banks and credit unions have the short-term ability to finance some of the largest green initiatives that are gaining popularity including infrastructure, green hydrogen, green fuels, biomass, and carbon capture and storage.
But this creates a unique opportunity for credit unions, especially those in IRA-qualifying spaces, to start working with local community initiatives and small businesses on loans for these great green ideas.
Solar and wind power have been the topic of green finance and green lending for several years, even in areas that are not densely populated. These areas, where many credit unions thrive, will see an uptick in interest for these renewable energy resources, and that is a great opportunity to start working on offering sustainable loan packages and other programs that speak to this interest in businesses and infrastructures going green.
As more and more businesses and governments lean towards these green initiatives, it’s important that your credit union already has the infrastructure and capacity to serve this audience in the near and distant future.
Use Your CU Data to Pave the Way Forward with IMS DataArchiver
Data discovery is a great way to see what your credit union history looks like when it comes to green finance initiatives. The IMS DataArchiver is your SaaS solution for exploring rapidly growing amounts of data from on-premise storage to cloud storage and everything in between. It protects your data and also gives you helpful tools for finding specific data types with data visualization and e-discovery features.