Greening the Moneylenders

August 18, 2000

By Michael Jessen

Money makes the world go 'round, but how your bank lends your money can affect the way the Earth spins.

Financial institutions often use the word community, but rarely mention the word environment. While the colour on the bottom line of their financial statements is boldly black, the colour green is pitifully pale at best.

Most banks and credit unions give in excess of one percent (some as high as five percent) of their net profits to support initiatives like health care and education facilities, the arts, youth activities, and other community social service programs. "The banking industry has a long-standing commitment to support communities where we do business, and where our employees and customers live and work," Jim Hudson, the incoming chair of the Canadian Bankers Association's British Columbia committee said in 1998.

On its web site at www.bmo.com, the Bank of Montreal says: "...we work with Canadians to build lasting and livable communities" yet last week announced it was selling bank branches in Kaslo, Rossland, Creston, Grand Forks, Kimberley, and eight other small BC communities to local credit unions.

With the exception of Canada Trust's long-standing Friends of the Environment Foundation, rarely does a bank assist environmental projects. More importantly, few financial institutions consider the environmental implications of the loans they make. In reality the lending policies of our banks are contributing to sprawl in our communities. If they can meet a lender's test of character, collateral, and consistent ability to repay a loan, both developers and individuals can receive loans to build homes that contribute to energy wastage, traffic congestion, and the actual breakdown of community. (The April 2000 issue of Audubon magazine indicated urban and suburban sprawl eats up more than 3 million acres of farmland and wildland each year. In Atlanta -- the fastest growing city in the U.S. -- 50 acres of trees are felled each day to make room for new homes.)

What if financial institutions reduced interest rates on mortgages for homes that utilized solar, wind, or water power resources instead relying solely on the electricity grid? What if financial institutions reduced mortgage rates for borrowers without cars, much as the life insurance industry lowers rates for non-smokers? What if financial institutions gave incentives to small and medium-sized enterprises to invest in eco-efficiency improvements?

All corporations have a responsibility to behave sustainably. Financial institutions have been especially slow to recognize that sustainability relates to the environmental, social, and economic aspects of their operations. Considering their dominant position in our economy, it is not unreasonable to ask our financial institutions to recognize that they too have environmental obligations to society.

Some advances are being made. The Citizens Bank of Canada (wholly owned by VanCity Savings Credit Union) claims to be the only bank in Canada with an ethical policy that publicly states its position on eight key social and environmental issues. The policy states the bank will not invest in or do business with companies that cause excessive environmental harm or are involved in the production of nuclear energy. One of the bank's non-profit partners is Evergreen, a Toronto-based charity that works with communities to naturalize their urban areas, enhance their green spaces, and plant native trees, shrubs and flowers. The bank's Shared Interest VISA program asks members to nominate an environmental group for an annual donation.

At VanCity, Community Investment Deposits support community projects that have no negative social and environmental implications. VanCity also has an EnviroFund to support community initiatives that grows through donations made by the credit union based on 5% of VanCity VISA card profits. These are excellent first steps, but some American and European financial institutions are doing more.

Socially responsible banking first received national attention in the mid-1970s when the South Shore Bank turned a poor decaying section of Chicago into a respectable area with pleasant housing and thriving shops. South Shore performed its miracle by investing in its own neighborhoods with money from its own depositors and from socially concerned savers throughout the U.S.

In July 1997, Shorebank Corporation opened ShoreBank Pacific, the first American eco-bank in Washington State with a focus on environmentally sustainable and community development investments. ShoreBank Pacific and its non-profit affiliate, Shorebank Enterprise Pacific, were created in partnership with Ecotrust, a Portland, Oregon non-profit corporation that works with civic entrepreneurs committed to increasing economic opportunities in harmony with their environment. ShoreBank Pacific's EcoDeposits assist environmentally sustainable businesses such as a fine furniture manufacturer that uses certified woods from sustainable forests and an innovative company that uses composted leaves in its technologies to filter pollutants out of stormwater run-off. Other loans have funded oyster growers, cranberry farmers, and ecologically conscientious lumber companies. With an environmental scientist on staff, ShoreBank Pacific assists its borrowers to use energy efficiently, reduce waste and pollution, conserve natural resources, and optimize profitability.

The Triodos Bank, founded in 1980 in the Netherlands, belongs to a widespread network of national and international financial institutions active in the social economy. Triodos finances exclusively the development of renewable energy sources (solar and wind), organic agriculture, art and culture, protection of the environment, and conservation of nature.

The European Union initiated the Growth and Environment Scheme in 1995 to facilitate environmentally friendly investments in the interest of sustainability. A network of 25 banks in all 15 member states offer small or medium-sized enterprises preferential financing terms for projects that produce significant environmental benefits. Examples of funding include energy saving equipment, motors that produce less carbon dioxide, wind power-generating equipment, and solar cells for hotels.

Banks normally consider negative environmental factors related to risk and liability when granting loans, but the G&E Scheme puts a positive spin on environmental analysis. Participating banks often have an environmental department dedicated to environmental assessment or make use of external environmental consultants to assist in evaluating environmental eligibility. By the end of June 1999, some 1,400 businesses had benefited from the G&E Scheme for total investments of 525 million Eurodollars. Loan amounts averaged 265,000 Eurodollars and the respective businesses had an average of 19 employees. The European Investment Fund guarantees a part of the risk (up to 50%) of each loan.

Even a city can get into the act. The City of Chicago has dedicated $10 million in city funds to be deposited in banks that lend to small businesses for pollution prevention, site cleanup, or complying with or exceeding environmental regulations. The purpose is to make more loans available to small businesses for environmental projects by giving banks an added incentive to lend.

And then there is the location efficient mortgage or LEM which recognizes that people who prefer public transportation, walking, or bicycling have minimal car ownership expenses. This fact allows mortgage lenders to recognize the savings and stretch their standard debt-to-income ratios, allowing some people (previously disqualified) to qualify for mortgages and others to qualify for larger mortgages. The LEM can revitalize urban neighborhoods and sustain service businesses that might otherwise see potential customers move to the suburbs where often the only way to access services is by car at a mall.

The LEM is an initiative of Fannie Mae (the largest non-bank financial services company in the world and America's largest source of financing for home mortgages), the Center for Neighborhood Technology in Chicago, the California-based Natural Resources Defense Council, and the Surface Transportation Policy Project in Washington, DC. LEMs are currently available in Chicago, Los Angeles, San Francisco, and Seattle. In Seattle, a location efficient mortgage from HomeStreet Bank comes with discounted annual Metro passes provided by King County Metro.

While these innovative ideas are being implemented in big centres, there is no reason why small communities cannot develop variations on these schemes. After all their future development is at stake. Financial institutions that have complete control over our deposits, consumer credit, small business and mortgage lending, are beginning to realize they need to use some of their annual double-digit profit increases to more environmentally and socially appropriate purposes. The results in Europe and the U.S. indicate responsible, environmentally friendly investments can be rewarding.

ONE SMALL STEP- Social and environmental improvement should be the concern of everyone in society, including the moneylenders. Money talks and money has power, including the power to do good. Ask your bank or credit union if it is considering implementing any of the ideas expressed in this column. Ask your financial institution if it has well-established ethical policies and whether it belongs to the Canadian Business for Social Responsibility, a not-for-profit organization of profit businesses that commit to implementing and acting upon socially and environmentally responsible policies and practices.

RESOURCES - Citizens Bank is a national bank that does it all without branches. All transactions are done via the 24-hour telephone service centre or over the Internet. The bank's web site is www.citizensbank.ca. VanCity Savings Credit Union has a web site at www.vancity.com. South Shore Bank can be found at www.sbk.com. ShoreBank Pacific is at www.eco-bank.com. Triodos Bank has a web site at www.triodos.com. An article on the Growth and Environment Scheme appeared in the Autumn 1999 issue of Greener Management International (GMI) published by Greenleaf Publishing and can be accessed at www.greenleaf-publishing.com. Details about the City of Chicago's environmental loan program can be found at www.ci.chi.il.us/Environment/Brownfields/ELP.htm. Information about location efficient mortgages can be found at www.locationefficiency.com. Fannie Mae's web site is www.fanniemae.com. Four excellent articles about the rationale for location efficient mortgages can be found at www.cnt.org/lem/apa.htm, www.vtpi.org/tdm/tdm22.htm, www.transact.org/Toolmonth/1999/december.htm and www.smartgrowth.org/library/housing_afford_goldstein.html. The Office of the Superintendent of Financial Institutions regulates financial institutions in Canada and information on their assets, liabilities, and statements of income can be viewed at www.osfi-bsif.gc.ca. Canadian Business for Social Responsibility has a web site at www.cbsr.bc.ca. The Summer 2000 issue of Alternatives Journal (published by the Faculty of Environmental Studies at the University of Waterloo, Ontario) is devoted to the issue of sprawl and contains examples being tried around the world to combat it.

Michael Jessen is the owner of toenail environmental services, a consulting firm dedicated to helping business profit from environmental leadership. He can be reached at toenail@netidea.com. His firm's award-winning web site is at www.toenail.org/.


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