What Is Green Banking?
A green bank or green banking is when financial institutions invest in climate-friendly projects like renewable energy and offer products and services that help their customers adopt green practices.
Their focus is on reducing their carbon footprint and their impact on the environment.
Some examples of green banking practices are:
- Not investing in fossil fuels and coal mines
- Using solar power in their offices
- Offering discounted interest rates for customers who install solar panels, double window glazing, etc.
- Waiving application fees for its green products
- Using customers’ money to invest in renewable energy, sustainable housing, etc.
What Green Loans And Products Are Available?
Depending on your choice, there are different loans and products available for you to make a green choice.
- Green home loans: A lender will reward you for either buying, building or renovating your property to be energy-efficient and sustainable. The most common green home loans available are for green home improvements.
- Green car loans: Get finance for buying an electric or hybrid vehicle at a competitive interest rate compared to standard car loans
- Green term deposits: When you put money in a green term deposit, the lender will invest an equal amount into projects like wind and solar energy, low carbon and low carbon buildings.
What Are The Pros And Cons Of Green Banking?
Green banking is great for the planet, and can also be great for your pockets.
| Benefits Of Green Banking | Drawbacks Of Green Banking |
|---|---|
| The bank is diverting money away from industries that are detrimental to the environment | Most banks might still have ties to industries like oil, fracking, etc. |
| You get significant discounts on green home loans | Depending on what you want, you may have only a handful of options to choose from |
| You are supporting green initiatives | The bank might be greenwashing and using clever marketing to show they’re green, without actually making a difference |
Is My Bank Green Or Ethical?
While financial institutions often use the terms green, ethical and sustainable interchangeably, there are differences among them:
- Green finance or green banking is when financial institutions support or invest in projects and industries that care for the environment. These include renewable energy and carbon capture.
- Ethical finance, or ethical banking, is a broader category that includes addressing social, humanitarian and environmental issues. These include human rights, animal welfare and more.
- Sustainable finance is even more expansive. It includes green and ethical finance and economic considerations. This is where banks incorporate their environmental, social and governance (ESG) principles.
How Green Is My Bank?
While several banks promote themselves as green and do their part to reduce their environmental impact, it is difficult to measure how green a bank is in Australia. A bank can be ethical in some ways and still not be the greenest, especially if it is still funding industries like coal and other fossil fuels that harm the environment. Since banks know that a reputation for sustainability will improve their image, they often give misleading or exaggerated information about how eco-friendly they are. This is called greenwashing
What Is Greenwashing?
Greenwashing is when companies market and portray their activities, policies and products as sustainable and eco-friendly but they aren’t. They spend time and money claiming to be green rather than implementing practices that truly minimise their environmental impact.
When financial institutions engage in greenwashing, it has repercussions:
- They may gain an unfair advantage in the market through aggressive and misleading advertising – until consumers find out they have been misled.
- Even if they invest in renewable and green energy, they are still contributing to greenhouse-gas emissions if they also invest in fossil fuels.
- Customers may not have the accurate information necessary to make informed decisions; they may think their deposits are used for sustainable investments and activities.
- The banks are often not held accountable for their actions.
- They fail to contribute to the growth or advancement of environmentally friendly technologies.
How Do Australians Feel About Responsible Investing?
A 2022 survey conducted by the Responsible Investment Association Australasia found that:
- 74% of Australians would consider switching lenders or providers if the current one was greenwashing or engaging in activities that do not align with their values
- Three-in-five Australians would be more motivated to save money if they knew their investments made a positive impact.
- 75% of the population seeks independent certification of companies’ claims about sustainability by third parties.
How To Spot Greenwashing
It can be difficult to know if a bank is green, since there are no standardised checklists and requirements to review.
When you think about putting your money in a green bank or using a green financial product, ask these questions to avoid greenwashing:
- Are the financial products true to what is being advertised?
- Does the bank invest in fossil fuels?
- What is the state of progress with the lender’s green commitments?
- Are terminology and jargon explained properly?
- Is it easy to get and access information?
- What metrics are they using to measure sustainability?
If the bank has used vague messaging and terminology and you don’t understand if the product is sustainable or green, this is a sign of greenwashing. If there’s no transparency in information, then question the bank about it.
Greenwashing is any attempt to hide the fact that banks are investing in fossil fuels or oil companies, or distract consumers from such activities. Find out if your bank has ties to oil, gas and coal companies. They might invest in green projects but still have investments in fossil fuels, too. Get information about their investment portfolio to see if it aligns with your stance on sustainability.
Responsible and ethical banks will report to their customers about their sustainability and green commitments. Look for a history of their sustainability reports to see if any progress has been made or if they are lying about their efforts.
The meanings of ‘ethical investment’, ‘socially responsible’ and ‘impact investing’ can vary among people. Institutions should clearly define the meanings of the sustainability-related terminologies they use.
Information about their green products and services should be readily available on their websites. You should also be able to access their sustainability reports. Ensure the messages are consistent across all mediums.
There should be an explanation of how the bank is measuring its environmental impact. It should disclose the third-party services used to track the performance of the institution’s green initiatives.
Asking the right questions can help you make an informed decision about a bank’s responsibility and accountability. If you would like to get a home loan from a green and ethical bank, talk to our mortgage brokers today. Call us on 1300 889 743 or enquire online.