5.3.2 Initiatives within the Private Financial Sector
While on one level the private financial sector has no special reason to consider
environmental issues, many are beginning to realise, like much of the rest of
business, that environment is a strategic issue for them, and a particular focus
has been climate change. It is with adaptation to the impacts of climate change
that progress has been most rapid as financial institutions recognise that climate
change could directly affect their business. Insurance companies are increasingly
aware that climate change could increase their losses on property and general
insurance (e.g. from increased sea level rises and storm damage). Banks could
also see the undermining of the security behind much of their lending. As a
result, some insurance companies have become increasingly active, and have been
working with others to develop and transfer technology in this area. Measures
taken have included: adjusting premiums to reflect risks (where they are permitted
to do so), thus sending a clearer signal about the dangers of climate change
to owners and developers; working with local authorities on preventative measures
such as enforcing building codes and zoning; and developing disaster recovery
measures such as improved telephone support.
In the other areas of climate change the mainstream financial industry has had
a less direct impact, and to date most financial institutions have made only
a modest commitment to supporting the development and use of mitigation technologies,
and particularly to overcoming some of the barriers identified in Section
5.1 as preventing greater investment. However, progress has been made in
some areas - for example, bankers no longer regard wind energy technologies
as being a particularly high risk.
Certain financial institutions have been prepared to innovate and show leadership
in finance related to the environment. For example, some banks have also been
active in working with smaller businesses to improve their environmental impact,
often with a focus on energy efficiency, through providing advice and information.
In doing this they hope to improve the credit standing of their clients, as
well as secure general environmental benefits. Some banks have also instituted
lending programmes with more favourable terms than in ordinary lending for businesses
seeking to reduce their environmental impact.
Other initiatives within the private financial sector include:
Green financial institutions. While most mainstream financial institutions
have paid only modest attention to the environment, a number of smaller organisations
or groups within organisation have made it a major feature of their activities.
These "green financiers" are usually driven by, firstly, the growing
number of investors with concerns about the environment and a desire to see
their money invested to take account of these concerns and, secondly, a high
level of personal commitment by the professionals involved. These green financial
organisation are much more prepared to work to overcome some of the problems
identified earlier, either independently or in conjunction with the public sector.
Many of these "green" financiers are involved in some of the activities
above. They include:
- a number of Ecological or Social Banks (typically very small, although
growing) that focus on providing fairly low cost lending for environmental
and other worthy projects, and have strong links to the micro-credit movement
(see Box 5.3);
- environmental equity funds which invest in listed "green" companies
(many billions of dollars are now invested in such funds, but they are limited
in the extent to which they can provide money to new ventures);
- a few environmental venture funds and specialist corporate financiers which
provide support to new environmental businesses.
While these green financiers are still small as a proportion of the overall
financial markets, they are providing a very useful pathfinder role in developing
new concepts and ideas. There appears to be substantial merit in the public
sector finding ways to support them and work with them to encourage their work.
|Box 5.3: Environmental Protection Bank in Poland
An example of a successful green financial institution is the Polish
Environmental Protection Bank. Established at the beginning of the 1990s,
it has received substantial equity investments from the Polish National
Fund for Environmental Protection. Share capital has also been raised
several times from strategic investors and from the private sector. The
bank was listed on the Warsaw stock exchange in 1997 and became the world's
first publicly traded bank specialising in environmental protection financing.
In 1997, the bank granted over 27,000 individual credits and loans worth
PLZ 1,431 million (363 million Euros). The bank lends primarily to businesses
(54 %), municipalities and other public-sector entities (26 %) and individuals.Specific
environmental investments make up two thirds of the bank's portfolio.
The bank held a one-per cent share of the banking market in Poland (in
terms of total assets of all commercial banks), and it has built up a
good reputation for quality of services as well as for financial performance.
Collective initiatives and organisations. In recent years a number of
initiatives and organisations have been created to bring together industry participants
to look at environmental issues as a collective basis. The most notable have
been the UNEP initiatives, where banks and insurance companies have signed a
statement on the environment, and subsequently the signatories have formed organisations
to develop further activities. Other organisations have developed, mostly at
a national level, to further the cause of environmental investment, such as
the Social Investment Forum (US), UK Social Investment Forum, VfU (Verein fur
Umweltmanagement in Banken und Versicherung) in Germany/Switzerland and the
Social Venture Network (US). These organisations provide forums for networking,
information gathering and sharing experiences. They also have been involved
in lobbying for change and encouraging investment and green finance.