By Arthur Newman
To put it mildly, consumers haven’t always had a favorable view of finance companies, especially after the Great Recession. Until recently, the pure focus of the vast majority of consumer finance companies, such as banks and credit card providers, has been to maximize profit, fees and other “fine-print” costs. These practices rarely sit well with the public, as they often generate distrust and skepticism.
Further, the public is demanding more and more social responsibility from the organizations from which they buy goods or services, and forward-thinking financial services companies are figuring this out.
Consumers shifting toward responsible companies
While there will always be naysayers pointing to the dwindling group of indifferent consumers, the evidence is clear that more that 80 percent of global consumers care about corporate social responsibility (CSR). Not only do they care, but it also influences their decisions regarding what to buy or where to shop (87 percent), which products and services to recommend to others (85 percent), and even where to work (81 percent). Additionally, 62 percent of Americans feel it is important to buy goods or services from socially responsible companies, and 30 percent actually increased their socially responsible shopping in 2014. On top of this shift in the majority of attitudes, 42 percent of North American consumers say they are willing to pay more for products and services provided by companies that are committed to positive social and environmental impact
As in the case of the fossil fuel industry, consumer finance companies’ talk of sustainability can evoke strong skepticism and accusations of greenwashing or hype. Commitment has to be tangible: a measurable, additive and verifiable improvement, rather than simply adhering to current regulations or running self-congratulatory marketing ads. Designing sustainability programs for financial services is additionally challenging because the traditional CSR focus on areas such as production, transportation and supply chain sometimes do not apply to finance companies. Thus, a greater level of creativity is required. Sometimes social responsibility initiatives can be internally focused on areas such as power usage, power consumption and wage practices. Alternatively, the focus may be on using the business to drive external goods, such as providing funding to address social problems.
Moreover, for sustainability initiatives to be credible, companies must also look at their investments to see where divestment in environmentally harmful industries should occur.
An innovative approach to ‘green’ consumer banking
A few forward-thinking organizations are developing financial products and funding models that have the potential to do great good, while simultaneously incentivizing consumers for sustainable actions. Case in point is Sustain:Green, which recently introduced the biodegradable Sustain:Green MasterCard, issued by Commerce Bank, which helps consumers reduce their carbon footprint and fund rainforest preservation through transparent retirement of carbon offsets.
For every dollar in net merchandise purchases made with the Sustain:Green MasterCard, the company reduces the user’s carbon footprint by 2 pounds. In addition, a bonus 5,000 pounds of CO2 are eliminated after the card’s first use, with other bonuses based on spending throughout a given financial quarter. In a sense, Sustain:Green is creating an automatic consumer market for carbon offsets, where the industry has struggled to motivate consumers on their own.
How does Sustain:Green overcome public skepticism? First, the process is automatic; the user doesn’t have to do or pay anything to be rewarded with offsets, and the card has no annual fee. Second, it’s transparent: Users can track the reduction of their carbon footprint through their personal online dashboard, and both this reduction and the provision of money to the Mata No Peito rainforest initiative is recorded by the American Carbon Registry and verified by the nonprofit Winrock International. Finally, the card itself is biodegradable. This has both real and symbolic significance to the cardholder, as a way to avoid adding to landfills and as a sign of Sustain:Green’s commitment. Currently, it’s the only known biodegradable credit card in the U.S.
Triple-bottom-line solutions for the finance industry
Financially-focused B Corporations are also challenging the status quo. An interesting example is TripZero. When the user makes a hotel reservation through TripZero, the company figures out the user’s entire carbon footprint for the trip and erases it through carbon offsets, at no charge to the user. Then there is San Francisco-based New Resource Bank, which advertises itself as “Planet-Smart Banking.” The bank’s ambitious goal is “a loan portfolio 100 percent invested in enterprises that are advancing sustainability.” By becoming a B Corp, companies substantiate their sustainability claims, improving their credibility with both consumers and potential investors.
Green banks are also financial institutions committed to the triple bottom line: people, planet and profit. These institutions provide financing for clean tech and sustainability projects, particularly relating to renewable energy, “by leveraging public funds … to attract private investment so that each public dollar supports multiple dollars of private investment,” according to the Coalition for Green Capital. Leading banks in this category are the Connecticut Green Bank (formerly CEFIA) and the New York Green Bank. Neither bank is funded by new appropriations generated by taxing consumers. Instead, existing state funds, called “systems benefit charges,” are repurposed, and Regional Greenhouse Gas Initiative (RGGI) funds are also funneled to them. Finally, both state banks, as government-created entities, have built-in accountability. The Connecticut Green Bank must publish an annual Comprehensive Plan, and the New York Green Bank practices transparency through public filings, including quarterly reports.
Community Development Banks also fit into this triple-bottom-line activity. A good example of such an institution is Beneficial State Bank, which serves California, Oregon and Washington. The bank is not exclusively environmental in its mission – it’s equally concerned with social justice and economic sustainability – but ecology is a major focus. By examining the pie chart in its annual report, in which the organization divides up its outstanding loans by purpose, 10 percent of the loans went for clean tech and 7 percent were for sustainable food and agriculture. Just as importantly, the bank commissioned an inventory of greenhouse gases (GHGs) for its entire operation. It then purchased the equivalent of the total in carbon offsets.
These institutions – credit card providers, Green Banks, the B Corporation certification program and Community Development Banks – all have different relationships with green enterprises. They all also have different means to demonstrate accountability: the American Carbon Registry (Sustain:Green), official government reports (the Green Banks), The B Corp standard (the B Corporations) and annual reports (Beneficial State Bank).
However, they all have one thing in common: Unlike too many modern companies, they put long-term sustainability above short-term profit. As the public continues to demand environmental responsibility to a greater and greater degree in all their products, including financial ones, these organizations are poised to excel in a growing market. Despite their progressive marketing, their business behavior is conservative; they demonstrate that to move forward toward greater sustainability requires going back to business basics, responding to consumer demands, and taking care of both people and planet, in addition to profits.
Image credit: Flickr/Duncan Smith/Corbis via Myfuture.com
Arthur Newman is the CEO of Sustain:Green, which combines social and environmental responsibility with innovative biodegradable credit cards and prepaid cards designed to fight climate change. Arthur is also a partner at Carbon Capital Advisors. Before founding Sustain:Green, Arthur was a partner at Halpern Capital, Global Sector Director for Internet, Software and IT Services at ABN-AMRO, and a Wall Street internet analyst at Schroders and Gerard Klauer Mattison.