The biggest challenge of climate change is not our lack of solutions or interest, but rather a shortage of funds.
Report after report has found that trillions of dollars will be needed to help our planet transition to a low-carbon economy. It’s not an impossible goal, given that our global military expenditure averages at around $1.7 dollars per year.
We can achieve it if we’re able to direct private investment, as well as public funds, toward clean energy technologies such as solar farms. Green banks have been leading this effort for decades, and thanks to the Paris Agreement, their role has now become even more prominent.
In this article, our team at Aspiration looks at the unique responsibilities of green banks and the measures they’re taking to make clean energy available to all of us. As a green financial services company ourselves, we’re delighted to share our insights with you.
What does green banking mean?
Green banks can save us from the terrors of climate change. They are unique, mission-driven financial institutions that are helping communities transition to clean energy technologies and sustainable infrastructure.
Once at the fringe of the financial sector, green banks are now popular thanks to increased public awareness about climate change.
According to some estimates, the world will need $90 trillion in climate-related investments by 2030 to prevent global temperatures from rising. It’s an ambitious target that needs to be reached, and green banks are leading the effort.
Green banks around the world are initiating market-based approaches to climate financing in a bid to boost private investments in innovative clean technologies. Some green banks are privately-owned while others are state-owned or managed by nonprofits.
No matter what their differences are, all green banks share one common goal: to fight climate change.
What is the main motto of green banking?
The philosophy of green banking rests on one key motto, which is to reduce the risk of all climate-friendly technologies.
At the moment, the public buy-in of clean energy technologies is still low. Only 18% of homes and facilities in the US were powered by solar, wind, or hydropower in 2019. Consumers are hesitant to purchase solar electric systems or geothermal heating units for their homes because of the high installation costs.
Green banks realize that only by decreasing these costs will people be more willing to invest in clean energies. So they do what most other banks won’t do – they provide the initial investments in these technologies to prove to customers and private investors that clean energy technologies have a higher return on investment than fossil fuel-based systems.
They build trusting partnerships with local authorities, community members, and private investors and support small innovative projects, such as electric vehicle prototypes. They go as far as financing long-term, low-interest loans to encourage homeowners and business owners to switch to clean energy systems.
How sustainable are green banks?
The threat of climate change has made green banks indispensable.
Demand for clean energy technologies has risen sharply over the past few years. The Solar Energy Industries Association estimates that 4 million homes and facilities will have solar electric power systems by 2023, up from 2 million in 2019.
Green banks will be needed to help finance these installations, and to expand the solar energy supply in the United States and around the world.
Homeowners will rely on green banks for their low-interest green loans. State and national governments will also need the help of green banks to spur private investment in climate-friendly technologies as they pursue the goals set by the Paris Agreement.
These demands will, no doubt, make green banks highly sustainable. There are still a lot of unexplored market opportunities in the world of low-carbon technology, such as supplying developing nations with electric vehicles and motorcycles, that will require the financial products and services of green banks for decades to come.
Are green banks easy to use?
Yes, green banks are definitely easy to use. They work just like traditional banks do so you won’t have to learn anything new to use their products and services.
You can get loans from green banks or put savings deposits in them. Green banks are particularly useful if you’re trying to secure a loan for a clean energy home improvement or an electric vehicle.
Green credit unions such as Clean Energy Credit Union and Vermont Credit Union (VSECU) offer loans with friendly terms on several clean energy investments. These green loans have longer repayment terms and low-interest rates, which make them affordable for many people.
Also, unlike traditional bank loans, green loans are available to borrowers with a wide range of credit scores.
Other green banks offer services that help you green the planet with each transaction you make. Aspiration, for example, helps you offset your vehicle’s carbon footprint by automatically purchasing carbon offsets every time you purchase a gallon of gas.
What are the 5 qualities shared by green banks?
Green banks may be different in structure but they all share similar qualities. Whichever lender you use, these are 5 qualities you’re guaranteed to find in any green bank.
They invest in low-carbon infrastructure
All green banks invest in our low-carbon future. Look at the mission statement of any green bank and you’ll see that low-carbon technologies and infrastructure are at the top of their priorities.
That’s because green banks were founded to meet the demands of the climate financing gap. Even though we’ve known for decades that climate change is real, communities and world governments have been unable, or uninterested, to fund the solutions.
It was only after the 2015 Paris Agreement that governments began to feel accountable. The goals set by the Agreement have pushed green banks to the forefront as the chief financiers of our low-carbon future.
They reduce the risk for clean energy investments
Every green bank is on a mission to make clean energy technologies more affordable and enticing for private investors and regular customers.
They invest heavily in expanding clean energy investments that have a reputation for being expensive to install. Some green banks help build warehouses, aggregate supply chains and procure cheap photovoltaic and electrical components from China to drive down costs.
Their goal is to build a successful track record of working on clean energy projects to attract more private capital into the industry. As they do this, they help local communities and states achieve their low-carbon objectives and create new jobs.
Take the Connecticut Green Bank as an example. Since its foundation, the bank has provided more than $1 billion to clean energy investments in the state. It has designed marketing campaigns and financial services that have helped prevent 2.6 million tons of carbon dioxide from being emitted into the atmosphere.
The focus on cost-effectiveness
Green banks love to make innovative climate-friendly technologies affordable for everyone.
They test promising innovative products and provide seed funding to climate-focused startups to help bring new climate solutions into the market. Microgrids, batteries, and electric transportation vehicles are just some of the projects that are currently being funded by green banks.
What ties these innovations together is that they help reduce our energy costs over the long run. Whereas fossil fuel-based technologies require the whole gamut of fossil fuel extraction and processing, which can be very costly, clean energy systems rely on free natural sources and can be off-grid and precise in their applications.
They are guided by independence
Green banks are, by their nature, usually independent from political interference. Their narrow climate-financing mandate puts them in a special position where they’re given full authority to find private investments for their projects and services.
This decision is intentional. By limiting the need for oversight mechanisms or political approvals, green banks are perceived as independent from governments. They’re shielded from the climate change squabbles in government, and the constantly changing climate policies of successive administrations.
As a result, private investors have trust in green banks because they know that their money won’t be influenced by politicians in government. They know that their money is being used to fund the low-carbon technologies that the world needs.
They prioritize additionality
Most importantly, green banks finance low-carbon projects that otherwise would not happen.
They focus on market gaps, such as geographic areas that consume a lot of fossil fuel energy but are ready to switch to clean energies, where private investors can be convinced to join in. They avoid crowding out potential investors and instead work with them to identify new markets where they can collaborate in.
Green banks do not have any interest in competing with other market actors. Their goal is to make the world a more livable place, not to multiply profits.
If there is a market or a clean energy technology that private investors are reluctant to invest in, green banks make the first move to test its viability. You can think of them as the venture capitalists of the low-carbon world, who are taking the big risks to help us break up with fossil fuels completely.
What is the most environmentally-friendly green bank?
Aspiration is the world’s most environmentally-friendly financial services company that puts the health of the planet first. We offer innovative financial products that help turn each transaction you make into positive climate-fighting action.
Our Plant Your Change program, for example, allows you to automatically plant a tree each time you use your debit or credit card. We simply round up the transaction to the nearest whole dollar and use the spare change to plant trees around the world.
Similarly, our Planet Protection™ program helps you automatically offset your vehicle’s carbon footprint. Every time you purchase a gallon of gas, our system automatically buys carbon offsets for you to help you reach your carbon neutrality goals.
Open an account with us today and explore the different ways you can help make the planet better with your money.