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:
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.
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