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Wary of green

Offering green financial products may make a credit union look and feel good but, crucially, will it boost the bottom line? The answer is more complex than you might think.

Coloradan Blake Jones describes himself in The Remarkable Credit Union Podcast with host Cameron Madill as a “clean energy geek.” After working in America’s oil and gas industry as an engineer for five years, Jones had an epiphany about the role renewable energy would play in America’s future. In 2005, he co-founded Namasté Solar in Boulder, Colo. to provide advice and install solar panels in homes and businesses of other enthusiasts. Despite its popularity, customers repeatedly said that finding financing for solar projects was a nightmare. After approaching banks to lobby for better support, Jones and his partners learned that most banks either viewed renewables as too risky or were offering inappropriate products.

This past February, Jones celebrated the birth of another idea in Colorado’s snowy mountains. Focused solely on lending for renewable energy products and services, Colorado-based Clean Energy Federal Credit Union (CECU) is the first to earn a federal charter in the United States in 31 years. Its field of membership (a US requirement) is the American Solar Energy Society (ASES), meaning that to join the credit union one must first hold membership in the organization. Launching a credit union is bold for a financial sector novice but Jones is confident. For one, CECU will operate online and on mobile channels only, saving the overhead of bricks and mortar. Second, Jones expects strong interest from ASES members as well as referrals from electric-car dealers, wind turbine companies and other builders specializing in heat and cooling systems.

In addition to filling a financing need, CECU’s draw is that it allows everyone to participate in renewables. “One way is by using and investing in clean energy. But even if you’re renting, depositors can provide the money that allows their fellow members to get loans,” Jones says in the podcast. “This is a federally insured way to invest in the clean energy movement, either through deposits or through a certificate of deposit and know that their dollars are helping others to complete their clean energy project.”

Blake wisely recruited credit union veteran Terri Mickelsen as CEO. Starting as a teller at Nusenda Credit Union 30 years ago, Mickelsen worked her way up to COO at US Eagle Credit Union in New Mexico before becoming a self-employed consultant. She’s enthusiastic about start-up potential and seems undaunted by the fundraising ahead of the tiny team.

Fastest growing market

With no retained earnings yet, the credit union will need private donations. Jones hopes to raise $5 million in the next two years and $90 million by the end of five years. His message to other credit unions: “We don’t want to be the only credit union in the US that understands the clean energy market. This is going to be the fastest growing market in the 21st century so take a close look and help us meet the need.”

In 2010, Coro Strandberg of Burnaby, BC wrote a report for Wisconsin-based Filene Research Institute on sustainability trends and opportunities in finance. Using eight case studies from North America, Australia and the United Kingdom, Strandberg concluded that many financial institutions (FIs) are now using sustainability or “triple-bottom line” lenses to evaluate strategic decisions. Rather than hobbling a credit union’s options, Strandberg believes adding a sustainability layer to strategy “results in improved overall management and more informed decision-making.” But while Strandberg’s research uncovered commitment to reducing carbon footprints internally, it said very little about the benefits and challenges of developing “green” financial products.

“Conviction is not enough. People need to see the business case.” – Pauline D’Amboise, Desjardins Group

Eight years after Strandberg’s report, there are only a few, very modest green-lending products in the Canadian system. Examples include Vancouver City Savings Credit Union (523,000 members, $21 billion in assets), which offers a Home Energy loan. In Ontario, Kingston Community Credit Union (12,000 members, $150 million in assets) offers Eco Smart Car loans and Green Home lines of credit while Kindred Credit Union (22,000 members, $1 billion in assets) in Kitchener, Ont. has a Creation Care loan. Canada lags behind the rest of the world in renewable energy undertakings due largely to a “provincial patchwork of renewable power policies, which often have not provided the long-term certainty that renewable-energy developers need,” Merran Smith and Dave Woynillowicz wrote in 2016 in The Globe and Mail.

That same year, an Energy and Mines Ministers’ Conference report concluded that before significant numbers of Canadians embark on energy retrofits or LEED-certified new builds, they will need clearly marked stepping stones to success. Renovations are complicated — as is lending. Now add an understanding of how energy upgrades affect house values and you have a mathematical riddle that the average consumer is not willing to tackle. In essence, green loans aren’t a bad idea but a lot of other questions need answering before Canadians will be comfortable signing up for one.

Aligning financial priorities

Pauline D’Amboise is vice-president of Governance and Sustainable Development with Desjardins Group (7 million members, $285 billion in assets), an organization that has operated under environmental, social and governance criteria for several decades. Recently, Desjardins announced that it was aligning financial priorities to meet goals laid out in the 2015 COP21 Paris Agreement. Even with these strong credentials, Canada’s largest credit union has only managed to put 550 of its Green Home loans worth $129.5 million on the books since 2014. D’Amboise explains that, like most Canadians, Quebecers know action is necessary but don’t feel the urgency. “Conviction is not enough,” says D’Amboise. “People need to see the business case. Government and FIs have to explain in the long term why [energy saving] is valuable for them.”

Whether or not individuals take out loans for energy-saving retrofits is minor in comparison to the sea change in awareness and strategy that needs to take place at business and government level, D’Amboise says. “It’s a collective goal.”

In addition to encouraging society to embrace environmental action, D’Amboise believes credit unions will need energy-efficiency experts on the payroll or at least in long-term partnerships. Consumers and business owners know that a lump of money at a good rate won’t plug energy leaks on its own. A knowledgeable guide needs to evaluate specific buildings and lay out a plan as to the smartest use of funds.

Green loans aren’t enough

Dennis Cunningham agrees that handing out green loans isn’t enough. He has been manager of environmental sustainability at Assiniboine Credit Union (111,000 members, $4.5 billion in assets) in Winnipeg since 2010. In the past decade, Assiniboine has chipped steadily away at its carbon footprint through improvements in processes and infrastructure. Since 2012, it has reduced greenhouse gas emissions by 56 percent, external paper use by 80 percent and internal use by 50 percent. Four new branches use geothermal or district energy for heating and cooling and six locations have completed comprehensive Power Smart evaluations and upgrades through Manitoba Hydro. Such improvements were instrumental in Assiniboine receiving an invitation to join Global Alliance for Banking on Values (GABV), an international organization that pushes FIs to align mission with environmental, sustainable and socially responsible goals. Launched in 2009 with just 11 members, GABV now comprises 39 FIs from six continents, including Kindred and Vancity.

“If we could assist a developer build in a greener way then we could be helping 40 or 50 families instead of just one.” – Dennis Cunningham, Assiniboine Credit Union

Yet, Assiniboine does not have a green lending program. “Green mortgage or green car loans are not necessarily the solution to climate change,” Cunningham says. In the future, he adds, Assiniboine may offer products for individuals but for now the focus is on change at an organizational level. “Where can Assiniboine have the most potential for influence?” says Cunningham, speculating that Assiniboine is more likely to offer larger-scale commercial products first. “If we could assist a developer build in a greener way then we could be helping 40 or 50 families instead of just one.”

In 2014, the constituency of Fredericton South elected the first Green Party MLA, David Coon, to the New Brunswick legislature. This signalled to lender Shawnalynn Swain at New Brunswick Teachers’ Association Credit Union (NBTA) (4,000 members, $51 million in assets) that locals might be lured in by good rates for energy-efficiency upgrades to their homes. She was right. In 2017 alone, NBTA wrote up 64 loans for energy-saving renovations by offering a prime-plus-one rate. Many of these were for heat pumps and in small amounts, typically between $5,000 and $25,000. The Greener Homes loans aren’t particularly profitable for the credit union on their own, says general manager Margery Nichol, but they have attracted a lot of positive attention: 60 loans were for new members. “We thought if we can get them in door with that rate, then maybe we can get a bigger share of their wallet,” says Nichol. “It turned out we can. We’ve had people bring their mortgages over, their chequing accounts, kids’ accounts. It’s really worked well for us.”

Nichol estimates that 80 percent of NBTA’s green loan business has come through referrals from builders. At the annual Fredericton Home Show, NBTA lender Janet Barrett passed her business card to anyone promoting energy-efficient windows, doors or heat pumps and left each with information about the new preferred-rate program. It’s proven to be a good partnership. As residents learn about home upgrades, they inevitably ask about affordability and NBTA is ready with answers.

Overall interest low

Having awareness of the whole retrofit landscape has helped NBTA to succeed where other programs have languished. The election of the Green Party official signalled residents’ openness to change while partnering with contractors allowed the credit union to zero in on people ready to execute. In Quebec, Desjardins also found limited success this way. While overall interest in green home loans is low, at least half have come through referral from a developer selling LEED-certified condos. Partnering with an expert, such as a heat pump installer, narrows a large complex undertaking to actionable steps: research pumps, get quotes, get financing.

“We thought, if we can get them in door withthat rate, then maybe we can get a bigger share of their wallet.” – Margery Nichol, New Brunswick Teachers’ Association Credit Union

No matter how beautifully natural a green loan sounds, it’s still debt. Canadians are wary unless they can reliably expect return on investment. Sure, there are rebates from government, car manufacturers and utility companies but who or what qualifies? The window manufacturer says upgrading will save money on utility bills and improve resale values but where’s the guarantee? Maybe insulation is the smarter purchase. Or maybe individual upgrades don’t make enough dent in climate issues to be worth the cost.

According to the Energy and Mines Ministers’ Conference report, consumers are looking for three major things before committing money: time required to see return on investment, a step-by- step plan and an adviser to guide them through evaluation to financing to renovation process. The ministers’ report recognizes that the burden falls on government to lead this charge.

Strandberg was right in 2010 when she noted the rise of environmental concerns. Many of Canada’s credit unions are devoted to running triple-bottom-line businesses. What’s more, carbon considerations have proven to be money savers in each case, rather than expenses. It’s tough to say exactly how many members the tact is attracting or retaining: what people say drives them isn’t always true. But as more and more businesses follow suit, it seems likely that the slow-to-change will be at a disadvantage. So, should your credit union offer green lending products or not? The answer is complicated. If regional appetite is strong — as in New Brunswick where residents voted Green — that might foretell success. Another advantage is allying with local energy-efficiency contractors. Consumers are more confident taking out loans when a team of experts is rooting for good results — one to advise on money, another to advise on execution. Uptake of home projects is even better in regions where government rebates are present and utility companies offer onsite evaluations that help consumers qualify and reap the cost-savings of lower energy bills.

Ecosystems are complex, both the natural and economic varieties. Keeping a close eye on examples where the two work well in tandem might be the smartest way to develop green lending products that members can embrace. ◊