Garnet Capital Advisors Blog

There are few trends that have been as popular over the past decade as energy efficiency. From solar panels on rooftops to hybrid vehicles, industries all across the board are getting involved with a "greener" focus.

So, it should come as no surprise that financial institutions are interested as well. Specifically, a significant number of banks are buying into eco-friendly business practices, including lending, technology and investments. And this trend appears to be on an upward trajectory. 

Wells Fargo invests in innovation
One example of the growing green focus in financial services is from Wells Fargo. The bank is currently operating its "Innovation Incubator," a five-year initiative searching for that next eco-friendly startup, according to American Banker.

This program from Wells Fargo is co-administered by the U.S. Department of Energy's National Renewable Energy Laboratory. The goal is to provide funding for startups that may not fall under the realm of traditional venture capitalists, American Banker noted. Many of the startups in the Innovation Incubator are clean-energy companies.

The idea behind these startups is that energy is an asset, just like loan sales, deposits or stocks. American Banker reported that the entrepreneurs involved in the program are looking for ways to build companies that take energy into account, in order to leverage the resource, save money or implement new technologies. At the end of the process, these developments could be used by Wells Fargo itself.

Green lending also catches on
Another example of the increasing eco-friendly focus in financial services is green lending. According to a separate report from American Banker, banks are getting more proactive about their lending practices.

The change is from lending policies that favor green businesses and projects such as solar panel installations to a focus on companies that are actively preventing climate change. Borrowers that show they care about climate change, including actual policies and procedures to be more eco-friendly, are now more desirable for certain lenders.

"There really has to be a huge focus on adaptation," Courtney Lowrance, director of environmental and social risk management at Citigroup, told American Banker. "Companies have to account for things like drought and extreme weather, and we've been doing a lot of portfolio analysis on water and water scarcity."

The crux of the issue comes back to risk management, according to American Banker. Financial services is all about focusing on risk management, and so too should borrowers. Companies that are actively trying to mitigate climate change risk are better investments, so to speak. One example is a business that is highly dependent on water finding an alternative strategy should there be a water shortage.

A key factor behind this trend is banks' appetite for risk. Financial institutions are more comfortable measuring data associated with climate change, and they can now make smarter decisions about their investments and lending practices. Overall, green banking is a long-term approach for banks.

Should you have any questions about current trends in the industry, feel free to contact the loan sale advisory firm Garnet Capital Advisors for more information.