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Banks and ecological transition: what are the latest innovations?



Banques et transition ecologique

Ecological and energy transition is a big issue that many banks consider through various innovations.

Aware of the environmental issues, many banking institutions are innovating and creating new tools or developing new economic models to become players in the ecological transition. What are these innovations, and how can the customer be an actor in this change?

The role of the banking sector in the energy transition

At the hour when the awareness of climate change is becoming increasingly intense, the carbon footprint of the bank is one of the criteria the majority of customers are considering when choosing a financial institution and vice versa.

Many banks finance projects in the energy sector when they focus on fossil fuels, the carbon footprint of the bank and, by extension, of the customer’s bank account, which they act as an account for professionals or individuals, increases considerably.

Therefore, the banking sector has a considerable role to play in the energy transition and support for renewable energies.

How to know the carbon footprint of your bank account?

To help customers calculate the carbon footprint of their bank accounts, NGO Oxfam has developed a free tool based on the data at its disposal, namely the nature of the projects financed by the banking establishments.

This tool allows you to compare the carbon footprint of different institutions by simply indicating the total amount the customer has in a current or savings account. Then the customer has to select their bank in a drop-down menu to find out the volume of greenhouse gas emissions per year, indirectly produced by the use of his money.

What are some actions of banks in favor of the energy transition?

Some banks have made energy and ecological transition their priority and developed economic models based on this major issue for the years to come.

They should finance, in particular, projects in the field of recycling, renewable energies, fair trade, organic and peasant agriculture or even social and environmental entrepreneurship. In other words, their loans should finance ethical and ecological projects. Most environmental projects funded should be linked to the organic sector, and individuals, professionals, or communities can win them.

They should grant loans on preferential terms to those who wish to improve their environmental and social record, within the framework of Social Responsibility of Company or Sustainable Development Goals.

In addition, several criteria should be taken into accounts, such as the nature of the construction materials and insulation, paints, the mode of heating, the management of the water, energy consumption, or the presence of composters. In concrete terms, the more the construction project ticks the boxes among those mentioned, the lower the loan rate.

Further, they should support projects in energy efficiency, renewable energies, waste treatment, non-polluting or low-polluting travel, sustainable agriculture, and the preservation of biodiversity.

Green bonds, new financing tools

The first green bond, called “Climate Awareness Bond,” Was issued in 2007 by the European Investment Bank. The World Bank subsequently imitated, then by local authorities, large groups belonging to the energy sector, and countries.

Green bonds are non-bank bond issues launched by companies or public entities, with the aim of financing projects that contribute to the energy and ecological transition.

The issuer must comply with specific commitments, use the funds for predefined environmental purposes, and be transparent by publishing an annual report for investors.

Since 2013, this market has been growing. In 2020, despite the health crisis, the green bond market remained extremely dynamic, and in December crossed the threshold of 1000 billion dollars issued since the creation of these green bonds. In 2021, the green bond market continues to grow and is still as popular as ever.

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