Posted in Finance Articles, Total Reads: 7707
, Published on 12 January 2011
With the entire world becoming environment conscious, financial industry is not far behind in its contribution towards greener world. Green financial products are introduced in the financial industry providing platform for ethical and eco-friendly investment. Many organizations have realized that there is direct correlation between competitiveness & profitability and environmental protection. Keeping this in mind financial institutions have developed “green” financial products with the aim of promotion of sustainable development. These green financial products must reduce negative environmental impacts or provide environmental benefits.
Green Products and Services on Offer
Green Home Mortgages: These are special kind of mortgages for new homes which comply green energy consumption standards. The interest rate offered on these mortgages are usually 1-2% lesser than the market rate. In certain countries exemption from income tax can be claimed if an individual has opted for green mortgage product.
Green Commercial Building Loan: Attractive loan designs and arrangements have emerged for “green” commercial buildings, characterized by lower energy consumption (~15-25%), reduced waste and less pollution than traditional buildings.
Green Auto and Fleet loan: With below market interest rates, green car loans aim to incentivize the uptake of cars that demonstrate low GHG intensity and/or high fuel efficiency ratings. The number of these products has increased in recent years, with the majority being offered in Australia and Europe.
Green credit and debit cards: A broad family of green products includes debit and credit cards linked to environmental activities. “Green” credit cards offered by most large credit card companies, typically offer NGO donations equal to approximately half a percentage point on every purchase, balance transfer or cash advance made by the card owner. In September 2006, Rabobank launched an innovative ‘climate credit card’. The bank pledges to pay a proportionate sum to support WWF projects, depending on the energy intensity of the product or service bought with the card.
Green Mortgage Based Securities: A “green” mortgage-backed security package mortgages on buildings that meet specific energy-use and environmental benchmarks. “Green” Mortgage-Backed Securities in the early stages of product design and discussion would hold energy efficient and environmentally-friendly commercial buildings. These “green” products could be rated higher and worth more than traditional mortgage-backed securities as a result of the operational savings and marketability, as well as other tangible and intangible benefits associated with “green” facilities; added value features that could result in better and cheaper access to capital for potential owners and investor in green building projects. However, like other lending scenarios related to “green” buildings, this scenario is highly dependent on the financial community being able to accurately measure and value savings and reductions associated with building “green.
Carbon Funds: A carbon procurement vehicle (or carbon fund) is a collective investment scheme which receives money from investors and uses this money to buy carbon credits from, or invest into, greenhouse gas (GHG) emissions reduction projects, generally through the Kyoto Protocol’s CDM and Joint Implementation (JI) schemes. After a certain defined period, the carbon fund will then give investors carbon credits and/or cash in return.
Green Insurance: The insurance sector can generally be divided into two categories: Life Insurance; and General (Non-Life) Insurance.“Green” insurance falls under the latter and typically encompasses two product areas:
1) Those which allow an insurance premium differentiation on the basis of environmentally relevant characteristics; and
2) Insurance products specifically tailored for clean technologies and emissions reducing activities. Mileage-based insurance is offered to vehicle owners. Discount is offered for hybrid and fuel efficient vehicles. Bank can also choose to offset vehicle’s annual emissions.
There are some issues which impede the growth of Green financial products. Green products have still not been able to position themselves as an economically viable option as many lower cost products exist in the market. Unlike of what is happening today in Europe, where the market of "green" financial products & services is growing substantially, globally, even though the market appears to grow, it is in an early stage, with indefinite boundaries and without having gained unified characteristics, differentiating it from the traditional industries.
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