Banks can make the world greener. Trends are just being created

It is a truism that a lot depends on the banks in a free market system. They are the judges who decide on risks and make judgements on investment financing and consumption. In addition, the banks are the ones that influence customer choices, for example on green solutions.

Due to the scientists' worsening forecasts regarding the impact of the increase in the average temperature on the world, this key sector, which is banking, has a lot to show in many areas. From investment banking, which has the power to decide, for example, whether it will credit investments in fossil fuels, to consumer banking, which can, among other things, create products that encourage individual customers to adopt environmentally friendly solutions.

Increasingly popular support for photovoltaics

Poland has been experiencing a photovoltaic boom in recent years, mainly due to the governments "My Electricity" programme, which, however, co-finances only the purchase of solar panels. The remaining amount can be arranged through dedicated loans.

"My Electricity" is such a basic programme that the subsidy for one household cannot exceed PLN 5,000. As calculated by totalmoney.pl, the average total cost of the installation with all the necessary accessories and additions is approximately PLN 25,000. As far as smaller installations are concerned, it can be less, but it could also be more expensive.

Not everyone has such savings; banks that offer preferential loans for photovoltaic installations come to the rescue. Such solutions in Poland are offered by BOŚ Bank, PKO BP, as well as others.

Due to the popularization of photovoltaic investments, with a good credit history one can also pay for the necessary equipment in instalments. Such solutions are supported by Santander Bank Polska, and other banks.

Green mortgage credits - the world and Europe

The so-called green mortgage credit is another much more complex topic. For years, the banking sector has been trying to create a system of green mortgage credits that would reward ecological solutions with a lower interest rate.

As lenders around the world increase their efforts to measure the CO2 impact of their loans, they discover that home mortgages are often one of the "dirtiest" items on their books. The case is very complicated. How can a lender know if an older house with a 15- or 30-year mortgage is now energy efficient? Does it have solar panels and electric heat pumps, or does it produce avoidable emissions?

In the USA, federal authorities are also involved in green construction. It is expected that in the United States, the PACE (Property Assessed Clean Energy) will provide homeowners and businesses with $2 billion a year (by 2025) to finance solar panels, energy storage batteries, and hurricane-resistant windows and roofs.

Such amount is very low on the $11 trillion mortgage market. However, the effect can be catalytic: a $1 million investment in the modernization of PACE will be able to eliminate the equivalent of 1,400 tonnes of CO2 emissions, roughly the same amount of CO2 that 300 passenger cars emit in one year.

Europe is doing much better. More than 50 banks and financial institutions are participating in the Energy Efficient Mortgage Credits Action Plan, the goal of which is to create low-cost finance for green houses and modernizations.

Some investors and lenders are already taking actions: UK Barclays offers green mortgage credits that give borrowers a lower interest rate for buying energy-efficient houses. The joint project of the French bank BNP Paribas and the German company EON works in a similar way.

In addition, the APB pension fund has earmarked EUR 500 million to develop its own green mortgage credits system. The plan to stimulate the aftermath of the coronavirus outbreak in the European Union could include grants and guarantees of € 91 billion a year to seal decayed buildings and offer house buyers green mortgage credits.

Green credits in Poland

Banks in Poland offer a relatively low number of green mortgage credits. In 2019, PKO BP announced the introduction of such an offer, but according to the calculations of green-news.pl, it actually saves just a few hundred zlotys and is a "marketing procedure". "The bank reports that it is able to lower the interest rate by 0.02 percent to clients interested in pro-ecological investments. A credit of PLN 200,000 contracted for 20 years means savings over the entire repayment period at the level of approximately PLN 500"- notes the portal.

In mid-2020, Credit Agricole launched a similar service. Clients who build or buy an energy-efficient house can count on a lower interest rate (credit margin of 1.95 pp) or no commission. The annual energy requirement of the house must be at least 40 kWh/m2 and a contribution of at least 20%.

ING Bank Śląski offers require as much as 30% of the contribution, the margin is 1.89 pp, there is no commission. An energy consumption of 40 kWh/m2 also applies. Bank Ochrony Środowiska is a natural candidate for eco-credits, and it actually has such offers. BOŚ allows premises in multi-family buildings for green mortgage credits, as well. It assumes equipping the premises with a source of renewable energy, for which at least 5% of the credit should be allocated. The required contribution is a 30%, margin - 1.7 pp. depending on the level of contribution.

The conditions on the Polish market do not seem to be attractive enough for the use of eco-credits on a large scale.

However, it does not seem that even the most attractive banking products will replace EU funding in the coming years. Banks still remain strictly commercial entities, even if they have ambitious climate goals related directly to their activities. On the other hand, public funds, i.e. EU funding, are definitely more often non-returnable or at least interest-free. Of course, banking products based on EU funds, their various combinations and connections, or the distribution of money from the EU with the help of banks are also possible. Until now, however, funds for ecological solutions were rather allocated directly or through state institutions of the Member States.

Green bonds

It is not a new idea (the first issue was in 2007 through the World Bank and the European Investment Bank), but only recently has it really taken shape, and legal and institutional frames. The European Central Bank recently announced that it would establish a dedicated climate team to work on solutions to make the ECB pursue a greener monetary policy.

At the same time, the head of the bank, Christina Lagarde, suggested that she was considering introducing "green bonds". At the moment, it is known that the ECB will buy the aforementioned bonds of the Bank for International Settlements for the amount of over EUR 20 billion. Similar bonds were also issued by the European Investment Bank.

Last year, the EU authorities established the EU Green Bond Standard. It was the goals of the green bonds to help finance low- or zero-carbon investments within the community. The whole project was to start this year.

However, one of the pioneers of green bonds was....Poland. In 2016, the State Treasury released 5-year RFQs in Euro denominations on international markets. It was the first green treasury bond issue in the world.

Another was at the end of 2017. At the beginning of March 2019, the Ministry of Finance, under favourable market conditions, placed 10-year GBs in Euros, worth EUR 1.5 billion and 30-year bonds for EUR 500 million. The only GB issuer in the private sector in Poland was Santander Bank Polska (then BZ WBK), which in May 2017 issued its bonds worth EUR 137 million. They are included in the IFC portfolio - the investment arm of the World Bank.

Is the boom going to occur?

It seems that green banking is just about to be born. it is just hatching. The first trial balloons have been launched and banks are continuing to investigate the market, profitability and risk related to the offering for individuals and institutions. It can be argued that, as in the case of other industries, clients will decide whether or not their environmentally oriented banking products will be successful.

Research and polls show that an increasing number of people in Europe and the USA are making consumer choices in this respect. This does not have to work in every sector. After all, banking has its own specificity. However, by adding the support of top decision-makers and visible trends to the growing climate awareness, it can be assumed that green banking products have a bright future ahead of them.

Author: Daniel Czyżewski, Energetyka24

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