The Green Sheet Online Edition
March 24, 2008 • Issue 08:03:02
It's a green business after all
Green is more than just the color of money. In today's business world being green is increasingly a prerequisite for making green. And the financial services sector, which has been supported historically by mountains of paper - payments and receipts, loan documentation, bills, account statements - is surely positioned to profit from this.
That's why for years banks and other financial services companies have been promoting business approaches that replace paper exchanges with electronic alternatives - with varying degrees of success. The most apparent obstacles have been legal considerations and customer attitudes.
Twenty years ago, the notion that financial institutions (FIs) would not return canceled checks with monthly account statements was practically heresy. (Credit unions offering share drafts are the exception. Share draft accounts provide the same liquidity as checking accounts but are legally distinct from them.)
Today, you would be hard-pressed to find envelopes stuffed with canceled checks in many mailboxes. That's because of the Check 21 Act, which took effect in 2004. Check 21 made it legally acceptable for banks to convert paper checks to electronic files, which can be used to create substitute checks that can have the same legal status as the original checks when needed for proof of payment or other legal reasons.
Clearly, electronic payments are catching on. The Federal Reserve reported in late 2007 that electronic payments now outnumber checks by a factor of two. Plus, for situations in which checks are still the preferred method of payment, at least 40 percent are being converted to electronic files at some point during clearing and settlement.
According to the Fed's 2007 Payments Survey, Americans made 93 billion noncash payment transactions in 2006, and just 33 billion of those were checks. The remainder were made via the automated clearing house, by debit card (25.3 billion in 2006 by the Fed's count), using credit cards (21.7 billion), or involved other electronic payment devices such as electronic benefit transfer cards and automated teller machines.
NACHA - The Electronic Payments Association, is launching an initiative this year that it hopes will prompt more consumers and businesses to forego paper for electronic bills and payments. NACHA's Pay It Green Alliance, which consists of banks, billing parties and vendors, has been put in charge of drumming up consumer and business interest in electronic billing and payments. The group stated that April 2008 is Pay it Green Month, so expect a lot of talk then about online bill presentment and payment.
Alliance members include some heavy hitters including Bank of America Corp., Citigroup Inc., Captial One Financial Corp., Wachovia Corp., Consolidated Edison Co. of New York and Checkfree Corp., which is a unit of Fiserv Inc. To find out more about that initiative, visit www.payitgreen.org.
Available data suggests many Americans are getting the green message. Javelin Strategy & Research estimates there are 61 million American households now banking online; by 2012, Javelin expects there will be 82 million, meaning about 67 percent of U.S. households will be banking online.
According to data compiled by Javelin, the Pay It Green Alliance and others, the benefits of receiving and paying bills online accrue to all parties: billing entities, customers and banks.
Banks enjoy savings on transaction costs (electronic payments typically are cheaper to clear than checks). Plus, online payments can fend off customer attrition.
A recent survey by Forbes.com found customer satisfaction with banks is highest among customers who pay and view their bills at bank Web sites: 79 on a 100-point scale. The score was 70 among consumers not using their banks' Web sites.
In a report released earlier this year - 2007 Online Banking and Bill Payment: Trends, Forecasts and Strategies for Reinvigorating Growth and Adoption - Javelin said 39 million households pay bills at bill issuers' Web sites.
That number is expected to reach 50 million by 2012. The impact of viewing and paying bills online can be substantial. According to Javelin, if all U.S. households viewed and paid bills online, the benefits would include:
- Saving 2.3 million tons of wood, or 16.5 million trees
- Reducing fuel consumption by 26 million British thermal units (BTUs), enough energy to provide residential power to the city of San Francisco for a year
- Decreasing toxic air pollutants by 3.9 billion pounds of CO2, which would have the same effect as taking 355,000 cars off the road
- Reducing toxic wastewater by 13 billion gallons, or the equivalent of filling 20,000 swimming pools
- Eliminating 1.6 billion pounds of solid waste - the equivalent of 56,000 fully loaded garbage trucks
"Paper checks, bills and statements are set to become a historical artifact with consumers," said Javelin's President James Van Dyke. "As environmental concerns increase, more people will understand that they can more effectively control their finances without causing damage to the environment."
Several other initiatives are under way within the financial services arena.
On its face, the notion of green credit and debit cards seems paradoxical. Credit and debit cards are, after all, made from plastic, a byproduct of oil that won't biodegrade in landfills (which is where many eventually land once expired).
The International Card Manufacturing Association estimated that 16.9 billion plastic cards were manufactured in 2006. That's a lot of plastic cards with limited usable shelf lives.
Some card manufacturing companies have responded by investing in greener plastics that can withstand the rigors of POS applications.
For example, Travel Tags, a Minnesota specialty printer that produces stored value and prepaid cards, introduced an "earth-friendly" line of products. Called Nattera, the new line of cards uses a variety of POS-friendly alternatives to traditional plastics. These include wood, recycled polyvinyl chloride, cornstarch and cellulose acetate.
Another alternative that has proven especially useful with limited-use cards is styrene, explained Chandilyn Smith, Senior Marketing Director InComm, an Atlanta firm that produces stored value cards for retail chains like Subway and 7-Eleven Inc. Styrene is a green plastic that contains an additive causing the plastic to biodegrade when properly disposed of.
Several banks, meanwhile, have announced ecofriendly credit card programs.
MetaBank, headquartered in Brookings, S.D., introduced one of the more innovative cards. It teamed with Fintura Corp. to issue a green rewards card: Cardholder rewards go toward the purchase and retirement of carbon credit offsets. Fintura Corp., based in Atlanta, administers the back-end of the program.
For every dollar spent on routine purchases, Fintura will see to it that five pounds of CO2 gets retired; for every dollar spent on gasoline or household utilities, 10 pounds of CO2 is retired, the companies said.
CO2 is a greenhouse gas that contributes to global warming; it is produced from everyday activities such as driving a car or turning on a PC.
According to the Environmental Protection Agency (EPA), the average U.S. family of four produces over 35,000 pounds of CO2 each year.
Carbon offsetting is an emerging business that offers a way to compensate for CO2 emissions. It requires first that a calculation of the carbon footprint of a household or business be done (carbon calculators are readily available on the Web); offset credits can then be purchased from businesses or projects that are focused on reducing or eliminating an equivalent amount of CO2 from the atmosphere.
Carbon offsets acquired through the GreenPay rewards program will be applied to such efforts as forestry and soil carbon management projects, Fintura said.
Other banks with credit cards tied to carbon offset programs include BofA (issuer of the Brighter Planet Inc. Visa card) and General Electric Co. (Earth Rewards MasterCard). Some banks also offer cards that promise donations to environmental organizations.
Carbon offset programs have been met with opposition of late, primarily because of the voluntary nature of these programs. Critics are concerned, they say, because there's no way of ensuring the offsets are used to reduce overall carbon emissions.
Many of the largest banks are starting to assess the costs of carbon emissions in the risk and loan underwriting processes, especially for loans in the energy sector.
"The utility sector is one of the largest contributors to greenhouse gas emissions," noted BofA CEO Ken Lewis in a recent speech on the company's green initiatives. Lewis said banks "must work with traditional utility clients to finance the development of cleaner technologies."
Financial services firms invest about $600 billion a year in the energy sector; only about one-sixth of that money goes to renewable resource and alternative energy projects, Lewis said.
Another emerging trend: green mortgages. BofA, for example, offers a discount at closing to customers purchasing homes built with energy efficiency in mind.
BofA also is looking into large-scale leasing of solar panels to homeowners, according to Lewis.
JPMorgan Chase & Co. and Citigroup also offer programs that provide discounts at closing for homes that meet certain ecofriendly standards.
MortgageGreen of Larkspur, Calif., has been offering green mortgages for about seven years, according to Tomek Rondio, the company's founder. Benefits provided as part of its "Low-Impact Green Mortgage" include free green assessments of a home and steps to make it greener, purchasing carbon offsets and planting trees.
Plus, the company donates a portion of profits to "eco-reform". "Pressures on energy, human health, water supply, sustainability of resources and waste accumulation are all related to the inefficiencies in housing," Rondio said. That impact, however, "can be corrected by providing proper, cost-competitive, green financing and mitigating environmental impact through the clever use of a portion of the profits," he added.
The role of banks in promoting greener business and other sustainable living practices has not been lost on world leaders.
A United Nations panel known as the FI Climate Change Working Group (CCWG) put it this way in a December 2007 briefing paper: "The finance sector has an important role to play in addressing climate change, because it can influence investment and financial flows."
So far, only a few of the largest FIs appear to be heeding that call. Ceres, an international coalition of investors, environmental groups and others focused on environmental sustainability and climate change issues, reported that just a "handful" of 40 of the world's largest banks have begun integrating climate risks into their loan programs.
"More banks realize that climate change is a big business issue, but their responses so far are the tip of the iceberg of what is needed to tackle this colossal global challenge," said Mindy S. Lubber, President of Ceres, in announcing the report, Corporate Governance and Climate Change: The Banking Sector.
"As a key provider of capital and financing worldwide, banks must do more to move the economy away from fossil fuels and high-carbon investments that are exacerbating climate change," she said.
"In my mind, this shift in the financial services industry is the ultimate example of doing well by doing good," Lewis said.
Describing BofA's 10-year environmental initiative to address climate change, he added, "Our $20 billion initiative isn't charity by any stretch. We expect an attractive risk-adjusted rate of return on this capital."
BofA was one of two U.S.-based commercial banks that scored high marks in the Ceres report. Citigroup was the other. Citigroup plans to devote $50 billion in investments in or financing of projects devoted to reducing carbon emissions.
Five European banks made the Ceres list of high scorers. Among those, HSBC Holdings PLC, Europe's largest bank, has promised to donate $100 million to environmental groups over the next five years.
Other U.S. banks are following the ecofriendly lead of BofA and Citigroup, although few have the financial resources of these two behemoths.
Many, for example, have appointed high-ranking executives to direct green banking initiatives. Titles like senior vice president for environmental affairs are not uncommon at U.S. banks and other companies today.
Others are making more tangible commitments.
Manufacturers and Traders Trust Co.'s M&T Bank, headquartered in Buffalo, N.Y., inaugurated a special financing program in 2007 to help local governments make energy-saving improvements. M&T has operations in seven Mid-Atlantic states and the District of Columbia.
Charlotte, N.C.-based Wachovia, meanwhile, has plans to build at least 3,000 certified green financial centers by 2010. The bank said the new branches will use 20 percent less energy and 25 percent less water than previous branches.
In a recent press release about the plan, Wachovia said it expects to save about $80,000 per branch in construction costs and to slash operating costs by 20 percent the first year alone.
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