Credit unions and the green lending opportunity

The Swoboda Research Institute gathered sector representatives for a conference in Dublin on sustainability and finance

Credit union representatives, members and researchers from Ireland, the UK and beyond gathered in Dublin in May, to discuss how credit union lending can help individuals and businesses with the transition to environmental sustainability.

In the context of the cost of living crisis, Brexit, the war in Ukraine and the lingering effects of Covid-19, how can credit unions find the energy and impetus to support the green investment required over the next 10 years to reduce harmful fossil fuel emissions? What they are doing now? And how are members being engaged on this?

Introducing the day, Dr Paul Jones of the Swoboda Research Centre and Liverpool John Moores University defined what is meant by ‘green lending’. “It can be financing for projects that contribute to environmental sustainability, such as retrofitting, replacing petrol and diesel vehicles with electric vehicles, or investing in reuse and recycling capabilities,” he said, but added it could also be where the purpose of the loan itself may not be ‘green’, but the interest rate of the loan is adjusted downwards if sustainability targets are hit. 

“Green lending can be multifaceted, but the green lending opportunity is important and significant right now from a sustainability point of view.”

The Irish government has a target of upgrading 500,000 homes to B2 Building Energy Rating (BER) standard, by 2030. In February, the department of the environment, climate and communications announced a raft of measures to achieve this, which will be administered by the Sustainable Energy Authority of Ireland (SEAI). This includes increased grant levels for retrofits; one-stop shops to support energy upgrade queries; an increase in the number of free energy upgrades for those at risk of energy poverty; an enhanced grant rate for attic and cavity wall insulation for all households; and an investment of €8bn (£6.8bn) over the next eight years to enable the supply chain to scale up.

SEAI’s Josephine Maguire described how the organisation works with homeowners, businesses, communities and the government to transform how people think about, generate and use energy – and how credit unions are vital to this work. 

“You are in every community and every locality,” she said. “You are central to communities and can be involved in demand generation campaigns, look at supply chains and help to bring low-cost financing into the market for home retrofit.”

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David McDonnell, from Naomh Breandán Credit Union (NBCU) in East Galway, described how the organisation has been working with the SEAI to galvanise the local community around sustainability. The credit union was founded in the Loughrea postal district in 1966, and by 2016 had an 83% penetration rate in the common bond area and €65.5m (£55.8m) in assets. 

“Our vision is: ‘Together, building a better tomorrow for our community’, and we are driven to continue to promote NBCU’s importance to its community,” he said. Five years ago, NBCU explored what was of most importance to the organisation. The answer? “It wasn’t the financials, it was the social aspect.” 

To support its non-financial social return, NBCU worked with SEAI to support the set-up of Sustainable Energy West (SEW) in 2018, “to stimulate and lead a local movement of energy efficiency and sustainable living where everyone benefits”. 

They developed a competency compass to help plot the progress of projects against elements such as planning, engagement and renewable energy, and have run projects around residential and commercial property, agriculture, biodiversity and meteorological monitoring – for which Transition Year (TY) students from St Raphael’s College and St Brigid’s College took part in the Air Quality Campaign Ireland 2019, measuring the quality of air within the school grounds, outside the school grounds and at non-traffic areas near the school.

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There was wide agreement from delegates that sustainability should be viewed as a natural fit for the credit union sector. Billy Doyle, CEO of Dundalk Credit Union, went a step further. Intrinsic to this, he believes, is the purpose of credit unions, and their link to the co-operative movement. 

“Purpose matters,” he said. “The concept of organisational purpose has undergone a renaissance in recent years and is now a key to strategy development and cultural alignment. In the disrupted world we’re in, organisations with purpose are more enduring and sustainable. Once they’re clear on why they exist, a clear purpose also reconnects an organisation with its own values and principles.”

But he warned that although core co-operative values are deeply embedded in credit union DNA, “we can sometimes lose the centrality of our purpose and get disconnected from our co-operative heritage”. 

“That’s why purpose is so important,” he added. “Do credit unions walk the walk when it comes to living our co-operative values? Do we measure things in financial terms or member outcomes? Do our members understand what being a member is in terms of the opportunities and responsibilities?” 

He highlighted how Dundalk CU addressed these questions in the development of its 2025 strategic plan, which has members at its core. “As a member-owned financial co-operative, credit unions exist to empower members […] and provide stability for the community, the economy and the environment,” he said. 

“Putting purpose, members and mutuality at the heart of the organization and the strategy process represents a step-change on our current model […] we needed to reposition ourselves to put members at the centre of the organisation in a tangible way, to facilitate them and the community to do things for themselves.” 

Also speaking was Seán Fleming, minister of state for finance – a role which, for the first time, has special responsibility for credit unions. 

“This conference comes at a very important time in our history,” he said. “Humankind is faced with our biggest challenge yet, which is to turn the tide on climate change.” 

Related: Irish minister outlines plans for credit union growth

He emphasised how sustainable finance will play a crucial role in the government’s plan for the transition to a greener economy, and highlighted how recent legislation is also supporting this. The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 was signed into law in April, and a new consumer credit bill, “which for the first time in Ireland will regulate all the money lenders,” is imminent.

The minister also placed great emphasis on the need for cohesive branding and a single message for credit unions. “The competitors you face are not the credit union in the next town, they are the other financial services,” he said. “You have all these fantastic products, but they are not advertised nationally. There is too much fragmentation. The idea of marketing under one umbrella has to be a priority, because otherwise, the public will get confused.”

The issue of branding was also explored by Finbarr O’Shea, of Bantry CU, who spoke about two initiatives being offered by groups of credit unions. Cultivate provides short to medium term loans built specifically for farmer members, while Greenify is a new green home improvement loan.

Cultivate began as a collaboration of four credit unions in Galway in 2017 and now has 47 credit union members, with 150 offices in 23 counties and combined assets of €6bn (£5.1bn). In 2021, Cultivate loans accounted for up to 25% of loans issued by some credit unions, with the average loan being just over €28,000 (£23,800).

“Cultivate loans are so popular because it’s an identifiable finance brand that’s all about people, about local and about keeping it simple and straightforward,” said Mr O’Shea. “We’re reaching into territory where there isn’t a tradition of borrowing from credit unions, but we’re doing it simply, with a one-page fact sheet, not a 10-page booklet, which can absolutely be a barrier.” 

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The conference also heard from those offering services to credit unions, including Seán Farrell of the Strategic Banking Corporation of Ireland (SBCI) who spoke about the wholesale opportunities for credit unions, and Andrea Reynolds, who left a career in KPMG to set up Swoop, a fintech company whose mission is to undertake “accounting triage” and make it easier for SMEs to transact with financial providers, including credit unions. 

“We realised how difficult and fragmented the entire market was and the assumptions that we as the financial services make about financial literacy levels of business,” said Ms Reynolds. “One of the biggest challenges for SMEs is access to finance – we wanted to get rid of that barrier. In the UK, SMEs emit a combined 120m tons of carbon – they are the silent army for change, we have to make [green lending] easy for them.”

Joining the event from Scotland, Catherine Davenport of Capital Credit Union (CCU) spoke about how the question of sustainability went beyond the lending process to working practices. “We’re based in the city centre, which can be difficult and expensive for members to visit,” she said, adding that members can now engage through an app and online chat function, as well as by phone or in person, and staff have been offered flexible working options. 

Like others, CCU offers a green loan, which can be used for activities such as insulation, the purchasing of hybrid or electric vehicles, or boiler upgrades. For every green loan taken, a tree is donated to the CCU grove, part of an initiative aimed at re-wilding the highlands. 

But she admits there are challenges – including the current cost of living crisis. “We would love to encourage more green loans and plant more trees, but the impact of the cost of living is very real,” she said. “What’s more important? Today’s problems or those of tomorrow? It has to be both and we have to be strategic in the ways we help as many members as we can, both during the current crisis and for the future.”

Delegates were also joined online from colleagues in North America, who shared striking examples of credit unions working for sustainability. 

“We have a strong history in this work – we’re long-time leaders in fighting climate change,” said Alison Coates, climate consultant with Vancity Credit Union, in Vancouver, Canada. “We don’t lend to the oil sector at all and have strong guidelines that set limits as to who we do business with.” She described how 90% of the public expects financial institutions to act on social and economic issues; all five of Canada’s big banks have net-zero targets for 2050.

In 2008, Vancity became the first financial institution in North America to achieve carbon-neutral operations; but it is now looking a step further, and investigating the emissions it contributes through its business activity. 

“Our financed emissions from our lending are currently over 36 times our operational emissions,” said Ms Coates. “So, we have set ourselves a target of making Vancity net zero by 2040 across all our mortgages and loans, with our first targets set for 2025.”

From the USA, Terri Mickelsen described how the Clean Energy Federal Credit Union is a new type of credit union, responding to a new need. 

“Our common bond is those who have a mission to increase the adoption of clean energy, those who care deeply about the environment or work for a clean energy field,” she said. 

It was started five years ago by a group of people who are “passionate about promoting clean energy to protect the environment and improve our economy” and at the time, was the sole online-only credit union. “We started with solar loans, and as we proved to the regulators that this is a good space to be in, we’ve added geothermal, home improvement, ebikes… Most of the things we do have been requested by our members.”

She added: “Starting a credit union is hard. But the grassroots type of feel has served us well. We’ve done no marketing, but we’re up to almost 7,000 loans across 48 of the 50 states. We’re moving quickly, but we want controlled growth, We’ve been listening to members and contractors – that makes things a lot easier.”

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