What Is Green Banking? [Read Before Applying]

In this article, we’re answering the question “what is green banking?”

This will include a description of what qualifies as green banking, practical considerations, and important steps to decide if green banking is right for you or your business.

This article is part of our free series answering questions like “how to open accounts” and “can I keep my bank account if I move abroad” – click here to access the rest of the series now.

Feel free to use the table of contents to jump ahead to the sections most relevant to you.

Table of Contents

  1. What Is Green Banking?
  2. What Are the Benefits of Green Banking? 
  3. How Does a Green Bank Work?
  4. Frequently Asked Questions
  5. Ready to Explore Your Options?

What Is Green Banking?

Green banking refers to financial services that encourage growth and innovation in support of the environment and limit negative environmental outcomes, ecologically and societally. However, the specific services and benefits available will vary by bank and country. Also, depending on the jurisdiction, this segment of banking may be referred to as eco-banking, sustainable banking, or ethical banking. 

Not surprisingly, many financial institutions approach environmentally friendly banking differently, ranging from a simple marketing endeavor to a genuine principled approach. So, if you desire a bank that offers a thoughtful environmental approach to its financial services, it’s important to carefully look at what each bank promoting “green banking” actually means.

Of course, the average consumer looking to minimize their expenses and maximize their benefits, will likely wonder “is green banking worth it?” Well, this isn’t the place to debate whether you should care more about your bank account balance or the environment.

But, we will say it’s probably hard for some people to think about clean air when they’re hungry or clean water when they can’t pay rent. So, needless to say, in order to reach mass appeal, this form of banking needs to be comparable in cost and practical in terms of services and delivery.

With this in mind, let’s take a look at another important consideration when answering “what is green banking?” which is how a green bank works.

How Does a Green Bank Work?

A green bank works like any other bank of similar size and scope, with a few key differences. First, environmentally friendly banks are typically founded on the principle that they support environmentally friendly projects, initiatives, and outcomes. And, secondly, many banks in this space are initially founded with public funds through government investments or loans.

Importantly, green banks will differ from one to another. So, while the general concepts above apply to most green banks, they will not apply to all green banks. With this in mind, it’s important that you take a close look at each bank before making a decision on whether you are comfortable moving forward.

What Are the Benefits of Green Banking?

The benefits of green banking include available financing for environmentally friendly initiatives that may not receive investment through other traditional sources of financing, more awareness of environmental initiatives, as well as branding and marketing benefits for both the banks and the consumers.

That said, one of the most important areas of environmentally friendly banking is access to financing. So, let’s take a closer look now.

Green Financing Activities

Green financing activities refer to loans and investments that deliver outcomes and encourage spending in areas with a net positive benefit to the environment. This includes consumer and commercial financing, ranging from subsidized goods and services to infrastructure lending for environmentally friendly projects.

The reason these environmental initiatives don’t normally receive investment or access to capital through traditional sources is that they’re generally early-stage, high-risk, and (in certain cases) lack suitable returns.

In other words, normal banks that risk depositor capital when lending do not want to expose their client deposits to these projects as they fall outside the scope of their investment parameters. Rightfully so.

For this reason, government-funded initiatives tend to lead the way in environmentally friendly banking initiatives as they have little regard for losing taxpayer money.

Here’s a closer look at some of the available benefits.

Benefits of Green Banking

  • Financing for uneconomic environmental projects
  • Subsidized purchases to encourage consumer adoption
  • Awareness of environmental initiatives
  • Corporate attention on reducing carbon footprints
  • Brand benefits for engaging in environmental initiatives
  • Consumer benefits through access to cheap financing

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Frequently Asked Questions

Below are two of the most common questions that we receive from people looking into what green banking is. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.

What Is the Meaning of Green Banking?

Green banking refers to the delivery of financial services that encourage positive outcomes and limit negative outcomes for the environment. In most cases, financial institutions that engage in environmentally friendly banking are driven by a purpose instead of profit generation, as such, they tend to be publicly funded institutions.

What Is Green Banking Concept in India?

In India, the green banking concept refers to banking with institutions that promote environmentally friendly initiatives. This can include simple concepts such as reducing the carbon footprint of customers with respect to their banking activities, to increase the available funding for projects that are designed to have a net positive impact on the environment.

Ready to Explore Your Options?

If you would like assistance navigating your banking options at home or abroad, we can help.

You can access GlobalBanks IQ, our international banking intelligence platform, in just a few clicks. Unlock our bank database, individual bank profiles, account opening strategies and reports, banker scripts, and more.

But, if you want a 100% personalized account opening service that taps into our team’s expertise and provides direct banker introductions, you can get started with GlobalBanks Insider.

Of course, if you have any questions, please contact us directly.

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