The Climate for Sustainability Is Warming

Credit union programs specifically tied to environmental sustainability are still rare, but the ranks of credit unions pursuing them are growing, according to George Hofheimer, chief knowledge officer for the Filene Research Institute, the credit union non-profit think tank in Madison, Wis.

Fresh faces are one reason. Millennials and Gen Zers are less patient with excuses to avoid the economic changes needed to reduce greenhouse gases and curb global warming.

“The young people who are joining credit unions are increasingly asking about or demanding responses,” Hofheimer said. “That’s really what’s changing things. In the work I do with credit union boards and their planning efforts, I’m hearing this come up more as an important topic to talk about in strategic planning: ‘What is our stance on environmental issues?’”

Some credit unions are answering that question in ways that reach beyond adding a solar panel to an office. Three U.S. credit unions are among the 60 members of the Global Alliance for Banking on Values, a group formed 10 years ago to use “finance to deliver sustainable economic, social and environmental development, with a focus on helping individuals fulfill their potential and build stronger communities,” according its website.

The U.S. credit union members are:

• Vermont State Employees Credit Union in Montpelier ($796.2 million in assets, 66,913 members);
• Missoula Federal Credit Union in Montana ($542.1 million in assets, 50,505 members); and
• Verity Credit Union in Seattle, Wash. ($601.7 million in assets, 34,435 members).

“These early adopters think of it as part of their mission,” Hofheimer said. “They think about the credit union as an engine for sustainability, whether it’s environmental, social or economic.”

The Global Alliance for Banking on Values pursues its mission by cultivating collaboration among its members’ leadership, Paul Herendeen, director of impact market development at MFCU, said.

“It’s a growing organization as people try to figure out how to do this work, how to measure it and how you hold yourself accountable,” Herendeen said. “We’re still in the learning stage.”

The alliance doesn’t tell members what kinds of loans it should or shouldn’t make. “It’s about transparency and leaving it up to the institutions to make good decisions,” Herendeen said.

The alliance provides a way for the credit union to be in touch with a bigger world of ideas and practices, enabling it to learn, find resources to experiment and ultimately increase its impact.

“This was in our wheelhouse in how we view the world,” Rob Miller, president/CEO for VSECU, said. “We as a credit union need to figure out how we finance change by changing the way we finance. In doing so, we serve our own interest, because if we can make the community stronger, that community will be healthier and will need more of our services.”

And the services could be considerable.

An average-sized residential solar system has dropped from a pre-incentive price of $40,000 in 2010 to roughly $18,000 in 2018, allowing installations to grow despite tariffs and waning incentives.

According to the Solar Energy Industries Association, the United States ended 2018 with 64.2 gigawatts of total installed solar photo-voltaic capacity, enough to power 12.3 million homes. Installed solar-electric is expected to more than double over the next five years.

Moreover, the potential for solar is massive. The U.S. Energy Information Administration found photovoltaics generated 63 billion kWh of electricity last year, or just 1.5% of the electricity consumed from the grid last year. It estimates small-scale systems generated another 30 billion kWh consumed nearby off the grid.

Meanwhile, the mere internal costs of coal are forcing utilities to remove massive amounts of coal-fired capacity.

These are concerns in Montana, which is the nation’s seventh-largest coal-mining state – as well as the home of Glacier National Park, where glaciers are disappearing, and MFCU on the state’s mountainous western edge.

Herendeen, who directs the credit union’s environmental program, said its values-based banking approach is the result of an intensive process of workshops and discussions about strategy that built on core principles the credit union had long held.

“It wasn’t revolution, it was evolution,” he said. “It was true to our membership; it was true to the way we were doing business. We also thought it would be a strong differentiator in an increasingly crowded market.”

MFCU said it defines its four core values as cooperative ownership, empowerment, inclusion and impact, which includes impact on the environment.

Although strip mines operate in Montana, and many of its residents are conservative, residents are also self-reliant, and the credit union’s environmental work transcends political boundaries, according to Herendeen, a 38-year-old former greenhouse gas researcher.

“Almost everyone in Montana is here because they care deeply about the natural environment,” he said. “We’re saving all of our members’ money who are investing in alternative energy – that’s keeping money in their businesses, in their homes and in their pockets.”

On top of that, the solar and energy efficient loans support work done by small, locally-owned businesses.

“So we don’t see this necessarily as a political issue,” he said. “We think there’s something here for everybody.”

MFCU’s Green Team last fall completed the first MFCU Environmental Management Plan. It sets a goal of reducing the credit union’s greenhouse gas emissions by 20% and paper use by 10% by the end of 2020. The plan is intended to be reviewed annually and updated regularly.

More ambitiously, MFCU is among a group of alliance credit unions testing a method of assessing the greenhouse gas impact of its entire balance sheet. The method, called “Platform Carbon Accounting Financials,” was started in 2015 by a group of Dutch financial institutions.

On the product side, MFCU offers solar loans of up to $25,000. And home energy efficiency loans of up to $7,500 for insulation, windows, doors and appliances that meet federal Energy Star standards.

The solar loan program has been simplified to drop risk-based pricing and fees, and to make unsecured loans of up to $25,000.

“We’re making it super simple, so it’s the same pricing for all,” Herendeen said. “We think it will help the marketing.”

VSECU has been lending for clean energy since about 2005 when its board adopted an environmental mission statement. In 2012, it gathered all its sustainability programs under the VGreen brand, with incentives that include discounted rates and longer terms on energy efficiency loans. The portfolio has since grown more than 20% per year.

The VGreen loan portfolio stood at about $59 million in May, including $44 million for solar energy loans. The rest includes weatherization, heating systems, green vehicles, bicycles and other energy efficiency purchases.

The program is an outgrowth of Vermonters’ passion to protect the environment, “and our way of life here in Vermont,” Miller, president/CEO, said. Part of that way of life is enduring long, cold winters and the resulting high heating bills.

“The purpose with the VGreen program is to enable and empower our members to make investments in energy efficiency. In doing so, they improve their own quality of life,” Miller said.

Members might be able to feel warmer in their homes, and do so more efficiently while also putting less strain on the environment.

VSECU has loaned $10 million on 647 electric or other green vehicles out of a total automotive loan portfolio that stood at $93 million as of March 31. In the last four years, the credit union has extended VGreen to include bicycles.

“We’ve seen a lot of electric bike loans over the last several years,” Miller said. “In a hilly region like Vermont, it has the ability to flatten your landscape a little, giving you a bit of electric assist when you need it.”

The credit union also offers other ways for members to participate in VGreen. For example, money put into money market savings plans is used to fund energy efficiency loans; the credit union tells members they can “make change by banking.”

The VGreen program’s overall default rate is about 0.30%, which helps justify making energy efficiency loans unsecured, even for solar installations that typically cost $25,000 to $35,000, Laurie Fielder, director of the VGreen program, said.

Miller said another reason for the better loan performance might be the emotional commitment of borrowers.

He recalled once making a comment to Fielder that suggested he thought borrowers were putting solar panels on the back of their homes.

“Oh no, they want to put them on the front of the house because they want to show them off,” she told Miller.