What Is Green Banking?

Green banking is a branch of the financial industry that focuses on promoting environmentally-friendly practices. Similar to sustainable investing, green banks emphasize the importance of reducing negative environmental impacts as they go about their business.

The latest data indicates that global warming is likely increasing, and, in response, so is the market for renewable energy sources and other green solutions. The emergence of green banking may also reflect this rising interest in being more eco-conscious.

This is a relatively new concept, and you may have questions about what it really means. In this guide, you’ll learn answers to:

•  What is green banking?

•  How does green banking work?

•  What are examples of green banks?

What Are Green Banks?

There is no standard way to define what is a green bank. According to the Environmental Protection Agency (EPA), green banks are financial institutions that may leverage public funding to attract private capital for clean energy projects. These can include energy efficiency, renewable energy, and other distributed energy resources), as well as other “green” investments.

In simpler terms, green banks are mission-driven. They work to further environmentally-sound goals alongside financial goals. Those objectives can include:

•  Financing projects that will create green jobs

•  Expanding solar power

•  Lowering energy costs

•  Reducing greenhouse gas emissions

•  Building green infrastructure

•  Closing funding gaps for green energy retrofitting projects

•  Advancing sustainability.

As of 2022, there were 22 financial institutions in the U.S. operating as green banks, according to the Green Bank Consortium. Collectively, those banks have helped to drive $9 billion in clean energy investment since 2011.

Recommended: Green Investing Guide

How Do Green Banks Work?

Broadly speaking, green banks work by adhering to practices that promote sustainability. Sustainable banking encompasses two different things:

•  Green banking

•  Sustainable finance

So what does that mean? When you’re talking about green banking, you’re referring to implementing practices that are designed to reduce a bank’s environmental footprint.

Sustainable finance, on the other hand, involves the use of financial products to support or encourage environmentally-friendly behavior.

Green banks work by incorporating aspects of sustainability into their operations. That spans everything from the products and services the bank offers to its IT strategy to the way it hires and retains employees. It may encompass socially responsible investing as well.

It’s important to note that it can be easy to confuse banks that are authentically green with financial institutions that engage in greenwashing. Greenwashing happens when companies have the appearance of being environmentally-friendly or sustainable, based on their marketing claims, but in reality are not. It may require a bit of consumer research to make sure you can differentiate what is a green bank and what isn’t.

Recommended: A Guide to Ethical Shopping

Sustainable Banking Examples

The number of green banks in the U.S. is still relatively low, and they don’t exist in every state yet. You may not see them among your local retail banks. However, there are some notable examples of financial institutions that are focused on sustainable banking. These include:

California Infrastructure and Economic Development Bank

The California Infrastructure and Economic Development Bank (known as IBank) offers a variety of paths to sustainable banking. The bank offers infrastructure loans, bonds, small business financing, and climate financing in order to create jobs, bolster the economy, and improve quality of life for Californians. IBank financing accounts for more than $52 billion in infrastructure and economic development within the state.

Connecticut Green Bank

Connecticut Green Bank is the nation’s first green bank, established in 2011. The bank evolved from the Connecticut Green Energy Fund and bases its business model on the use of sustainable financing to maximize the use of public funds. As of 2022, the bank and its partners have helped $2.26 billion in capital to find its way into clean energy projects across the state.

NY Green Bank

NY Green Bank is a state-sponsored financial institution operating in New York that works with the private sector to increase investments into clean energy markets. The bank is specifically interested in projects that are both financially sound and focus on creating energy savings or clean energy that helps reduce greenhouse gas emissions. Many of the bank’s funding projects revolve around the expansion of solar energy.

Recommended: How Are Local Small Banks Different from Large Banks?

Advantages and Disadvantages of Green Banks

Green banks and sustainable banking aim to play a role in environmental preservation. However, they aren’t the same thing as your standard traditional bank or online bank. While you may never use a green bank directly, it’s important to understand how they can still affect you. Here’s what to know about the advantages and potential downsides associated with sustainable banking.

Recommended: 19 Ways to Save Money While Living Sustainably

The Future of Green Banking

Predicting the future of sustainable banking is difficult, though signs indicate a growing interest in how green banks might help create a cleaner environment. At the federal level, for instance, the passage of the 2022 Inflation Reduction Act notably included a provision allowing for the establishment of a national green bank.

Globally, sustainable banking is increasingly in the spotlight in emerging markets. There’s growing interest in the positive environmental gains that may be made through green banking. That said, there are still questions about how to encourage sustainable finance in economies that are still developing. This could in turn lead to more global collaboration among banks in furthering sustainable finance worldwide.

One potential result of sustainable banking: There may be greater carryover in the traditional banking sector. For example, there may be a push for banks to offer personal or small-business banking products and services that have a sustainable or green angle. Green loans and mortgages could end up being another byproduct of enhanced attention on sustainable finance.

As the spotlight on green banking grows, you may begin to notice changes at the retail banking level. For example, Citigroup issues an annual report on its ESG (Environmental, Social and Governance) program results. And it’s not just traditional banks showing dedication to this topic; online banks are part of the effort, too. In March 2022, SoFi announced the launch of its ESG Committee to help formulate strategies for positive environmental, social, and governance impacts.

Recommended: Online vs. Traditional Banking: What’s Your Best Option?

The Takeaway

Many people are adopting a greener lifestyle and finding ways to reduce their carbon footprint. Where you choose to bank could make a difference in your efforts if you’re keeping your money at a financial institution that advocates sustainability. Green banking is the term used to describe financial institutions that try to both make their business practices more sustainable as well as invest funds towards eco-conscious goals. This segment of the market may well grow in the years ahead.

Switching to an online bank is something you might consider if you’d like to streamline the way you manage your money. Instead of driving to a bank or receiving paper statements in the mail, you could track your finances online without leaving home. When you open a checking and savings account with SoFi, you can get all the banking tools you need to stay on top of your finances. Sign up with direct deposit, and you’ll enjoy the terrific combination of an and no fees, which can help your money grow faster.

FAQ

What is sustainable banking?

Sustainable banking encourages environmentally-friendly practices, products, and services. A sustainable bank or green bank may be committed to specific environmental goals, such as reducing greenhouse gas emissions, promoting the advancement of clean energy, or funding green building projects.

How can banks be more sustainable?

Banks can encourage sustainability by reviewing their environmental footprint and addressing areas that could improve. The types of changes banks can implement may be large or small, but the end goal is fostering a cleaner environment. Reducing paper waste, for example, is one simple way to be more sustainable.

Which banks are green banks?

There are a handful of banks operating in the U.S. that are designated as green banks, according to the Green Bank Consortium. Whether a bank is considered “green” or not can depend on the type of certifications they hold. Examples of green banks include IBank, Connecticut Green Bank, and NY Green Bank.

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

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Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

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