October 4, 2023

What climate-related opportunities should Canadian credit unions focus on?

The transition to a sustainable economy brings both risks and opportunities for financial institutions, including credit unions. Directors of credit unions have a responsibility to act in the best interest of the credit union, making it important for them to assess and address climate-related risks. Additionally, studies indicate that addressing climate change can generate business value. Larry Fink, CEO of Blackrock, the world’s largest investment firm, has emphasized the significance of this by stating:

There is no company whose business model won’t be profoundly affected by the transition to a net zero economy. […] As the transition accelerates, companies with a well-articulated long-term strategy, and a clear plan to address the transition to net zero, will distinguish themselves with their stakeholders […] by inspiring confidence that they can navigate this global transformation.

Credit unions have several sustainable opportunities to address climate change. This guide outlines five key areas to focus on: 1) standing out in competitive markets, 2) development of new products and services, 3) attraction and retention of talent, 4) improving operational efficiency, and 5) upholding community-focused values.

Standing out in competitive markets

The transition to a more sustainable economy presents investment opportunities for credit unions. By strategically positioning themselves in the evolving marketplace, credit unions can differentiate themselves from competitors. They have a unique advantage due to their history as community financial institutions with a strong mission-driven focus. In Canada, credit unions have a longstanding involvement in community investment, with significant contributions to local communities through donations and sponsorships ($53.4 million in 2019). They also play a crucial role in lending to small and medium-sized businesses and investing in rural agriculture. These community initiatives are relevant to climate change as the promotion of social equality is a foundation for a more sustainable society.

Clean Energy Credit Union in the United States has established a unique market position focused on environmental sustainability and climate change. Despite being relatively new, the organization has experienced remarkable growth. By the end of 2021, it had nearly US$30 million in assets. Membership increased by 80% between 2020 and 2021, reaching 5,100 members. Total assets grew by 58%, total loans increased by almost 65%, and total revenue rose by over 18%. This exceptional growth showcases how a credit union can successfully differentiate itself by focusing on sustainability. While not every credit union can replicate this exact model, it demonstrates the potential for credit unions to tap into societal and membership requirements and leverage their cooperative structure to drive positive change.

The development of new products and services

To seize the business opportunities arising from climate change and the shift towards a sustainable economy, credit unions can leverage their traditional financing models for consumers and businesses.

Green financing is the shift of financial flows from the public, private and not-for-profit sectors towards climate-focused activities.

Credit unions can capitalize on the consumer’s transition to greener cars and homes by providing “green financing” options to members, which will fuel growth and create new lending markets, whilst supporting their members in the transition to a more sustainable way of life and contributing to the growth of green industries. Green products for consumers could include:

Additionally, credit unions can broaden their commercial services by providing loans and investments to businesses and non-profit organizations that prioritize sustainability, including supporting initiatives like adopting green products or services, enhancing energy efficiency, constructing environmentally friendly buildings, or implementing sustainable energy and climate adaptation projects on a larger scale. By expanding their offerings in this way, credit unions can contribute to the growth of sustainable practices within other sectors.

Attracting and retaining talent

Differentiating as a credit union helps attract and retain both talent and members. Research indicates that social and environmental factors play a significant role in attracting younger workers. For instance, a global study by Deloitte found that Millennials and Gen Z consider a company’s impact on society and the environment when seeking employment. 36% of Millennials and 37% of Gen Zs would reject a job offer if it conflicted with their values. The percentage increases to 46% for Millennials and Gen Zs in senior positions. Additionally, 43% of Millennials and 48% of Gen Zs have exerted pressure on employers to take action, and they demonstrate greater loyalty to employers who listen and engage with their feedback and suggestions.

By embracing innovative approaches, credit unions can seize these opportunities to contribute to sustainable development, support green initiatives, and drive positive change within their communities.

Improving operational efficiency

Credit unions are actively working towards greening their internal operations by implementing sustainable practices. They make long-term investments in green energy and adopt measures to reduce waste and resource usage, such as transitioning from paper to digital operations. A notable example is Vancity, recognized as a leader in environmental sustainability among credit unions. Vancity has prioritized energy efficiency by implementing preventative maintenance, using energy-efficient lighting, and upgrading HVAC systems and building envelopes. These efforts have resulted in substantial energy cost savings, totalling over $4.5 million, showcasing that sustainable transitions not only benefit the environment but also prove advantageous for credit unions from a financial perspective.

Upholding community-focused values

Credit unions have a unique opportunity to stand out and thrive in the financial services landscape by addressing the new challenges brought about by climate change. By embracing climate leadership, credit unions can leverage their strengths and meet the evolving economic, social, and cultural needs of their members. Research has shown that pursuing sustainability goals and maintaining strong financial performance are not conflicting objectives. Financial institutions that effectively address important environmental, social, and governance (ESG) issues, including greenhouse gas emissions and climate change, tend to deliver higher risk-adjusted returns compared to those that neglect these issues. By prioritizing sustainability and demonstrating consistent and strong leadership, credit unions can position themselves as trusted financial partners that not only meet member needs but also deliver positive financial outcomes.