Lawrence Pratt: “FIs that do not invest in renewable energy, energy efficiency, climate risk reduction and efficient buildings will miss out on the leading trend in international finance”
The founder of the Ecobanking project and recipient of the Aspen Institute Faculty Pioneer Award will be in Santiago on march 28 2017, to participate as a moderator in a high-level dialog about sustainable construction in Chile. The executive breakfast event “Sustainable Finance in Latin America and Chile” is being organized by CLACDS/INCAE Business School’s Ecobanking Project, the UN Environment Programme Financial Initiavive (UNEP FI) and CAF -Development Bank of Latin America, within the framework of a workshop on “Financing Green Housing” that will take place on the 29th. We asked mr. Pratt to comment on the subject of banking, sustainable finance and green housing in the region.
What compelling reasons are there for banks (in general) to support “green” or sustainable housing (and other types of urban, industrial, commercial developments)?
Construction systems that favour sustainability offer multiple benefits to society that have been widely discussed. For banks, there are important rationales. 1) There is a strong trend to prefer buildings that are healthier, more efficient, better geared towards offering quality of life to its occupants. 2) Sustainable buildings generally boast lower operating and maintenance costs freeing up cash flow monthly and annually for the buyer and 3) There exist considerable international sources of funding, which enable banks to intermediate capital under more favourable than local markets usually allow.
What would be the consequences for banks (and their customers) if they exclude “green” subjects (including environmental and social risk analysis) from their internal and external policies?
Financial institutions that do not incorporate environmental and social issues in their risk analysis are not performing a comprehensive analysis – exposing themselves to unnecessary risks thus oftentimes breaching their fiduciary duties and greatly reducing their access to international capitel that carries requirements to protect their investment. Financial institutions that do not enact strategic plans to invest in renewable energy, energy efficiency, climate risk mitigation, more efficient buildings are missing the prime trends in international finance. Just as an example – since 2010, the world has seen more investment in renewable energy than in fossil energy. This trend will never revert.
What can we do to accelerate the transformation of banks and insurance companies in Latin America?
Our experience at the Ecobanking Project has been that the limiting factor for banks in Latin America lies in their scant knowledge of the subject. Banks in the region are, by nature, very conservative and they often have a hard time seeing their business environment from a different perspective. Programs such as our “Financing Green Housing” online course have achieved some interesting results. The investment of one or two hours a day for two weeks, is already generating new plans for products and lines of business.
In your estimation, at this time: How do home buyers in latin american countries compare to those from other continents or regions, in terms of their responsiveness to “green” or sustainable housing?
Buyers in Latin America, as compared to those in Europe and the USA, know much less about the possibility of owning a more sustainable home, more efficient in its use of energy, water and others. Real estate markets in almost every latin american country are apparently not offering many options.
How can banks become more responsive to the needs of populations ever more dependent on ever more expensive technologies (and electricity)?
The technology exists in Latin America today for many types of housing which are capable of generating all (or most) of their own energy requirements, at a cost below the going price in the national grid. Financing is a key factor in realizing those savings and reducing the risk of shortages (incidental or structural) in the system.
What opportunities will the regional banking system open (both commercial and development) by gaining access to green lines of financing for their customers?
The first point is to understand that they can finance houses that are intrinsically better homes for the buyers in that they improve their quality of life, and often have lower operating costs. Thus banks can finance more, since the monthly cost of operation is reduced.
Lawrence Pratt is founder and former director of several programs that are widely respected internationally such as the Ecobanking Project (www.ecobankingproject.org) and the Sustainable Markets Intelligence Center (www.cims-la.com). His research focusses on incorporating sustainability into strategic positioning for countries, industries and businesses. He is a consultant and advisor for multiple multilateral organizations, as well as manufacturing, natural resource, and financial services companies in the United States, Europe and Latin America. A graduate of the College of William & Mary (Virginia, USA), he holds a Master’s degree from the Yale School of Management (Connecticut, USA). In 2006, he was bestowed the Aspen Institute Faculty Pioneer Award.