Green Credit Scarce in Latin America

By Emilio Godoy Reprint | | Print |

Emilio Godoy

MEXICO CITY, Mar 7 2012 (IPS) - In Latin America, where bank loans for environmentally sustainable activities are rare, the United Nations Environment Programme (UNEP) is seeking to foment green credit.

In June, UNEP and the Latin American Banking Federation (FELABAN), which groups more than 500 banks in 19 countries in the region, will present an assessment of the issue along with recommendations for credit, insurance policies and investment to include a greater environmental component.

“In Mexico, green credit is in its infancy,” Dolores Barrientos, the UNEP representative in Mexico, who worked in banking for nearly two decades, told IPS. “Development banks offer some financing. There is plenty of credit and conditions are good, but the banking sector is an oligopoly and the economy is largely ‘unbanked’.”

In 1991, UNEP and a handful of international commercial banks created the Finance Initiative, which fused with a similar project in the insurance industry in 1997, becoming the Finance Initiative: Innovative Financing for Sustainability (UNEP FI).

UNEP FI now brings together 207 public, private and multilateral financial institutions in over 40 countries, including Brazil, Colombia, Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay and Venezuela in Latin America.

Its priorities are banking, climate change, insurance, investment, construction and sustainable management. The Initiative also promotes research and measurement of the social and environmental impacts of financial operations and products, and training to improve these aspects within the institutions.

“Comprehensive solutions to climate change are needed, including sustainable methods of production and consumption. Banks could organise ways of providing this type of credit,” Joanna Rea, of Bond for International Development, told IPS.

Bond is an association of British NGOs that work for development and financial inclusion.

Mexico’s development banks and the state National Infrastructure Fund have devoted millions of dollars to environmentally sustainable activities.

For example, 960 million dollars were spent on waste water treatment; the Municipal Solid Waste Programme received 98 million dollars; and 960 million dollars went to public transport.

A total of 350 million dollars was devoted to building wind energy farms, while Trust Funds for Rural Development (FIRA), which has joined UNEP FI, contributed 72 million dollars to rural projects.

In the southern Mexican state of Oaxaca, private Spanish banks with a leading position in Latin America have financed the development of wind energy projects, based on similar initiatives in Spain.

In 2009, the government of conservative Mexican President Felipe Calderón launched a home appliance replacement programme that replaces refrigerators and air conditioners over 10 years old with new appliances, to reduce energy consumption and increase efficiency.

The goal is to replace 1.9 million appliances in 2012. The government subsidises part of the cost and the homeowner pays the rest.

In 2011 a sustainable lighting programme was adopted, to change nearly 46 million incandescent light bulbs for energy-saving compact fluorescent bulbs. So far, 22 million bulbs have been replaced.

“Credits could be provided for public street lighting, sanitary landfill sites and water treatment. Ideally, the financial programme would establish green credit targets and standards for the banking system,” said Barrientos.

In its November 2011 report, Financial Development in Latin America and the Caribbean: The Road Ahead, the World Bank castigated the Latin American banking sector for not opening the flow of credit to promote economic growth through financial inclusion, especially of small businesses and mortgage-holders.

But the report made no reference to green loans.

The UNEP FI Climate Change Working Group focuses on gauging and monitoring the carbon footprint – the amount of carbon dioxide emissions – of investment funds, an index of their impact on global warming. It also assesses to what extent banks are committed to sustainability.

In 2010, insurance companies associated with UNEP FI began to debate a document on the principles for incorporating sustainability in their operations.

The new principles will be announced at the United Nations Conference on Sustainable Development (Rio+20), to be held in June in Rio de Janeiro, 20 years after the 1992 Earth Summit took place there.

According to the project’s web site, these principles will represent “a landmark contribution and long-term commitment of the global insurance industry to building a sustainable global economy.”

UNEP FI and FELABAN are carrying out research on the current state of sustainable banking in Latin America, which aims to describe strengths and opportunities and identify good practices and ways of improving sustainability.

The study is focused on the commitment of financial institutions to sustainable development, the vision and policies that support this commitment, and environmental regulations.

The research also takes into account the commitment to sustainability in the operations of the different banks in relation to environmental and social risks, the management of internal resources and the development of green products and services.

UNEP has proposed that the goals of Rio+20 are to renew political commitment to sustainable development, to assess progress towards the targets internationally agreed upon at the Earth Summit two decades ago, and to address new and emerging challenges.

The conference will also focus on creating a green economy in the context of poverty eradication and sustainable development, as well as an institutional framework for that purpose.

“We can achieve a sustainable model for loans that is environmentally responsible. We need a fair and just model for global credit,” said Rea, of Bond for International Development.