Why an ESG Strategy is a Natural Fit for Credit Unions

ESG (Environment / Sustainability / Governance) considerations are impacting businesses across the board in 2024, and credit unions are no exception. ESG considerations are potentially important for US credit unions for several reasons:

Alignment with Core Values:

As member-owned non-profit organizations, credit unions typically prioritize community well-being and ethical practices. ESG considerations align with these core values by promoting environmental sustainability, social responsibility and good governance practices – which all enhance a credit union’s reputation and commitment to its members.

Attracting and Retaining Members:

Many members and potential members are looking for their financial institutions to align with their own values, including sustainability and social responsibility. By embracing ESG principles, credit unions can recruit and retain members who embrace these values. This is particularly true of younger prospective members: the millennial generation is especially passionate about ESG issues.

Risk Management and Compliance:

ESG factors can help credit unions identify and manage risks related to environmental impacts, social responsibility, and governance practices. This proactive approach to risk management can protect credit unions from potential legal, regulatory, or reputational risks, particularly as regulatory expectations around ESG disclosure and practices continue to evolve.

Community Impact and Development:

By focusing on ESG initiatives, credit unions can invest in projects that benefit their local communities, such as affordable housing, renewable energy, and local business support. This strengthens the community and reinforces the credit union’s role as a positive community stakeholder.

Best Practice Examples

ESG-related issues were addressed at the WCUC event in Boston earlier this year. David McAuley, from the Irish League of Credit Unions (ILCU) and CEO of Donore Credit Union, provided more than a dozen inspiring best-practice examples in this area. Highlights included the following:

The ILCU was appointed Sustainable Development Goal (SDG) champions by the Irish Government’s Department of the Environment, Climate and Communications for 2023 and 2024. This reflected the ILCU’s efforts to serve as leaders in driving Ireland’s progress towards the United Nations Sustainable Development Goals (SDGs).

Today, sustainability is deeply embedded in every aspect of the Credit Union Operating Principles, which align closely with the UN SDGs. The following goals are of relevance to the sector and the role of credit unions:

• SDG 1. No Poverty: End poverty in all its forms everywhere.
• SGD 2. Zero Hunger: End hunger, achieve food security and improved nutrition, and promote sustainable agriculture.
• SDG 4. Quality Education: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.
• SDG 8. Decent Work and Economic Growth: Promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all.

McAuley cited the work done by the Boeing Employees Credit Union (BECU) and its NFP Foundation’s Green Equity Initiatives Grants that are designed to help empower workers in renewable energy, circular innovation and green workforce development.

McAuley then addressed the opportunity credit unions have regarding a “Materiality Assessment” – a process of identifying ESG-related risks and opportunities that may impact the credit union’s long-term performance and key stakeholder engagement. This could include communicating to credit union members where the organization is and where it wants to go in terms of ESG initiatives and reporting.

Karen Mulligan, Head of Operations and Finance at ILCU, wrote a great article about how credit unions can make a positive impact with an effective ESG plan that aligns with their mission, values, activities, and long-term goals. She outlines the steps to developing an effective ESG plan.

McAuley also identified the opportunity for credit unions to leverage their product offerings to encourage and reward a “green lifestyle.” This relates to offerings like Home Equity Line of Credit loans that can help fund the installation of energy-efficient heat pumps or solar panels on homes. Auto loans for electric and hybrid vehicles that greatly reduce or eliminate carbon emissions fall under this category, too.

Where Should You Start?

To support ESG-related initiatives, US credit unions might consider starting with the following efforts:

1. Create a Simple ESG Plan of Action: Define your credit union’s mission and values, identify stakeholders, conduct a materiality assessment, set ESG goals, develop policies and procedures, establish ESG reporting and disclosure mechanisms, and develop specific initiatives. Be sure to monitor and review your progress.
2. Offer Green Loans: Credit unions can provide loans with favorable terms for environmentally friendly projects, such as home energy efficiency upgrades, electric vehicles, or solar panel installations. These green loans encourage members to adopt sustainable practices by making environmentally friendly choices more affordable.
3. Invest in Community Development: Credit unions can support local communities by investing in projects that enhance social well-being and promote economic inclusion. This could include financing affordable housing, supporting small businesses, or funding community services that address social issues like healthcare and education.
4. Adopt Sustainable Practices: Credit unions can reduce their environmental footprint by implementing sustainable practices within their own operations. This could involve reducing energy consumption through efficient lighting and HVAC systems, minimizing waste, or transitioning to digital banking to reduce paper use and the need for members to drive to local branches to conduct their business.

These actions can help credit unions align their operations and offerings with ESG principles, benefiting both their members and the broader community.

How to Do It

Most senior credit union officers agree that supporting ESG-related initiatives is the right and a good thing to do, but may not be sure where to start. It may seem daunting and unaffordable. They key thing to do is take some sort of action to support ESG. If you find your credit union is constrained in terms of ESG expertise and creating or executing a simple plan of action, consider working with an outside partner like Copylab.