In the age of climate change, it will take a collective effort to create maximum ecological impact. It is the crowd that possesses the almighty scepter of change. But who is this crowd and how can the banking industry quickly engage them? As the largest generation in history, Millennials are quickly becoming the crowd. And according to the Millennial Disruption Index, 53% of Millennials don't believe their banks offer anything different from other banks. Considering the fact that 32% of Millennials see themselves as environmentalists, the ecological approach may be the lowest hanging fruit, and the most effective way to begin the conversation. In a sector such as the banking industry, that has changed little in the past century, innovation means survival in the new knowledge-based global economy. The slightest differentiation in technique or methodology is what delivers innovation. It is upon these grounds that we make a case for banking institutions to micro-finance innovative ecological initiatives through the Eco-Impact Bond, in order to create further environmental awareness and wider participation among the U.S. banked population in support of promising green projects.
The Eco-Impact Bond (EIB) is an environmentally responsible financial product and client offering, providing funding for innovative community-based ecological projects, exclusively available to clientele of participating institutions.
The Eco-Impact Bond, is a sustainable and eco-friendly product that allows existing and new banking clients to donate their checking accounts Annual Percentage Yield (APY) interest, to an Eco-Impact Fund (EIF) held in trust by the bank, issued out through an on-going grant process by an internal committee, and provided exclusively for innovative community-based environmental projects.
The novel features of the Eco-Impact Bond (EIB) are many. First, the EIB is a private transaction that is client funded as a result of donated APY interest from client checking accounts. Therefore, there is no need to create legislation or use taxpayer funds. The model is standard and thus easily replicable at various small to large banking institutions.
The model is also scalable, largely due to the collection of micro-donations in the form of annually accrued APY interest. Such micro-donations may be collected at a city, state, or national scale among a singular banking institution. Funds are placed in an Eco-Impact Fund (EIF), and given out by an internal Environmental Impact Committee (EIC) in the form of project-based grants. Existing and new clients have the option, similar to going "paperless", to choose to make all statements electronic. Clients opt into the program which automatically deducts any accrued APY from their checking account as a donation toward innovative local ecological projects. The ecological focus of the EIB is narrow, and differs from the UN's "Green Bonds" in that they are self-sustaining. While Green Bonds need investors to raise financing, with EIB's the customers act as philanthropic investors, sustaining the fund perpetually.
Additionally, because only current banking customers are able to participate in the program, it provides an incentive for environmentally and socially conscious customers to choose the participating banking institution over another offering less innovative and Eco-friendly financial products. The EIB also provides cost-saving measures by saving corporate philanthropic expenditures on similar inititives, while still gaining the benefits of positive public relations.
Clients participating in the program also receive a benefit through tax-incentives inherent with philanthropic giving. Community benefits are substantial through the support and implementation of local ecological projects by the banking institution and its customers.
There market opportunity is $483,119,472,288 Billion dollars in total value of consumer checking accounts in the US. How did we get that number? According to statistica.com, in 2014, there were 123.2 million households in the U.S., and during the same year the FDIC found that 88.4% of American households had checking accounts, which would be 108,908,808 million households. Additionally, according to a 2014 Los Angeles Times article, the average balance for U.S. checking accounts was $4,436. Now multiplying the number of U.S. households with the average balance of American checking accounts, and we are left with $483,119,472,288 Billion dollars in total account value among the banked in the U.S. Now multiply this number with a competitive .32 APY compounded once a year. The result is $1,545,982,311.32 Billion dollars in consumer compounded interest.
The FDIC also states there are 6,312 banks in America as of 2015, down from 6,799 the preceding year. If we split the total amount of APY compounded annually, evenly among the total number of U.S. FDIC insured banks, it leaves a possible $244,927.49 dollars per FDIC banking institution that would become available for local ecological projects if 100% of consumer checking accounts opted into the Eco-Impact Bond (EIB). But what if only 25% of consumer checking accounts opted into the EIB program? Then we would still be left with $61,231.87 per banking institution that becomes annually available to be granted out to innovative community and project-based ecological initiatives, such as rehabilitating homes or a local school to enhance energy efficiency, or urban agricultural projects addressing child hunger. The fund would also adhere to the annual 5% payout requirement of U.S. Foundations in accordance with the I.R.S. and U.S. Tax Code.
As a part of a settlement of the 2008 financial crisis, the U.S. Department of Justice forced Bank of America and Citigroup to donate funds to organizations as a result of their wrong-doing. Also, many banks have corporate philanthropic arms, which would allow the EIB model to easily integrate within existing community-based efforts. Furthermore, organizations are already allowing consumers to opt in and out of programs, such as the electronic banking program, allowing consumers to go "paperless" and save trees. The concept of proactively participating through philanthropic giving, engaging customers less passively than merely option to eliminate paper statements. We believe it is not only time to engage consumers more through innovative local ecological initiatives, but it is time to change the way we do banking.
Ean Garrett, J.D., is the author of two books, "Rebirth of a Dream" and "The Immovable Race", as well as the Chief Innovation Officer of the consulting firm, Infinite 8 Institute, L3C, specializing in the design and finance of social impact systems. Follow him on Twitter & IG: @eangarrett