ESG & Impact – A Natural Fit for Credit Unions


When it comes to ESG & Impact Investing, credit unions are well-positioned to use both to differentiate themselves from other financial institutions. By providing innovative product opportunities for existing members and attracting new members that are seeking to integrate social considerations in investment decisions, credit unions can easily strengthen the link to their mission & spearhead the mainstreaming of Impact Investing and, to a larger extent, ESG.

An ESG Approach for Credit Unions

Today, ESG has progressed from a nice-to-have investment class “fad” to a front-page headline of a must-have sustainable investment process – one that consciously and conscientiously thinks about a company’s long-term impact on the environment & society as much as the organization’s business performance. These principles of social responsibility, financial inclusion, and community commitment are, in fact, reflected in credit unions’ missions, strategies, and product offerings, making ESG a natural and seamless fit for these cooperative, member-owned financial institutions.

An ESG approach means credit unions explicitly consider both environmental risk mitigation and ways to maximize environment/climate-related opportunities in their strategies, planning, and metrics. Unsurprisingly, the opportunities for credit unions around adopting an ESG approach are vast:

  1. Regulatory Preparedness: The U.S. may eventually follow the European Union’s lead in having additional ESG information incorporated into SEC reporting requirements. If the SEC follows through, federal and state credit union regulators will not be far behind, and it is better for credit unions to be prepared and possibly help to form any future regulations.
  2. Proactive Environmental Risk Mitigation: Credit unions are well aware of environmental and climate risks. In fact, they are often among the first responders for their members, staff, and communities when natural disasters and weather events Nevertheless, their reactive approach to environmental hurdles lacks a long-term, sustainable motive; herein lies the credit unions’ opportunity to consciously integrate ESG into their planning, operations, and strategy via a proactive approach. This could look like 1) expanding their portfolio of green lending products, 2) supporting “cleantech” through purchasing decisions and business development, and/or 3) adopting policies in lending, investing and education that support sustainability within the communities where the credit unions operate. This proactive approach would enable credit unions to mitigate the losses and the impact on their balance sheets more effectively as well as reduce the stress and injury to employees, members, and the community.
  3. Sustainable Financial Growth & ESG KPIs: Credit unions’ innate proclivity toward ESG factors offers them the opportunity to effortlessly create appropriate and quantifiable ESG-dashboard measures that can serve as meaningful Key Performance Indicators (KPIs) to senior management. Institutionalizing ESG in this way lends a more structured and defined way of driving sustainable financial growth, which is opportunely the credit union ethos. Sound performance on ESG-related measures translates into better financial returns, so a concerted consideration of ESG factors in a credit unions planning & operations will offer immeasurable success and sustainable growth for the business and stakeholders alike.
  4. An Ideological Shift in the Values of Millennials & Gen Zs: Considering how most Millennials and Gen Zers are now gravitating toward banks and credit unions that care for more than just their bottom line, credit unions that embrace existing opportunities around ESG will benefit from a burnished brand, better talent, enhanced board function, and increased ability to serve their members and stakeholders.

It is evident that credit unions are in the perfect space to adopt ESG guidelines that will accurately and transparently benchmark, measure, and evaluate their ESG performance. There are many tools and platforms out there today that consolidate these guidelines and present them in a digestible manner; ESGTree is one such platform that takes data consolidation & trends analysis to the next level by offering a one-stop-cloud-based solution that collects, analyzes, and reports ESG data seamlessly. This solution may come in handy for credit unions, who very well know that sound performance on ESG-related measures translates into better financial returns.

Impact Investing & Credit Unions

Despite credit unions’ ethos around community, sustainability, and inclusion, many treat Corporate Social Responsibility (CSR) as a tactical secondary activity; nearly 20% of credit unions provide no focus area for corporate giving and, generally, report being less than satisfied with their Impact report tracking record. If credit unions made a concerted effort to formalize the ESG opportunities outlined above and conjoined it with defined Impact Initiatives, they could become the quintessence of sustainable finance.

Specifically, credit unions have an opportunity to lead the development of the retail impact investment market in ways that other financial institutions do not. Like with ESG, the prospects here for credit unions are immeasurable:

The Supply-Demand Gap: The Rockefeller Foundation’s survey (2019) found a “significant appetite” for Impact Investing from Retail Investors. Unfortunately, the sector has been slow to respond with suitable products and for this very reason, credit unions have ample room to introduce innovative Impact Initiatives/Products that can bridge this market gap and place them at the forefront of values-based investing.

Competitive Advantage: Research conducted by the Global Alliance for Banking on Values suggests that financial institutions that base their decisions for the greater good, individuals and society, as opposed to the maximization of profits, are outperforming their competitors in areas such as return on assets, growth in loans and deposits, and capital strength. By making social finance a core part of their business model (which would include offering impact-driven products for individual members), credit unions will have an advantage over competitors.



Appeal to Millennials: As mentioned in the Section above, Millennials & Gen Zers have brought an ideological shift in the investment & consumer decision-making process. Millennials in particular are the second-most active generation engaged in impact investing and a majority of them believe that impact investing can fix a financial system that is inherently balanced or unequal, highlighting a motivation to improve the system from within. Again, this market readiness for Impact Initiatives & retail Impact products such as fixed income community notes, listed investment trusts, impact mutual funds, shows just how favorable the environment is for credit unions to take the lead.

An Immature but Rapidly Developing Market: Unlike ESG, Impact Investing is a relatively immature but rapidly developing market. Over the years, it has become much more sophisticated since funds in this asset class have started to develop more meaningful ways to measure their outcomes. In this new and immature market, credit unions can start and expand Impact Initiatives/Products at any scale. For instance, with gas prices rising and the auto market hindered by ongoing supply-chain issues, credit unions have the early opportunity to place a new focus on electric vehicles (EV). They can devise marketing to ensure consumers of modest means can afford EVs, while also opening the market for other green products, including solar panels, electric bikes, and more.

Despite the significant appetite for Impact Investing, there are daunting barriers to greater adoption. One is the lack of standardisation in measuring the ‘impact’ of investments. Investors are struggling to quantify the environmental impact of their investments – 61% of them state that this cause is difficult to measure because of the vast array of impacts and a lack of commonality. 

Currently, the 17 Sustainable Development Goals (SDGs)  are the most commonly used impact performance measurement tools, where investors assign impact to one or more of the goals, such as climate action or gender equality. This Tool has been synthesized and automatized by ESGTree, whose Platform contains an Impact Measurement feature that has improved and refined the way that capital is allocated, and returns are measured.

As solutions like ESGTree lower the obstacles to the adoption of ESG & Impact, credit unions can seamlessly use ESG & Impact to deepen financial well-being for all and advance the communities they serve – the opportunities here are endless.

Click here to learn more about ESGTree’s ESG Data Management & Reporting Software for Financial Institutions

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