16 Nov 2017
Still in its infancy in Australia, green crowdfunding is already changing the game for banks overseas.
As the name implies, these projects are 'green' – they have an environmental or sustainability purpose – and using a crowdfunding model.
Green crowdfunding removes banks as the middleman, allowing investors to make transactions online and send funds directly to their chosen project.
"There is significant evidence of the business benefits of adopting a purpose-beyond-profit approach”
It can offer an attractive alternative finance option for small and medium-sized enterprises, which often have difficulty raising larger sums of money from banks.
Some overseas banks have recognised the benefits of jumping onto the crowdfunding bandwagon. Deutsche Bank, for example, now offers its own sustainable crowdfunding platform, Made for Good.
From 1997 - 2016, Made for Good lent $US380 million to over 150 microfinance institutions and alternative financial services companies.
There is significant evidence of the business benefits of adopting a purpose-beyond-profit approach, aligning social, environmental and financial goals and supporting local communities including enhanced brand value and reputation, customer satisfaction, innovation and better financial performance.
In addition, IMD has found that a “strong and well communicated Corporate Purpose can impact financial performance by up to 17 per cent” providing yet another benefit for financial service providers considering venturing into the green space.
Europe has a strong environmental mindset and investment in green technologies. In the Netherlands Oneplanetcrowd is leading the charge in sustainable crowdfunding platforms.
Since its launch in 2012, the company has reportedly raised €20 million from more than 25,000 active investors across more than 175 projects.
However, the interest extends beyond Oneplanetcrowd. According to the Netherlands Enterprise Agency, €11.5 million was raised for sustainable energy projects through Dutch crowdfunding platforms last year, 10 per cent of the total sustainable energy market.
The maturity of the Dutch crowdfunding industry demonstrates the potential economic benefits if banks and crowdfunding platforms worked together.
In Australia, we have taken the first step with the Senate passing the Corporations Amendment (Crowd-sourced Funding) Bill 2016 which allows companies access to crowd-sourced funding.
However the bill introduces a large number of eligibility requirements not easily met by smaller investors.
More work needs to be done in order for Australia to catch up on an international scale.
Our policymakers need to play a greater role to speed up market enablers like regulations around crowdsourcing platform failures or disclosure and dispute resolution rules.
They can also take advantage of being a latecomer to the game and use this opportunity now to analyse and reflect on the Netherlands’ success.
Parameters for success
To ensure a more efficient pathway to Australia’s green transformation, our policymakers should set parameters based on overseas best practice, such as:
1. Apply targeted green policies approach and implementation
Start small and implement policies in stages. Similar to Germany’s approach to energy-climate policy, we should begin by implementing policies at a small geographic scale or with a small scope.
By starting small, we can test and evaluate the economic, social and environmental benefits – and apply the learnings.
2. Promote innovation in the banking sector to help transition to new funding models
Banks should adopt the Netherlands’ Green Funds Scheme or develop similar funding models. Under this scheme, banks with a ‘green fund’ can offer savers and investors two options: green saving or green investment.
This money is then labelled as green and at least 70 per cent of the ‘green money’ needs to go towards government-approved green projects.
This increases the available green capital as well as giving banks ownership in developing environmental technology and protecting the environment.
3. Provide incentives to first-movers and entrepreneurs trialling new green technologies to spur innovation
Introduce schemes that incentivise environmentally-friendly and energy-efficient investments. Similar to the Netherlands, we could introduce a green capital gains tax where green capital is exempt up to about $A86,000 per person (green capital is exempt up to €55,000 per person in Netherlands).
Another option could be a tax incentive to encourage individuals to invest in green projects that benefit the environment. For example, where those who invest in a green fund receive lower than market interest returns, this could be compensated by a tax incentive. Both tax schemes will ensure greater availability of private capital for green investment, which will spur innovation.
Professor Martina Linnenluecke is a Professor of Environmental Science at Macquarie University.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
16 Nov 2017
18 Oct 2017