Innovative Finance & Technology-- Key Ingredients for a Greener North Carolina (and Beyond)!

Did you happen to see the March 2010 report on the green economy in North Carolina by the American Council for an Energy-Efficient Economy ? Well, it ranks North Carolina 26th out of 50 states on its energy efficiency policies, stating that "significant potential will remain untapped on the state's current path" unless new, more-proactive green policies are implemented. Optimistically, though, the report did indicate that North Carolina has several elements that could allow it to become a "hub for clean energy innovation" such as technology efforts in the RTP, multiple leading research universities, and a progressive business climate. Let’s by all means add to the list our robust banking system (one of the strongest in the country). As any student of public policy would tell you, access to ready financing is a critical element to making innovative green policies a widespread reality. This is especially true for policies driving the green economy. And while the field of green finance in North Carolina has seen occasional activity in areas like energy efficient mortgages for homeowners and expansion loans to renewable energy companies, the fact is that many banks lack the mix of green underwriting training, tools, and capital required to pursue this growing field of finance. Let's not single out North Carolina banks in this respect, though. Banks throughout the country face similar challenges, and those banks (as well as supportive policymakers) are searching for the best ways to effectively equip the financial community to grow the green economy. It is a national need and North Carolina banks have a unique opportunity to lead the way forward by implementing new, innovative methods and tools designed specifically for green finance. By seizing this opportunity, North Carolina banks will give the state a unique competitive advantage in the green economy.

At SAS, we see this need as an opportunity to provide technology solutions that enable financial institutions, first in North Carolina, and then ultimately across the US, to more effectively enter the green financing arena. To that end, we have a variety of initiatives underway to develop technology that drives sustainability, from enterprise-level energy efficiency intelligence solutions to the green finance solutions mentioned above. To highlight just one of our green finance initiatives, SAS is partnering with Fourth-Sector Financial Corporation to explore technology solutions that provide triple bottom line intelligence to banks and credit unions so they can more effectively underwrite green projects. I first met Henry McKoy, CEO of Fourth Sector Financial Corporation, in July 2009. Henry read our latest book, and he introduced himself to me and I invited him for lunch on the SAS Campus. Since that time we have enjoyed some great brainstorming sessions on green loan underwriting models and technology and many others in both organizations have had the opportunity to meet and interact.

SAS and Fourth-Sector are also exploring solutions whereby private capital can more effectively be connected with financial institutions investing in green projects. This work is somewhat analogous to the involvement I have had over the past several years with Social Compact and their community development projects that are rooted in sourcing better information and developing intelligence to make the business case for private investment in underserved communities. It is exciting work, and it is certainly no coincidence that it also ties in nicely with my efforts on the enterprise governance, risk, and compliance front, where triple bottom line strategies can be developed and integrated with an audited program of sound risk management and policy/legal compliance within each and every corporate operating unit!

The new lending system I have been describing over the past two years is precisely the type of comprehensive credit assessment framework (CCAF, pronounced See-Caf) that is needed for green lending. It is able to simultaneously consider not only borrower qualifications, collateral concerns, and loan terms and conditions, but also the environmental impact and the nature and extent of green improvements and their associated cost savings in occupying and maintaining a residence. As you can see, green financing is a complex undertaking, and sophisticated data-driven tools from technology leaders like SAS will be critical for banks to successfully enter that arena, especially small and mid-tier banks, which lack the resources to develop green financing capabilities in-house. In a related vein that will momentarily become apparent, the SAS Fair Banking Solution effectively qualifies loans, investments, and services for credit under Regulation BB using “computer-driven and configurable wizards” that guide the user through the appropriate qualification process in the most efficient manner. Green loans and investments can be qualified a similar fashion, with CCAF performing the needed classification and risk assessment and SAS Fair Banking’s “green wizard” managing the loan qualification workflow and related documentation. Just imagine – lenders can combine their goals of fair and responsible and profitable lending with environmentally conscious lending in a single solution!

By using technology to enable North Carolina's banking institutions to more effectively provide green financing, SAS hopes to further policy decisions made by government officials and private sector executives alike that promote energy efficiency and the expansion of businesses in the clean tech and renewable energy space. By doing so, we play our part in growing the green economy in North Carolina and realizing the many benefits of becoming an innovation hub in this area: a cleaner environment, job creation in communities of all income levels, and renewed economic vigor.

tags: Green Lending


  1. Murphy
    Posted May 24, 2010 at 11:25 am | Permalink

    Interesting. Never imagined that green financing can be handled by CCAF. Another area that CCAF can assist banks is to allow them to enter in new markets. Many banks borrow credit scorecards from existing portfolio and implement them in new markets. This is often unreliable and new scorecards has to be developed.
    If one was to use CCAF, the handles will self adjust as time goes by resulting a stronger model rather than weakening model. With reduction in both portfolio defaults and scorecard development resources, CCAF is very crucial to improving company bottomlines.
    Hopefully, this example of CCAF implementation will prove the rest of the banking world that our current approach is outmoded and needs replacing.

  2. Clark Abrahams
    Posted May 24, 2010 at 5:46 pm | Permalink

    You are so right! In my past experience as a scorecard developer and credit risk manager, I often conducted scorecard adaptability studies. Sometimes scorecards used in one region were tested to see how well then worked in other geographic ares. Other times, an institution was acquired and scorecards were validated on their customer and product segments. These exercises are costly, time-consuming, and often can be inclusive or misleading, because of subtle differences in marketing, credit policy and business practices. As you point out, with CCAF the system is adaptive in nature, which translates to fewer bad loans and fewer missed opportunities!
    The current scorecard-based approach is too rigid (one-size-fits-all) and its static nature forces lenders to "rip-and-replace" on a routine basis when performance falls below acceptable levels. Sadly, there are many bad loans made before sub-par performance is detected, and it is usually many months before a new scorecard can be developed and deployed - which translates to even more bad loans!

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