Grow Deposits By Going Green?

In a competitive market, the perception that a company is socially responsible can be a major point of differentiation. We’re used to seeing “green” ads from car companies and Wal-Mart, or from financial institutions touting their new environmentally friendly buildings. But some banks in Japan have even found a novel way to use environmental protection to grow deposits.

Regional banks in Japan began introducing eco-deposit CD’s in 2002, but the pace of activity and innovation seems to have increased in recent months. These accounts fall into three broad types.

One strategy is to encourage donations: the bank makes donations to environmentally friendly causes based on customer deposits.

A second offers higher interest rates in exchange for customers demonstrating they are participating in various recycling programs. Part of the cost is offset from agreements with recyclers, and part from expense reduction by eliminating costly and environmentally unfriendly paper statements for this type of account.

Finally, the third type provides for direct investment by the bank in emission reduction activities.

How is it working? Shiga Bank (134 branches, $35 billion USD) indicates eco-deposits are now 21% of total time accounts; at another regional bank they are up to 13%.

As is often the case, smaller banks have led the way with their creativity. Japan’s largest banks have not yet followed suit, claiming development costs are too high. They have focused their “green” activities on promoting loans relating to environmental protection.

Could this work in the US? At a time when interest rates are low and banks are looking for new ways to differentiate themselves, a niche strategy like this might appeal to selected consumers – especially in Austin, Berkeley, Madison, Cambridge and other communities with strong environmentally conscious constituencies.