Assessing Green Microfinance
1. WHAT IS GREEN MICROFINANCE?
“Green microfinance” refers broadly to the practice of weaving the principles of environmental sustainability into the daily operations of microfinance institutions (MFIs) and promoting environmentally-friendly practices and solutions. While green microfinance is often associated with microloans for clean energy solutions, for instance solar home systems or improved cooking stoves, MFIs have the option of implementing a broad spectrum of green strategies, ranging from “do not harm” policies to “positive environmental impact” initiatives at the portfolio and institutional levels. In fact, four different types of strategies, or essential practices, can be distinguished: managing internal environmental risk; managing external environmental risk; fostering green opportunities; and adopting a formal environmental strategy.
Given the increasing responsibility of the microfinance sector to meet the Sustainable Development Goals (SDGs) of the Post-2015 Development Agenda that are related to the environment, it is essential for microfinance stakeholders to gain access to a set of tools and resources that allows them to monitor their environmental impact. This study aims to contribute to this objective, beginning with an overview of the qualitative green performance indicators currently available to MFIs. It then presents the findings of the first comprehensive survey designed to test and identify a set of green quantitative indicators for institutions to measure their green outreach and outcomes. Finally, upon summarizing the main takeaways, it offers a strategic “way forward” to facilitate the progressive integration of green quantitative microfinance indicators into reporting standards.
Essential practices for green microfinance:
• Managing internal environmental risks
The MFI works to actively reduce the ecological footprint of its head and branch offices by setting mechanisms to manage paper, water and energy consumption, reduce or treat wastes, or reduce carbon emissions linked to transportation. It usually requires efforts in raising staff awareness of good practices. Commonly, this is the MFI’s first step when making its foray into environmental management. However, the MFI’s internal ecological footprint is not limited to its physical offices: most of its environmental impacts are indirect and are linked to the portfolio of financed activities.
• Managing external environmental risks
The MFI seeks to reduce the environmental risks of the activities financed through its products. For this purpose, the MFI can decide whether to use an exclusion list, condition access to a subsequent loan with the aim of reducing environmental risks, or raise client awareness on mitigation solutions.
• Fostering green opportunities
The MFI aims to generate positive environmental impacts by offering specific financial or nonfinancial services to promote environmentally-friendly businesses (such as recycling activities), practices (like agro-forestry, use of organic fertilizers and seeds) or the acquisition of clean energy technologies (solar photovoltaic solutions, bio-digesters, improved cooking stoves, efficient fridges, among others).
• Formal environmental strategy
Encompassing any or all of the three strategies above, the MFI can also integrate environmental issues at a strategic level by embedding environmental concerns in its mission or vision, adopting a formal environmental policy, appointing a person to manage environmental issues, reporting on environmental performance, etc.
2. QUALITATIVE GREEN MICROFINANCE INDICATORS
MFIs have access to an array of qualitative green microfinance indicators that help them assess their green management performance, track progress over time and gain a broad overview of current and future trends of green performance integration into MFIs’ operations and strategy. Below is a brief description of some of the available tools.
• MIX’s Green Performance Indicators
• Green Index
• Green Performance Agenda
• Progress out of Energy Poverty Index
3. QUANTITATIVEGREEN MICROFINANCE INDICATORS
To date, MFIs that aim to track the outcome and outreach of their green performance lack a set of established metrics that is standardized across the sector. To address the paucity in quantitative indicators, MIX and a subgroup of the European Microfinance Platform (e-MFP) Microfinance & Environment Action Group designed a survey that explores quantitative green microfinance indicators relative to five axes that align broadly with the Green Index with the aim of assessing their ease of use and relevance for decision making.
4. CONCLUSIONS
The findings of this paper represent an unprecedented first step in the exploration of green outreach and outcome metrics for MFIs.
Although a number of necessary changes and reflections have been laid out, there appears to be a common appreciation for the ease to track and usefulness for decision making of the tested indicators.
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