What does tighter credit mean for greens?

For the past few days the news has been full of a liquidity squeeze. Lenders are worried about their clients’ exposure to mortgage-backed securities that have been repackaged into tranched instruments, which are performing badly because the original sub-prime borrowers are not making repayments. The European crisis, which appears to be a response to BNP Paribas’ decision to freeze some its funds containing the bad assets, will probably blow over once we get a clearer picture of exactly who holds the losses. But it is certainly another sign that lenders are getting tighter and debt will not be so cheap in coming years.

What does this mean for green consumers? It means they will spend a greater proportion of their money on servicing debts, including mortgages, and will be more likely to save any of the remainder. A segmentation is a useful lens for looking at the issue. GfK Roper’s (a marketing consultancy) is one of many similar categorisations and consists of:

1. True Blue Greens: activists and committed environmentalists;
2. Greenback Greens: willing to spend money on environmental products, but not likely to give up comfort and convenience;
3. Sprouts: those embracing environmentalism more slowly;
4. Grousers: uninvolved and feel that the problem is too big and anyway others are not doing anything either; and
5. Apathetic: entirely uninterested.

It is the behaviour of Greenback Greens and Sprouts that will be most affected. For these groups, being environmentally friendly is about substituting one product for another – usually more expensive – product. As investors revalue the risk associated with consumer debt and retail interest rates rise, these groups will turn to value products instead. True Blue Greens will find their work converting fence-sitters more difficult.