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Why sustainability services are the new must-have for banks and issuers

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Banks have a relatively small direct environmental footprint. But few other organisations have as much influence over how companies and consumers act, invest or run their everyday affairs. Inevitably, banks’ key role in the economy has catapulted them into the centre of the sustainability debate.

Adapting to new sustainability requirements may be demanding but it brings many new business opportunities for banks. Forward-thinking organisations can turn sustainability into a competitive advantage. This way, they can take the lead in navigating their customers towards a greener future. 

Environmental sustainability, along with digitalisation, is the defining megatrend of our time. No company or executive in the financial industry can ignore it any longer. That’s why we have collected our insights into this blog – to help you turn sustainability into a long-term advantage.

By reading this blog, you’ll learn: 

  • How sustainability demands are transforming banking
  • How banks and issuers can build sustainability-oriented solutions into their core offering
  • How banks and issuers can help consumers drive sustainable lifestyle change

Banking on a sustainable future

Initially, sustainability requirements only concerned industries that have the biggest direct impact on the environment. These industries include energy, transportation, and fast-moving consumer goods. Now the requirements have firmly landed at the top of banks’ boardroom agendas as well. Government officials and bank customers put pressure on banks to prioritise sustainability efforts. 

Global pressure for climate action is increasing

The recent United Nations climate conference (COP26) was seen as a turning point in speeding up the pace of climate action. The UN Secretary-General noted that the key goal of limiting global warming to 1.5°C degrees as outlined by the 2015 Paris Agreement “is still [within] reach, but on life support.” Meanwhile, protesters in Glasgow demanded that companies in the financial industry stop investing in assets linked to fossil fuels and deforestation. 

The scientific community agrees that today’s mitigation activities are not enough to reach key climate goals. A brewing global governance crisis and the extreme climate events have added pressure on countries and companies to come up with new ways to reduce their carbon footprint. And many banks are waking up to this moment.

Consumer requirements are a major driver for more sustainable banking 

People around the world have a growing desire to act sustainably. A whopping 73 percent of global consumers say they would change their buying behaviour to reduce their impact on the environment, according to a study by NielsenIQ (2019)

Public and governmental actions to fight climate change are important drivers towards a more sustainable world. And these days, consumer activism strongly complements the public sector efforts. Fast-changing consumer awareness and preferences have put pressure on banks to prioritise global warming in every aspect of their operations. This also means being transparent about how it’s done.

Younger generations in particular demand that financial institutions take climate action. They want banks to reduce their carbon footprints through direct and indirect measures. 

These measures range from fossil fuel investments and green bonds to financing products for electric cars. Younger generations also expect transparent and engaging everyday banking services. As such, these services support learning about and reducing environmental impact.

Carbon-cutting regulations and objectives get tougher all the time

Regulation around sustainability reporting and greenhouse gas emission calculations has also gained momentum. The mandatory ESG (Environmental, Social, and Governance) reporting requirements and political pressure around carbon mitigation have strongly affected the banking landscape.

In response, banks around the world are rapidly launching carbon reduction targets. They consider these targets as part of their corporate strategy, with concrete actions to meet them. For example, Bank of America, TD Bank, and HSBC have set carbon neutrality goals. They’re aiming to achieve these goals through advanced ESG reporting, rethinking their procurement strategies, and launching sustainability-oriented funds.  

How banks plant the seed of sustainability into their core business 

It’s evident that banks are now looking for new ways to infuse sustainability into their core business operations. They’re delivering greener products, services, and messages to corporations, institutional investors, and retail customers. 

The competition among banks to show their climate commitment is accelerating. Banks and issuers around the world are reorganising their priorities and business objectives to meet the increasing demand for sustainable financial services.

Banks offer new environmentally-conscious initiatives

Sustainability-first business models are powering the creation of completely new financial tools. Now we’re seeing new exciting financial initiatives such as green digital banking services come to life. Tomorrow Bank and payment card issuers Aspiration and Treecard belong to the early movers. They’re challenging traditional banking through initiatives like:

  • Green investment strategies
  • Transaction-based carbon offsetting
  • The allocation of profits to compensation projects

Established banks are throwing their hat in the ESG ring as well. For instance, Rabobank sponsors decarbonisation projects and offers products and services for cutting emissions. This is possible because of their carbon bank. Meanwhile, four global incumbent banks have teamed up for an ambitious carbon offsetting initiative called Project Carbon. 

Sustainable banking is data-driven – and so are digital payment services

The sustainability trend also affects everyday banking services. Thanks to the growth of mobile banking and online payments, banks control massive amounts of payment transaction data. Like fintechs, traditional banks are able to use this data to build engaging consumer banking services. 

Banks and issuers can collect and analyse relevant information on their customers’ purchasing behaviours and preferences. Open banking has made it possible to create an overview of a user’s finances. This forms the basis for unique services. Through APIs, banks, financial institutions, and issuers can complement the users’ main account data with information from their other accounts and cards.

Real-time data has created a platform for new tools and applications. Banks can engage and educate consumers in new and unconventional ways. One way is linking their purchases to environmental footprints. Another way is encouraging them towards personal lifestyle goals. Banks are well-positioned to offer comprehensive digital accounting of carbon emissions based on transaction data. 

Transaction-based carbon accounting as a value-add for financial services

An accurate overview of a user’s finances provides a foundation for carbon footprint calculations. Banks can use their payment transaction data to calculate carbon emissions as a part of everyday banking services. 

Many banks have in fact used this to introduce transaction-based carbon footprint calculators. Some have built proprietary calculation tools in-house (e.g. Swedbank). Others have partnered with third-party providers to calculate their customers’ emissions (e.g. Nordea and BNP Paribas).

Because issuers own and aggregate financial data, they can guide their customers towards more sustainable lifestyles. With their access to their customers’ transaction data, they can collect insights on consumer behaviour, consumption patterns, and preferences. 

Banks can then turn this knowledge into actionable advice, value-adding services, and lifestyle insights. This helps them build stronger relationships with climate-conscious customers. These services can also become a touchpoint for green product upselling.

At the very least, carbon footprint calculators can signal to consumers that their lifestyles have negative consequences. On top of that, they can encourage and engage them to take concrete action. This way, they can better align their lifestyle choices with the climate goals that we all care about. 

Banks can help consumers drive a sustainable lifestyle change

Today’s consumers aren’t staying idle as the devastating impacts of climate change become more and more evident. They’re eager to learn about and reduce their carbon footprint. Banks can help with that. And digital carbon accounting is an exciting new frontier in socially responsible banking. 

Can consumer choices make a difference? 

Spoiler alert: yes they can! 

Studies show that households and consumption are responsible for 72 percent of current global emissions. As such, consumers’ choices play a major role in reaching the 1.5°C goal by 2030. 

Many scientists, policymakers, and academics say conscious consumerism is a meaningful part of cutting global carbon emissions. They see it as a small yet meaningful component in the mix of strategies required to reduce global carbon emissions.

The problem? Many consumers don’t know where to start. They may know all about the big picture. But they often lack the insights – and incentives – that would allow them to eat, buy, invest or travel in a more climate-friendly way. 

How can you help increase consumer awareness of sustainable choices?

Technology can help increase consumer awareness of sustainable solutions. All change starts with positive, action-oriented awareness. Delivering carbon footprint insights means that banking customers can get an accessible, encompassing view of their consumption. This in turn can incentivise change in everyday habits.

Issuers can present high-quality data on how consumer choices affect the climate. They can for example demonstrate how a person’s emissions compare to domestic or international averages. 

Additionally, issuers can use data to show their customers the relative impact of for example: 

  • Swapping flights for train trips 
  • Sorting and recycling like never before
  • Switching from milk to plant-based options
  • Swapping red meat for fish and other seafood 

Watch this webinar recording to learn how you can help your customers live more sustainably, and why you should do it.