Why Banks Need the Cloud in the Race to Net-Zero

Kalliopi Chioti, Chief Environmental, Social and Governance Officer, Temenos.

Banking’s push to digitise has primarily been driven by financial and compliance pressures, increasing competition and customer demand. Cloud has provided the means for banks to answer these challenges: from cutting innovation cycles to lowering costs and improving customer experiences.

The cloud is also helping banks address their other key challenge, the net-zero race.

Compared with legacy IT infrastructure, the cloud is a low-carbon technology due to the optimization of application development and performance, as well as significant efficiency gains from hyperscale data centers. The leading public cloud hyperscalers estimate that businesses using their infrastructure generate around 95% less carbon emissions.

Banks that have set themselves bold and ambitious targets to reach net-zero have little chance of getting there in time if they don’t make the shift to the cloud.

Cutting carbon emissions

We recognize how central ESG has become to banks’ strategies. The hyperscalers we partner with have all made strong commitments to sustainability goals and using 100% renewable energy. All these energy efficiencies are passed onto our clients.

An example is Flowe, a cloud-enabled digital bank built on green principles. Flowe went live in a record time of just five months, onboarding 15,000 customers in its first week. In the first six months of launching in 2020, Flowe attracted more than 600,000 customers. Flowe can grow sustainably powered by the cloud, passing on benefits to customers for a cleaner, greener planet and a better society. Flowe is the first bank in Italy certified as a B-Corp and is carbon neutral. 

Growing greener

It is becoming difficult to separate the environmental and commercial ambitions of banks. Consumers are not passive bystanders to the climate agenda, and they are increasingly matching their money with their values and voting with their wallets. No more so than millennials, who are more inclined to judge banks by their ESG record and commitment to sustainable banking. This is the generation in line to receive $68 trillion in inherited wealth by 2030. Banks can’t afford to ignore them. Today, a bank’s green credentials matter just as much as their financial services. Fall short on the former, and the latter may not even matter. Customers are looking for banks that are socially and environmentally responsible and agree with their values.

This is not hyperbole. Green-conscious customers triggered the creation of 27 operational green banks in 12 countries by 2020, with 25 more countries set to follow. Three out of every five (61%) banking customers in the U.K. said they wanted their banking provider to “do more to create a positive, social and environmental impact,” according to Deloitte.

Large banks are well aware of their customer demands, as this is quickly penetrating banking culture, moving beyond simple statements to net zero emissions pledges and green deposits. We have seen this with the Net-Zero Banking Alliance, a global organization comprised of 43 banks from 23 countries, all committing to having net-zero emissions by 2050 or sooner. Going one step further, Citigroup CEO Jane Fraser recently said that the bank will be expecting its clients to measure and communicate their emissions and that climate impact may determine which clients it chooses to serve in the future.

Empowering greener customers too

Better still, if a bank can develop financial services that empower customers to take control of their carbon footprint. In a recent survey, a third of people said they want banks to do more than publish their climate data. Examples include being rewarded for environmentally friendly purchases, ensuring deposits don’t end up funding fossil fuel activities and planting a tree with every roundup.

By integrating third-party applications, banks can build apps that give their customers tools to measure and manage the carbon impact of their spending, helping them make more mindful spending decisions or reward them for their contributions toward sustainability. Also, giving them options to offset or reduce the carbon generated from a credit card payment, making it easier for them to invest in sustainable funds and switching to non-fossil-fuel energy providers.  

The potential use cases are limitless. And beyond the collective contribution these individual products will make to carbon reduction, they provide banks with another way to attract new customers. Environmentalism and commercial savviness, in perfect harmony.

Walking the talk

One of the big challenges for banks is knowing who to trust with their net-zero ambitions. Unscrupulous software suppliers are quick to market their green credentials but scratch the surface, and there’s little evidence of the preach being practised.

Thankfully, there is much more transparency than ever with trusted benchmarks such as the Dow Jones Sustainability World Index (DJSI) and the Carbon Disclosure Project (CDP), the world’s largest environmental disclosure platform.

Managing climate-related risks and opportunities towards a low carbon economy is a global challenge requiring an immediate response. More than ever, the banking technology sector has a critical role in driving change in the banking industry and leading by example. So, in addition to incorporating climate change as a risk into our operations, we are equally committed to helping our clients transform into smart, sustainable organizations.

And this is the ultimate point. Innovation and addressing environmental challenges go hand in hand. More than that, digitisation is reliant on sustainability and vice-versa.