Net Zero Banking: How can Technology Help Banks Achieve Net Zero Goals?

There are a growing number of high street and digital-first challenger banks investing in net zero banking, including HSBC, Barclays and Kroo, and for good reason. Now more than ever, customers expect their banks to place more focus on sustainability. According to Deloitte’s Better Banking Survey, 71% of customers are more likely to choose a bank that has a positive social and environmental impact. Yet, only 64% of businesses surveyed across ten countries believe that they need greater corporate governance. On reflection, with the regulatory and governance environment as it is, maybe that’s not a surprise?! Notwithstanding, the same report has also cited that 68% of business operations are set to take transformative actions on sustainability and corporate responsibility. 

But what does net zero mean? According to Oxford Net Zero, it is the balance between the greenhouse gases which are going into the atmosphere and those which are being removed out of it. The Net-Zero Banking Alliance membership means that approximately 40% of global banking assets are working to align their lending and investment portfolios with net zero emissions by 2050. This is good news, but there is far more to be done – the WWF’s Big Smoke Report shows that the UK Finance sector was responsible for financing 805 million tonnes of CO2 in 2019, due to the emissions from their lending and investment activities. Altogether, this means that the sector produced 1.8 times the annual net emissions of the UK. 

But how can banks go about becoming net zero?

The evergreen impact of climate change

Due to the ongoing and lasting impact of climate change, banks need to rethink their risk. There is no doubt that climate change and extreme weather events will cause disruption to supply chains, banks, and businesses, meaning that new framework strategies are needed. Case in point – the July heatwave brought the hottest temperatures the UK has ever recorded. And sadly, many countries including the US, have what they now call a ‘fire season’.

Modern technology can assist businesses when rethinking their risk framework. Deploying automated back-end processes helps banks to understand near real-time risks and data. This can be leveraged to manage the risks and streamline workflows to avoid any major shocks to the bank and to their customers. It also allows them to improve business decision making and longer-term planning, as well as reviewing supply chain partners and their processes.

Compiling with regulatory framework

ESG and net zero banking will continue to be transformative, and banks would be naïve not to expect more regulation in these areas in the future. Regulations around sustainability are evolving fast and banks are already being forced to alter their practices in line with them. 

In March 2022, the International Sustainability Standards Board (ISSB), which was established at COP26, announced it is working to set out a wide-ranging global baseline of sustainability goals for the global financial market. It aims to cover both general sustainability practices and more specifically climate related requirements. As such, these changing regulations have forced banks to rethink their practices on sustainability and net zero. 

Fortunately, banks can stay ahead of the curve with smart green and sustainable technology deployments. Processes such as ‘know your customer (KYC)’ and ‘know your vendor’ (KYV) can be deployed to help banks to deliver faster responses to changing regulations. This is due to these systems being easy to update on an ongoing basis to keep on top of changing rules.

Streamlining operations and protecting profits

Banks operating in a sustainable and responsible way is not just the right thing to do morally, it is also important for businesses’ bottom lines. Banks need to be smart about investing in the right technology for the long term, as it will cost more if they only think short term. There are technology platforms available which partner with organisations that help banks to actively reduce their carbon footprint. 

Streamlining back-end operations, reducing paper and fuel, while improving supply chain management is something banks can do to move towards a net zero capability. Platform solution, such as Areteans CZERO, work with organisations to help them to drive carbon reduction using AI and case management. This supports businesses to monitor their capabilities through a guided maturity journey and helps customers to proactively reduce their carbon footprint. This also works to remove blockers from digital transformation, and tackles ESG challenges. 

Protecting the environment and working towards net zero goals is something that all banks should aim to do as part of their operations. It is not just the role of the ESG or sustainability officer at the bank, compliance and risk mitigation is everyone's responsibility. Consumer expectations are changing, and with challenger banks on the horizon focusing on net zero and environmental sustainability, banks should be changing their practices, as if they don’t, they will risk losing customers, being out of compliance with regulation and profit. Meanwhile, deploying modern technology will help them get one step closer to their net zero goals, supporting their customers, business, and the planet.