Banks have a crucial role to play in promoting sustainable lifestyles among their customers. Information such as transactional data can now be leveraged to distribute sustainability advice and product recommendations to end-users. This approach doesn’t just
make sense for the planet and institutions’ net zero journeys – it will prove beneficial from a business perspective, also.
This mission to green the economy is an urgent one. The planet continues to suffer natural disasters exacerbated by climate change – from catastrophic fires and devastating storms, to drastic ice and forest cover loss. The impact of global warming is only
expected to become more severe.
Public discussion around carbon emission reduction often focuses on the role of the individual, but can one person really make a difference to the rate of climate change?
The good news is that if financial systems can be re-organised to value natural capital and engender positive change in consumer behaviour, mitigation and resilience practices will become more effective.
That’s why larger institutions – with vast, impactful customer bases – need to share vital information on consumption-based emissions. This data can be used to guide individuals’ actions, in a productive way, within the retail space. At scale, the information
will help large firms move the needle toward a more sustainable footprint. Both elements need to work in parallel.
Speaking to Finextra, Monika Liikamaa, co-CEO and co-founder at Enfuce, highlights: “Banks are in a key position because they sit on the data, and enable the payments, which in the end become emissions. To fight climate change is not just about spending
less money. It can actually be spending more money but spending on initiatives that reduce emissions.”
Yet, financial institutions may encounter challenges in introducing such initiatives. Murray Simpson, IBM’s global market integration lead and director points out the wider lack of data and technology, stating: “a recent IBM Institute for Business Value
study revealed that some of the greatest barriers to closing that intention-action gap are technology barriers and lack of data.”
So, how should banks source this critical data? In what areas can we expect to see significant change? And what kinds of products support sustainability goals?
Data and targeted insights
Banks can collect large amounts of data from customers, such as transaction data, consumer behaviour, consumption patterns and preferences – as well country-specific data models and users’ own inputs. This information has the potential to inform sustainability
advice and recommendations.
One of the key forms of data is transactional – showing banks not only how much money someone is spending, but also the purchase location, and who they are buying from. An estimate can then be drawn from this payments data of the amount of emissions an individual
is responsible for. This estimate can come from how much money they spend on certain foods, travel, or energy, for example. Firms can then make suggestions to consumers from their spending data on how they can improve their carbon footprint.
For instance, if a bank sees that a customer often buys meat, financial firms can begin to build a picture of just how much carbon that customer is indirectly responsible for emitting. In this example, the bank may suggest eating meat fewer times a week,
or propose alternatives, in order to limit their footprint.
This is something Liikamaa contends banks have in their power to do now: “Banks have us as customers, and they know what we buy and pay for because they enable the payments for us. They even have data on corporate transactions, such as logistics companies
– who are in a major way involved in the carbon emissions from consuming goods. All that money flow data holds a lot of important detail. When you start taking the basic data, like who pays who and how much, you can add valuable and actionable insight.”
Liikamaa continues: “It's about understanding that if I went from eating meat every day of the week, to having a vegan diet three days a week, I would feel better and most likely save money. It's about what I do in everyday life. Get the insights to me for
a more sustainable life, because I think my biggest challenge, if I just looked at myself, is changing habits. It's really hard. But I don't want my four kids to consume like I have been taught to consume.”
The domains of change
Enfuce has identified five domains where individuals can make big changes: what they eat, how they live, how they travel, what they buy and what kind of services they use.
Liikamaa notes that one of the big factors in painting the picture of individual carbon consumption is also which country you live in because this can change what you are buying and what options you have to make changes – making country-specific data all
the more critical.
These are just some examples of how consumer data can be used to help inform more sustainable choices – but banks can use data in other ways. For instance, a bank might see that a customer is spending a higher-than-average amount of money on heating for
their house size or area, and suggest improving their home’s energy efficiency. Increasing energy efficiency in the home is a key way for individuals to decrease their carbon footprint as it lowers the amount of heating and electricity consumed, and thus emissions.
Metro Bank tells explained to Finextra that one of its three strategic focuses in its net zero strategy was: “building retail customer awareness of the greenhouse gas emissions generated from their home.”
Product recommendations
Banks can also use data to recommend products such as
green mortgages, which allow buyers – who are on the market for an energy-efficient new build, or who plan to retrofit their new homes – to receive lower rates.
Moreover, banks can highlight options such as green pensions, if they see a customer using a pension scheme that invests in ‘brown’ industries, such as deforestation or coal mining.
David Hayman, campaign director, Make Money Matter, pointed out at COP26 that a green pension can be 21x more effective for an individual to cut their carbon footprint than stopping flying, going vegetarian and switching energy provider, combined.
Some banks are using data from their own employees to improve their footprint. As part of a review of its carbon footprint, Metro Bank used data collected on its employees to improve its own carbon footprint, commenting that, “with the unprecedented impact
of Covid-19 causing a shift in ways of working, there has been an 80% reduction in corporate travel in 2021 compared to 2019. This enabled us to design a future way of working that permanently reduces the need for people to travel into office locations. We
will use data on commuting and, in the future, colleagues’ home energy usage to inform our future approach to the balance between remote working and business travel, as we seek to minimise our carbon footprint, while balancing the need for collaboration.”
What’s good for the environment is good for business
Banks have a lot to win by paying attention to consumer data. Not only is the strategy good for the environment, but it is also good for customer satisfaction.
Liikamaa asserts that using data to create advice like this can form part of a personal finance tool kit “If we look back at banks 10 or 15 years ago, there was a boom of personal finance management tools. These tools mostly reported on historical events
where a consumer can see where they spent money. Now we should be taking that data and converting it to real-time insights about how I could consume more sustainably, or how I could save or invest in more sustainable projects and companies.”
Once again, this strategy has a strong business case, because it enables banks to better manage their own climate and transition risks. Simpson comments on this point: “Environmental risks are among the greatest challenges that business leaders are focused
on today. The World Economic Forum 2021 Global Risk Report found that the three ‘most likely’ risks identified for businesses over the next 10 years were all environmental – extreme weather, climate action failure and human-led environmental damage.”
This means banks must protect their assets in the long-term, because, as Rabobank explains, “polluting choices actually become more expensive.” For example, if a bank’s collateral is houses that are not energy efficient – or houses that are likely to flood
due to being on floodplains – this is ultimately a bad investment for the bank. Indeed, ecological and economic concerns are directly connected; if clean water resources are not protected, there is no water for business.
Not only will this approach protect a bank’s actual investments, but it will also help a bank’s public perception. As Liikamaa notes, “it will soon become unacceptable to not be sustainable. We are not there yet, but we can see the trend going that way.
So, it will be a good investment to be sustainable, not only for the bank. The bank that can actually offer the services and be copied, they should be happy because they are really leading the way and that’s the shareholder’s value indefinitely growing.”
Empower customers with information
Customers can only start to make more sustainable choices if these choices are presented to them before a purchase is made. Access to this data is a big part of the battle. Unless banks can start to present options to consumers, both business and the environment
will suffer.
There is no stopping the use of data in the current web landscape, so why shouldn’t banks use it to put themselves, their customers, and the world in a better position?
There is a long road ahead to improve every individual’s carbon output, but the tools are there for banks to help us along the way.