Banks have a crucial role to play in the global effort to decarbonise.
Between 2011 and 2021, the proportion of adults with a bank account grew from 51% to 76%. That is about four billion people.
Such a potential reach means financial institutions are uniquely positioned to promote carbon accounting practices. They can leverage access to transaction data and customer relationships to encourage sustainable purchasing habits.
For example, banks can integrate carbon calculations into their digital platforms to empower customers to monitor and reduce their carbon footprint.
The question is, then, just because banks can leverage their position in this way, why should they?
Empowering Customers to Decarbonise: A Business Imperative for Banks
We are rapidly approaching a future where global warming exceeds the 1.5 degrees Celsius threshold established by the Paris Agreement. By some measures we have already blown past that limit.
Without a significant programme of decarbonisation, we won’t be able to avoid rising sea levels, extreme weather events, food scarcity and impacted wildlife.
This reason-to-believe should not be minimised. We know the majority of people care deeply about the future of our planet.
While that fact is as strong a case as any to join forces for a sustainable future, it’s not the only factor at play.
In fact, there are several other incentives for banks to engage — fruitfully for customers and profitably for the bank — in decarbonisation initiatives.
That’s what we’ll look at, today, to help you build a rock-solid case for empowering customers to decarbonise.
1. Tracking Financed Emissions – A Case for Compliance and De-risking Portfolios
Financed emissions count as part of your Scope 3.15 emissions, according to the Greenhouse Gas Protocol. Meaning, they fall within your organisation’s reporting requirements. They are also, on average, 700 times higher than direct operational emissions.
You need to track financed emissions to comply with regulations and avoid penalties. And, to proactively manage climate-related risks within your portfolio, reducing long-term exposure and even potentially decreasing loan defaults, while redirecting investment toward sustainable options.
“[According to the European Central bank’s recent report] Loans to businesses in the energy sector, particularly those reliant on fossil fuels, have seen interest rates increase by up to 25 basis points (0.25%) compared to loans in less exposed sectors. This adjustment reflects the anticipated future costs related to carbon taxes, stricter environmental regulations and the physical impacts of climate change.”
— Alexander Lempka, CEO at Connect Earth
In understanding the emissions associated with financing, you are able to give targeted guidance to your customers. You can develop green finance products or offer incentives for low-carbon projects, which will help to lower your financed emissions while simultaneously growing your business’s product range.
2. Customer Retention and Engagement on Digital Platforms
In our own consumer study, we found 63% of banking users said an embedded carbon calculator would increase the time they spend in their banking app.
By empowering customers to decarbonise, you stand to enhance engagement on your digital platforms. For example, you could provide interactive features — such as real-time carbon tracking of purchases or rewards for environmentally friendly behaviours — to create a powerful sense of community, shared values and buy-in.
This has a clear ROI. Studies show emotionally connected customers:
- have a 306% higher lifetime value (LTV);
- stay with a brand for an average of 5.1 years vs. 3.4 years, and
- will recommend brands at a much higher rate (30.2% vs 7.6%).
Opportunities to build a truly green ecosystem to further increase engagement are boundless. Thirty-nine percent of the users we surveyed are more likely to purchase banking products from a bank who helps them calculate their carbon footprint.
>> Read our article on 4 Ways Banks Can Achieve a Good Customer Satisfaction Score by Using Carbon Emissions Data
3. Sustainable Brand Positioning as a Competitive Advantage
According to findings from Neilsen, companies that are innately “greener” and less harmful in their practices are popular. These companies are “benevolent and bankable.”
In the world of finance, incumbents are racing against the more nimble neobanks to carve out a competitive advantage with an increasingly eco-conscious consumer. Neobanks have the advantage: they use green messaging, products, sponsorships and initiatives unburdened by a historical portfolio invested in fossil fuel and high polluting industries.
Bain & Company identifies profit growth of 25-30% for banks that accelerate transition to net-zero carbon emissions by 2050. In contrast, banks that delay or adopt a passive approach will see profits eroded by between 10% and 20%.
To compete in this arena, you need consumers to associate your brand with sustainability — even if your efforts are a work in progress. No-one wants to be accused of greenwashing, so how you put that message out there matters. Ninety-four percent of consumers are more likely to be loyal to a brand that’s completely transparent. In fact, committing to radical honesty is in itself differentiating and potentially, can have lucrative results.
Empowering customers to decarbonise is a tangible way of proving you are committed to sustainability. In fact, that is what our customer Tide has done as part of their Net Zero Pledge:
“Tide commits to making Net Zero simpler for our Members by developing support for them to get to Net Zero.”
We Can Help You Build a Business Case for Embedded Carbon Emissions Measurement
We found that nearly 60% of people are more likely to reduce their carbon footprint with a carbon emissions calculator embedded in their digital banking platforms. One third of respondents say they are more likely to deposit more money, and their salary, with a bank that utilises this feature.
That intersection is a great example of what a win-win looks like: reduced emissions and increased deposits for the bank. At Connect Earth, our goal is to help you engage such customers.
We provide embedded transaction-based carbon emissions estimates and reports, built directly into digital banking platforms using advanced APIs.
It’s our belief that achieving profitable growth and a sustainable future is possible when guided by intelligent strategies, data insights and a strong focus on customer needs. If you contact our team, we’ll build a tailored business case for our technology centred on your return on investment.
What’s good for the planet is good for business, too.
