Not only does carbon accounting help organisations measure, manage, and reduce their carbon emissions, but it can also build trust with customers. It is becoming vital for mitigating climate change and minimising the negative environmental impact of our daily activities. Many regions and countries have implemented regulations and reporting requirements related to carbon emissions; and so now we begin to see compliance regulations adapting, no longer touching on scope 1 and 2 emissions, but also encompassing scope 3. Calling for more transparency and less ‘guesswork’ to avoid fines and legal repercussions.
Aside from all this, as a financial institution, carbon accounting can be a great tool for success. From doing your due diligence on potential investments, to supporting your SME account holders in applying for green finance opportunities and starting their journey to net zero – carbon accounting can be a catalyst to building long lasting relationships with your customers.
The key to it all: trust
Trust in the financial sector is a fundamental concept that plays a pivotal role in ensuring the stability and credibility of financial institutions and markets. No one is depositing their money, applying for a loan or looking to your advisors for help if they do not first trust your institution.
Highly trusted companies outperform others by up to 400% in terms of market value.
Most often, this trust is displayed through transparency, expertise, security and stability. But there is another key pathway that can drive trust within your institution. Sustainability.
Trust between consumers and companies is built when promises are not only made but also consistently fulfilled. Committing to a solid net zero plan, publishing (and upholding) sustainability statements and looking to increase your product offerings around green solutions puts your financial institution higher in the minds of consumers, and above your competitors. With environmentally conscious behaviour on the rise, your customers want to see their values reflected in yours.
Stat source: Theroundup.org, 51 Huge Environmentally Conscious Consumer Statistics
How embracing sustainability builds trust in financial institutions
By embracing more sustainable practices, services and product offerings you are able to expand on the foundation of trust you have already built. Here are a few key insights we’ve observed over the years working with banks, fintechs, climate techs and accounting platforms who have done just that.
Strengthening your offering and attracting the right customer
Utilising carbon accounting within your network can add a new level of support to your customer offering. Not only does taking part enable development of sustainable investment products, such as green bonds or sustainable mutual funds, but it also enhances the depth of relationship you can achieve with your customers. You are better placed to help them apply for green finance products if you can give them an overview of where they are in their net zero / low carbon journey.
Governments worldwide are implementing stricter environmental regulations. Directives like the European CSRD are coming into play as soon as January 2024; and the US related SEC is likely to follow a similar timeline.
As a financial institution you can not only demonstrate compliance with these rules, but actively support your network in doing so too. Carbon accounting can help you monitor and report on compliance efforts, and extending this service to your SME account holders reinforces your commitment to legal and ethical responsibilities.
Customer Engagement and Education
Financial institutions who offer carbon accounting services to their customers allow for the monitoring and reduction of carbon footprints. This can promote responsible consumption and heighten climate awareness. By going one step further and engaging your customers with educational content and actionable recommendations around transitioning to low carbon operations, you can increase engagement and climate education within your network.
Taking stock of your carbon data to be shared with stakeholders, including investors, customers, and regulators creates trust and accountability across your network. From this place of engagement, customers are more likely to take an active stance on lowering emissions; increasing the need for green finance opportunities and support in meeting regulations.
Investment portfolio transparency
By tracking the carbon emissions associated with your portfolios, you can provide investors with valuable information about the environmental risks and opportunities within their investments. This transparency empowers investors to make informed decisions aligned with their sustainability goals. You can also help the next generation of business founders present their businesses’ carbon footprint, helping secure further funding or investment opportunities.
Investors will pay a 10% premium for a company with a positive ESG record. McKinsey
Anticipated Challenges in Carbon Accounting for Financial Institutions
Of course, nothing good comes easy and there are mountains to climb in order to make sure you can implement carbon accounting effectively; and that how you actually participate is accurate enough to result in the change we need. Luckily, we’ve written a whole piece on that, The biggest problem with carbon accounting and how to fix it.
Once you have your sustainability measures and related offerings in place, which may include green finance initiatives, sustainability support networks and carbon accounting / insight technology, it’s important you track the impact within your customer base and your own impact metrics. We suggest utilising the following:
Carbon Emissions Reduction Metrics: Financial institutions can measure the impact of their carbon tracking efforts by calculating the reduction in carbon emissions over time. Your SME customers can do this too. This involves tracking emissions from various sources such as energy consumption, transportation, and supply chain operations. Metrics could include:
- Carbon Intensity: Measure emissions per unit of financial activity (e.g., assets under management or loans issued).
- Absolute Emissions Reduction: Measure the actual decrease in CO2 emissions resulting from sustainability initiatives.
- Scope 1, 2, and 3 Emissions: Categorise emissions into direct (Scope 1), indirect (Scope 2), and supply chain-related (Scope 3) emissions to target specific areas for reduction.
Customer and Employee Surveys: Conduct surveys to gather feedback from customers and employees about the perceived impact of your sustainability initiatives. Positive responses can indicate increased trust.
Market Comparisons: Benchmark your institution’s sustainability performance against industry peers and competitors to understand its relative impact in the market.
Take your first step to increasing trust with your account holders…
Offering carbon accounting as a financial institution is a means of showcasing transparency and responsibility in environmental matters. It allows you and your customers to measure, manage, and report on your carbon emissions and provides valuable information to stakeholders, promoting accountability and sustainability. It is an integral part of responsible finance in an era where environmental concerns are paramount.
Contact our team of experts today to learn how we can work together to increase trust within your institution, creating new opportunities, higher customer acquisition and retention.
About Connect Earth:
Founded in 2021, Connect Earth is a London-based environmental data company that democratises easy access to sustainability data. With its carbon tracking API technology, Connect Earth is on a mission to empower consumers and SMEs to make sustainable choices and bridge the gap between intent, knowledge and action. Connect Earth supports financial institutions in offering their customers transparent insight into the climate impact of their spending.