Banks are moving towards adopting sustainability goals in their internal operations as well as in endeavors with their clients. They are increasingly shifting focus from simply trying to cope with their environmental and social risks to proactively seeking new opportunities offered by sustainability ideals and using them as a differentiator.
It is no surprise when leading banks like Santander, HSBC, ING, Barclays and the likes have pledged to align their power generation portfolio with the Paris Agreement to achieve net-zero CO2 emissions by 2050. Which means they have to first reduce their own environmental footprint by using 100% of the electricity from renewable sources and cutting down exposure to thermal coal power across the globe. Another initiative is to remove unnecessary single-use plastics in offices.
Banking institutions should look to contrive sustainable banking both in their daily internal operations (in terms of how they manage their physical branches/locations, human capital, costs, opportunities, risks exposures) and also their external endeavors with clients and the types of projects they fund. By strategically incorporating sustainability principles into their funding decisions, banks can largely influence the promotion of responsible projects and organizations.
The most concerning sectors are the oil & gas, transport & logistics, mining and metallurgy that influence climate risk. However, given the strategic importance of banks in developing countries throughout the value chains of such critical industries, the role of banks becomes crucial in implementing sustainable banking looking at the future towards a greener world.
Committing themselves to green financing, banks can adopt responsible banking strategies by issuing more green bonds and raising capital for funding renewable energy projects and engaging intimately with customers to support them in their transition to a low carbon economy.
- Banks should look at building innovative products and services for certain clusters of the population like women to achieve more inclusivity and encourage purchase of green products like green eco-cards that go a long way in promoting sustainable practices.
- A few more projects that they can consider are green mortgages; energy efficiency loans; lending to install solar panels, to purchase electric vehicles, and for low carbon agriculture. Such carbon footprint reducing initiatives allow customers to offset emissions.
- Carefully calibrate the investments and funding from the current mix to a target mix in a gradual manner to achieve the sustainability objectives.
Here are some of the drivers for adoption of sustainable banking initiatives.
- Operational benefits
- Social responsibility toward environment
- Employee engagement
- Reputational benefits
The question however arises, to achieve such colossal goals, how can banks become operationally efficient and introduce new products and services on the fly?
- Cloud Adoption: By migrating applications, data and infrastructure to the cloud and reduce carbon emissions and operations costs
- Digital Transformation: Moving more and more products to digital will benefit in lower usage of paper, efficiency in staff operations and lesser physical visits to bank by its customers
- Reaching customers through digital marketing and virtual banking
Operations efficiency is one of the key drivers for any business. There are multiple opportunities to look at while aiming to achieve the efficiency in operations while going green.
- Explore branch and ATM facilities to run on renewable energy such as solar
- Optimized branch and ATM design for energy efficiency, location strategy, etc
- Reduction or elimination of printing and mailing and switching to electronic means
How to achieve
It is a long way to go and should be a collective exercise between the entire ecosystem. Sustainable banking principles and framework should be enforced by an authoritative entity such as central banks. Principles can give guiding pointers on what areas and opportunities can be adopted. Whereas frameworks can provide a step-by-step approach on how to go from one level of maturity to the next.
Sustainable transition is now a business imperative for banks and will soon become a regulatory requirement in the coming years.
An Accenture report says that, “cloud migration can reduce global carbon emissions by 59 million tons of CO2 per year, which represents a 5.9% reduction in total IT emissions. And that’s equivalent to taking 22 million cars off the road.
It is high time that banks start to think and take steps towards sustainability and going green in every opportunity by not hurting their business, in fact it is an incredible opportunity to take advantage of and make a win-win-win for Banks, Customers and the World.
SVP – Global Head of Practices,