The Rise of Banking on Purpose

The financial industry is lagging in its environmental transformation.

In 2019, the UK Government set a goal of Net Zero by 2050 with an additional pledge to reduce emissions by 68% compared to 1990 levels, by 2030.

However, The British Standards Institution’s Net Zero Barometer report, surveying 1,000 senior decision-makers and sustainability professionals in the UK, found that financial services are falling behind: while 61% of the IT sector have set sustainability goals, financial services sits at 42%. Banks need to understand and address this lag and fast – needing access to the right data to understand the problem and address it in multiple ways.

Pressure on Financial Services

Unsurprisingly, the financial sector has come under a lot of scrutiny from regulators and the public alike, for a perceived lack of action and its role in supporting unsustainable practices. The issues have been kept in the spotlight not just by vigilante groups like Just Stop Oil, but also by recent examples like an active shareholder revolt at HSBC, pushing them to divest from energy companies.

But it is not just activists and regulatory groups. There is significant proof in the data that consumers are seeking alternatives to the traditional banking orthodoxy. Customers of retail banks have shown strong demand for green finance products, with 45% seeking sustainable credit & debit cards, and 31% seeking green loans and mortgages.

The focus on environmental, sustainability and governance (ESG) within investing has also ramped up year after year. We’re starting to see a new phase that we call ‘banking on purpose’, connecting boards and consumers in visions for a greener future, whilst increasing prosperity for the communities they support.

ESG considerations are set to loom large over companies — this will be important to maintaining reputations at a consumer, shareholder and board level.

Integrate Green into the Offering

Promisingly, data reveals that 83% of new build houses in the UK are eligible for a green mortgage. However, £2.9 trillion of UK housing stock is currently ineligible, providing a significant opportunity for banks to serve these homeowners. Offering loans to support renovations that seek to improve the energy efficiency rating of properties can help FS institutions embed consumer-focused initiatives into their offerings, rather than having them as an afterthought.

Retail banks have started to promote sustainability and are affecting change — for example, Lloyds Banking Group’s ‘Helping Britain Prosper’ strategy directly tackles the challenges of ESG for all stakeholders, securing more sustainable returns and capital generation by honing in on housing access, inclusion, and regional development, while aiming to reduce its own carbon emissions by over 50% by 2030. Its efforts are aligning with a sustainable financing portfolio, pledging over £52 billion in investment by 2024 as part of their ESG strategy.

Change is equally underway at the consumer level with NatWest introducing its own carbon tracker feature that analyses consumer transactions and applies it to a regulated emissions calculator, calculating the carbon footprint throughout the complete process. By introducing this feature as well as suggesting ways customers can reduce their own personal impact, they hope to save 1 billion kilograms of CO2e emissions per year, the equivalent of planting 1 million trees.

To ensure banks can become sustainable whilst remaining competitive, accurate measurement of emissions is critical and must include scopes 1, 2 and 3 emissions. This is not a simple task and requires a digitally enabled, agile and modern core at the centre of the business.  If Financial Services firms want to drive meaningful impact, they will need to move from treating sustainability from the periphery to the core of their business priorities.

By putting environmentally friendly initiatives at the heart of their business strategies, the banking industry can fulfil the needs of their customers and ensure we all play our part in building a more sustainable future. This is certainly a positive start to the UK’s mission of reducing its greenhouse gas emissions by 2050, we still expect to see this industry ramp up its efforts as we get closer and closer to the point of no return.

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