How is green finance reshaping the banking sector?

Having already swept through many industries around the world, the sustainability revolution is now taking the banking industry by storm. Every day brings new announcements from banks, fintechs and solution providers.

The trend towards sustainable development offers the banking sector unique opportunities to deepen relationships with customers and, at the same time, encourages players to innovate by developing new products and services that meet specific environmental objectives.

What and why?

From utilities to manufacturing, many other industries have long responded to consumer demand for greener products. Now attention has turned to the world of finance. According to research by Deloitte, three in five banking customers in the UK said they wanted their banking provider to do more to “create positive, social and environmental impact”. The industry is right to react.

Getting closer to the customer

As environmental impact becomes a key consideration for more and more consumers, fintechs and established banks have begun to appreciate the power of reflecting shared values. New fintechs that put sustainability at the center of their business models are emerging. Incumbent banks are also launching new products to meet demand.

If giving back to the planet is a central motivation for banks to go green, so is the opportunity to get closer to their customers. At one of the recent Mobey Forum member meetings, we were joined by a guest speaker from Tomorrow Bank – a sustainability-focused German neobank – who presented data showing how shared values ​​have created trust and confidence. engagement with their customers. Average customer deposits at Tomorrow Bank, for example, are four times higher than the industry standard for a neobank. In addition, more than 80% of their customers follow them on social networks. These are social commitment measures that many banks can only dream of.

Green bonds and zero emissions are the order of the day

What green finance products are available? Green bonds and investment instruments are already offered by most major banks. Nordea and NatWest, for example, have launched carbon calculators that estimate their customers’ carbon footprint based on spending data, while BBVA and HSBC offer payment cards made from recycled materials.

Elsewhere, banks like Barclays and ABN Amro are offering better mortgage rates to customers who build environmentally friendly homes. Danskebank also offers a “green mortgage” which offsets its own carbon footprint. More favorable terms for sustainable businesses are likely to be available soon, as low-carbon business loans pose lower risk to banks.

Nor is it just about developing products and services. Banks are really starting to take sustainability seriously. A big demonstration of this made headlines in the spring, when it was announced that an industry-led, UN-convened Net Zero financial alliance, comprising 43 banks from 23 countries, was to be established in the sole purpose of accelerating the transition. to net zero emissions by 2050.

Main challenges limiting the pursuit of innovation?

Implementing green and sustainable initiatives in banks, however, requires the right mindset and corporate culture. Bank management teams need good awareness and understanding of the subject, especially with increasing pressure from regulators. The EU is currently examining how to integrate sustainability considerations into its financial policy. This includes channeling private investment towards a climate-neutral economy, creating an EU-wide classification system for sustainable activities and ensuring that financial service providers and financial advisers meet the wishes of sustainability customers.

With this in mind, it should be noted that customer interest levels differ. According to several of our member banks who have already launched sustainable products, some customer segments are very enthusiastic, while others are reluctant and feel that their bank is imposing values ​​on them. Convincing more customers to switch from their traditional banking products and services to more sustainable alternatives may not be a simple task and could well backfire.

Processing is another hurdle. The innovation of new financial products that use data – such as carbon calculators – is forcing banks to take a modern approach to big data. Progress is being made here in the world of trading, however, where accounting pioneers are working to help stock markets take into account the impact companies have on the environment by incorporating this factor into financial statements. .

The outlook is green

Although these challenges persist, the trend towards sustainability in the banking sector is undoubtedly gaining strength. Over the next 12 months, we can expect to see more banks participate by creating innovative green solutions that both reduce their carbon footprint and help their customers live more sustainably. This is a welcome change and a substantial win for banks, consumers and the planet.

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