The Green Banking Guide

For savvy stakeholders in payment and banking, one thing has become clear: change is here. For quite some time, when the words “change” and “banking” were used in a sentence, the common denominator was often digitalization. Now a new shift is emerging in the market: green banking.  

What is green banking?

Green banking is a novel approach to banking, in which financial institutions play an active role in promoting sustainability by both engaging with sustainable finance and by empowering customers to live greener lifestyles.  

"At play here is how money

enables the society we live in."

This relatively new banking philosophy stems from a growing awareness around the link between spending behavior and how it impacts our environment. Consumers, now more than ever, are conscious of this connection and are serious about taking action. According to Pew Research, around 80% of consumers are willing to make changes to their daily lives to reduce their impact on the environment.  

Why is green banking so significant?

It all starts with money. At play here is how money enables the society we live in. In the age of green banking, sustainability comes down to choices around where your money is kept and what it does. It’s about choice. This can take the form of institutional investing, for example when a bank decides between funding a fossil fuel intensive coal factory or a clean energy wind farm. But it also involves consumers at the store deciding whether or not to put the steak in their shopping cart or opt for more climate-friendly produce instead. The main obstacle to meaningfully engaging in climate action is the reliable access to good, reliable information.  

The shift in consumer perception is a monumental development in the fight against climate change. Research shows that household consumption composes 72% of global greenhouse gas emissions. Influencing household behaviors could drastically turn the tide in the battle against global warming – especially as we move into a post-pandemic world.

When banks and consumers work together to align money with purpose, change is no longer aspirational; it materializes into reality. McKinsey estimates that a net-zero transition by 2050 would require an immense amount of spending – $275 trillion to be exact. To accomplish this goal, spending would need to increase by $3.5 trillion each year. That’s the same as financing Germany’s GDP, the world’s four largest economy, each year. Yet, that is exactly why green banking is so important. It finances the bridge to cross the gap.

What does green banking look like?

There are two main facets to a green banking strategy. The first is the most common and instinctual reaction banks have when engaging with sustainability, namely an internal environmental audit.  

In practice, this approach results in banks exploring options to reduce their environmental impact through in-house operational changes, such as overhauls to employee travel policies or switching to 100% renewable energy.  

More ambitious changemakers take a far more impactful step forward by analyzing their institutional assets and portfolios through an ESG lens. Equipped with the information about their investments’ impact on the environment, they can take steps to sell off dirty assets to acquire more sustainable, ethical ones. This is often seen as contributing to a more contemporary practice in environmental governance and Corporate Social Responsibility (CSR).  

[It’s time for a sustainable business transformation in financial services. Start here.]

The second facet to a green banking strategy focuses on customer centricity. It’s one thing to generate real impact on a company level but scaling impact across all customer segments is another game entirely. And the effect it has could be one of the most powerful tools available to beat climate change.  

How does customer-centric green banking work?

Abysmal net promoter scores and hordes of unengaged end users are resulting in alarmingly low customer loyalty. But there’s way to get back on the right path. Green banking is a much-needed opportunity for banks to address some of their biggest issues, especially related to retaining their existing customers and acquiring new ones.

Banks need to reimagine the role they play in the lives of their customers. Banks shouldn’t be vendors; they should be enablers. How? By offering a comprehensive sustainability value chain.  

In order to move forward, you must know where to go. The foundational building block to this value chain is transparency. From there, the journey begins.  

Here’s how it works:

1. Achieve transparency by empowering your customers with environmental impact calculations, like CO2 footprints, for each transaction they make.  
2. Engage them through education by enriching their purchases with climate insights to nudge customers towards greener spending habits.  
3. Simplify climate action by democratizing access to quality ESG products and offsetting.
4. Reward sustainable behavioral change through corresponding green loyalty programs, helping repair lost relationships with customers.  

Who are the big players in the green banking space?

That mainly depends on where you live. Europe is a world leader in this regard with the highest concentration of sustainable banks, led mainly by a budding scene of digital-first neobanks.  

Some leaders in this space are Hamburg-based neobank Tomorrow, British green banking app Novus, and the sustainable challenger bank Green-Got in France. For these innovators, sustainability runs deep. Having embraced both facets of green banking, they ensure that they handle their customers’ money in line with their values and the mission of protecting the environment.  

But it’s just not just digital challengers that are pushing forward to the cutting edge; well-established banks are going green, too. Bigger banks like Rabobank or Triodos bank, both based in the Netherlands, are committed to infusing sustainability into the core of both their operations and their product portfolio.  

On top of that, awareness is steadily growing among the biggest banks in the world. They know they have a crucial role to play in preserving the planet and time is of the essence. Yet, green banking is just the tip of the global banking iceberg.  

As wildfires have spread, so, too, has a sense for personal responsibility among consumers. Ripe and ready to act, they are waiting on banks to catch up and truly empower them to act. The question remains: will they?

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Authored by Max Honzik, PR & Content Manager at ecolytiq

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