Taking Sustainability to the Bank

In the spring of 2021, a new API called the Carbon Calculator debuted, giving consumers access to a snapshot of the carbon emissions generated by their purchases, along with tips to live more sustainably and even opportunities to contribute to reforestation projects.

The source of the Carbon Calculator? None other than Mastercard, which has made the API (developed in tandem with Swedish fintech company Doconomy) available for banks to integrate into their own apps.

In unveiling the Carbon Calculator API, Mastercard cited “a growing trend toward eco-conscious spending and consumption among people who want to turn their purchases and rewards redemption into meaningful action for the planet.” Recent research by the company revealed that 85% of adults are willing to take personal action on environmental and sustainability issues.

Driven by factors like customer preference, regulatory requirements and their own ESG (environment/social/governance) policies, financial institutions around the world are embracing the role of catalyst in the carbon-reduction and sustainability movement. Within nine months of forming in April 2021, the United Nations-sponsored Net-Zero Banking Alliance had surpassed 100 members representing over 40% of global banking assets. “This rapid uptake speaks to the urgency now being shown by leaders from across the financial sector to address the climate emergency at the pace and scale required,” said Eric Usher, head of the U.N. Environment Programme Finance Initiative.

In their roles as lending sources, investors, asset managers, services providers and corporate citizens, like it or not, banks find themselves squarely at the fulcrum of the sustainability movement, which confronts them with two critical questions:

1. How to internalize ESG and sustainability across every facet of the business?
2. How to turn sustainability into a genuine competitive advantage?

The first question speaks to the challenge of making sustainability part of organizational DNA, where it’s a factor in virtually every decision a bank makes, from lending and investment choices to the products and services it prioritizes to how it manages its operational carbon footprint. On the commercial lending side, for example, lending to a company with an inordinately large carbon footprint not only increases a bank’s risk exposure, in an increasingly sustainability-aware world, it also likely will reflect poorly on the bank and its brand.

The same approach applies to the choices a bank makes about suppliers and its real estate assets. How, and from whom, they source supplies like paper for deposit slips and checks, or the pens they give away at branch offices, matters, as does how they manage the carbon footprint of their brick-and-mortar assets. What steps can an institution take to reduce carbon footprint across its real estate portfolio and within individual buildings? To what extent would moving more business processes to the cloud rather than maintaining a physical, on-premises IT infrastructure (servers, data centers, etc.) reduce carbon footprint?

To answer questions like these, banks must have the ability to collect, analyze and act upon vast amounts of sustainability and ESG data, not only across their own operations, but from suppliers, partners and lending customers, so they can evaluate them accordingly. The transparent exchange of sustainability-related data up and down the value chain is a must for companies to make solid sustainability choices, and to meet the escalating reporting and compliance responsibilities related to carbon footprint.

How to make sense of all that internal and external data? Here’s where a sustainability “control tower” that provides a comprehensive view into data from the entire enterprise and value chain can help banks to understand the trade-offs and make decisions based upon the interrelationships between financial, operational and sustainability performance. With a clear line of sight into the relationship between sustainability investments and business success, banks can detect patterns, model scenarios and make choices based on insight from the data. From the control tower, an institution also can establish, implement and track sustainability-related KPIs across the business, which in turn helps reinforce ESG priorities and values throughout the organization.

Late last year, SC Ventures, an arm of U.K.-based Standard Chartered Bank, partnered with banking-as-a-service (BaaS) company Starling Banking Services to launch a digital platform called Shoal that connects customers’ money with green projects. The first product on the platform is a savings account with which account-holders can choose to support renewable energy, clean water community development and the like. Their money goes directly to funding projects in a chosen area (while also earning a competitive rate of return), and Shoal provides regular updates on the projects they have helped fund.

Services like Shoal and Mastercard’s Carbon Calculator are among the new business models financial companies are exploring in an effort to make a positive impact on the world and the bottom line. Essentially it’s about leveraging a leadership role in sustainability to differentiate themselves with, and get closer to, sustainability-minded consumers such as those in Gen Z — and increase wallet share with profitable new revenue streams along the way. The intent with Shoal, explained Bill Winters, group chief executive at Standard Chartered, is to “unlock much-needed retail capital to fund sustainable projects in parts of the world where the impact will be greatest and give savers the power to make good money, whilst making money do good.”

At a basic level, there’s an opportunity for banks to market their own superior sustainability/ESG performance to set themselves apart from their peers. Doing so will depend on their ability to track and clearly report on sustainability/ESG activities.

But the opportunities extend well beyond just brand awareness. One is the opportunity to be part of a broader open banking ecosystem, as Shoal is on the Starling consumer platform. Another is the chance to explore behavioral banking, using information and incentives to help consumers play a proactive role in the sustainability movement. And on the commercial side, lending programs and products for sustainability- and circular economy-related initiatives can help banks build a portfolio of products that resonate in a world in which the financial shade of green and the environmental shade of green are more blurred than ever.

Kris Kowal, MBA, CSPO, is the Global Retail Banking Lead for SAP America.