The first installment of this series explored the history of green finance and how financial institutions benefit from being more eco-aware. In the second article, we took a global view, outlining the steps key players are taking to go green, while the third chapter examined the regulations and tools banks need to achieve sustainability targets. Here, we talk about the direct emissions made by banks themselves, why they should minimize them, and how to achieve that.
As noted in the previous articles in this series, how and where banks around the world choose to finance has a huge impact in the fight against climate change.
Currently, many banks are financing a high-carbon economy. In fact, according to one recent report, banks and asset managers in the UK alone were responsible for 805 million tons of CO2 in 2019, making “The City of London the 9th biggest emitter of CO2 in the world if it were a country,” according to Greenpeace.
That is huge, and it’s worth noting that groups and governments around the world have identified the problem.
But that’s “indirect emissions,” i.e. emissions caused by external organizations funded by the bank. “Direct emissions” – those caused solely by the bank itself – are far smaller than indirect ones (700 times smaller, to be precise), but they still add up, and they’re worth mentioning.
For instance, every year the banking sector uses 30 million kilos of non-biodegradable plastic to manufacture payment cards. That’s the equivalent weight of 150 Boeing 747s. These cards take more than four centuries to break down, and even then, remain environmentally hazardous.
That’s just one example, but it highlights that banks have plenty of work to do in-house, as well as when it comes to green financing.
And while cutting down on direct emissions and going green for banks is easier said than done, it will likely have a positive impact – not just for the environment, but also the success of the banks themselves.
Importance of going green
Saving the planet is the most pressing reason for financial institutions to reduce their carbon dioxide (CO2) emissions. But there are self-interested motivations, too, including pressure from governments, consumers, investors, regulators and employees to prioritize action on climate change.
A 2020 study by Deloitte supports that, revealing 71 percent of UK customers are more likely to choose a bank with a positive social and environmental impact, with 61 percent wishing their current bank would do more to achieve that.
Furthermore, research by Accenture shows 64 percent of talent won’t accept a job with a company that doesn’t have a strong sustainability and environmental policy. Similarly, private and commercial clients increasingly choose banks with strong environmental, social and governance strategies.
With scrutiny coming from all angles and each side driven by different interests, banks are “greening” internal policy, compliance and risk management frameworks.
What does green banking mean for banks?
Going green takes many forms, from increasing digital products and services to sustainable computing. Below, we’ll take a look at a range of green methods and how to implement them.
Green digital finance
Digital transformation is an accelerating trend, with investments soaring and consumers demanding digital platforms to improve customer experience. Digital technologies also help decarbonize the global economy by up to 15 percent, according to the World Economic Forum. Alongside that, The European Green Deal states: “Digital technologies are a critical enabler for attaining the sustainability goals of the Green Deal in many different sectors.”
As digital products and services increase, paper waste falls – a valuable opportunity, given paper production accounts for about 26 percent of total waste at landfills. Furthermore, the rise of e-wallets and virtual payment cards means fewer PVC payment cards are in circulation, reducing carbon emissions from the plastic itself while decreasing the environmental costs of shipping and end-of-life disposal.
Sustainable payment cards
Despite virtual wallets gaining popularity, there are still more than 6 billion payment cards produced every year globally, amassing a carbon footprint equal to 500,000 passengers flying from New York to Sydney.
To reduce that footprint, banks can choose to use polylactic acid (PLA) – an eco-friendly plastic substitute. Created from renewable sources, PLA cards are biodegradable and recyclable, while offering the same functionality as PVC cards. Alternatively, banks like HSBC issue cards made from 85 percent recycled plastic, increasing to 100 percent in 2022.
Environmentally friendly buildings and eco-friendly data centers
Another solution is to make the brick-and-mortar spaces banks own, lease or rent more green-friendly. Positive environmental change is achievable in several ways:
- Switching to clean energy from renewable sources such as sun, wind, water and biofuels
- Changing the office environment by using energy-efficient LED lighting, installing temperature controls and applying motion sensors for lighting
Benefits of green computing for the environment
The equipment within banks should also be considered. For example, computers are harmful to the environment, consuming energy, emitting CO2 and causing pollution when disposed of improperly. Green computing is a sustainable approach that aims to reduce or limit these negative impacts via:
- Energy-efficient data centers, including construction, heating, cooling, ventilation and location
- Increasing the lifespan of IT systems to limit e-waste, by building or using products with modularity and upgradability
- Optimizing software via virtualization, efficient algorithms, strategic resource allocation and using terminal servers
- Implementing effective power management by turning off hard drives and monitors automatically after a certain period of time or hibernating systems
- Recycling materials in computing devices and repurposing computers, creating a circular system
Embracing the cloud adoption for green banking
The rise of cloud computing has inadvertently helped banks adopt green computing, by addressing problems like resource consumption and energy usage. Cloud computing reduces the need for on-prem data centers, helping banks cut their carbon footprint – but only if the cloud data centers are highly efficient.
Flexible working: How it benefits the environment
In the “work from anywhere” days we’re living in, banks can reduce their carbon footprint by encouraging employees to work from home, if compatible with business interests. Eliminating travel to and from work on these days means commuting-related emissions fall, and with teleconferencing and videoconferencing options increasingly popular, staff can dial in with ease. The same reasoning applies to minimizing unnecessary and emission-heavy business travel by air and rail.
If it’s not possible for employees to work from home, banks should promote sustainable means of transport. By incentivizing cycling and electric vehicles or implementing a sustainable bus service like Zeelo, they raise awareness and help reduce indirect transport emissions.
Some banking products and services are a way of life, even though they’re harmful to the environment. While net-zero emissions are the ultimate goal, change is incremental. Where that’s the case, carbon offsetting is a way for financial institutions to give back to nature and help the planet.
For instance, digital-first bank bunq issues stainless-steel cards, whereby every time a user spends €100, bunq plants a tree. Four months after launching, 100,000 trees had been planted.
Furthermore, organizations like Gold Standard offer long-term resolutions through a voluntary carbon offset program centered around advancing the UN’s Sustainable Development Goals (SDGs).
Addressing banks’ direct emissions
The finance sector is already changing its approach to financing and the environmental impact of what it’s funding, but direct emissions are also a concern, with banks’ internal policies under the spotlight. Whether it’s increasingly eco-conscious customers and potential employees or scrutiny from governments and regulators, the pressure is on to “greenify”.
From forging ahead with digital transformation and cloud computing to carbon offsetting and shifting to biodegradable bank cards, there are many options financial institutions should consider. Because ultimately, banks that don’t look inwards to go green, may lose out on investors, customers and the best talent.
Sopra Banking Software is committed to fighting climate change, and environmental causes are at the heart of our company-wide 2022 strategy.
We are currently putting in place an environmental management system at all of our offices to better manage and ultimately reduce our consumption of resources.
Furthermore, in line with the Climate Pact agreed at the UN Climate Change Conference of the Parties (COP26), we aim to be net carbon neutral by 2028. To do this, we will reduce all direct and indirect emissions, and compensate for any remaining emissions by investing in certified carbon capture projects.