French carbon tracker Greenly estimates that Europeans have an average carbon footprint of 15 tonnes of CO2 emissions per year. To meet the EU’s carbon-zero goal, that statistic needs to reduce to 3.5 tonnes by 2050.
Open banking could be useful to help achieve this goal as it allows third-party apps to access payments and subscription data. This allows financial service providers and fintechs to collaborate on innovative sustainability products.
“Current accounts are a vast source of data. A huge amount of information can be derived even from one single transaction,” says Tasha Chouhan, Tink UK and IE banking and lending lead. “By aggregating, categorising and analysing transactions, open banking allows us to create meaning from data to help people make informed decisions about sustainability.”
Research by Tink found more than half of 18- to 34-year-olds (53%) want their financial services provider to actively help them mitigate their environmental impact. Some 23% of respondents are already using an app to record their carbon footprint. NatWest now includes a carbon-tracking feature in its mobile app for its retail banking customers. Developed with Tink and sustainability fintech CoGo, the app can nudge consumers on how to reduce their carbon footprint by using location information that is shared with others.
An initial pilot found that customers reduced their CO2 by 11kg each month and led to behavioural changes such as eating less meat, composting or even switching energy providers.
“It’s important to raise our customers’ awareness of the environmental impact of their spending and how they can make positive changes,” says Wendy Redshaw, chief digital officer for retail banking at NatWest Group. “The feature provides hints and tips on how to develop greener habits, and users can log their commitments and behavioural changes.”
Banks prompt customers to make greener choices
NatWest plans to roll out more API-led sustainability functions in its app, with a pilot Green Plan that will suggest actions customers can take to make their homes greener.
Are these prompts enough to initiate real change? Consumers often suffer from an intention-action gap, which is when their values and opinions don’t match their purchasing decisions.
A study by EY found that 84% of consumers consider sustainability to be important when making purchasing decisions but just 18% of respondents were considered by EY to be ‘planet-first’ shoppers.
“People agree on the value and importance of topics such as sustainability and diversity,” says Gustaf Anselmsson, founder and CEO of GoKind, a sustainability price comparison service based in Sweden. “We have this picture that whatever a consumer says their value is, this is how they will act.
“This doesn’t mean that you have frauds as your consumer base. It means that we’re easily persuaded by the perverse incentives of marketing and sales.”
Even if you enjoy being sustainable, it’s quite heavy to flick through a sustainability report
GoKind, through Tink’s API, uses consumer banking data to suggest more ethical choices. Anselmsson says the company takes a holistic approach to sustainability and ranks businesses on their diversity practices as well as environmental impact. Users are then given cash rewards for switching to the highest-rated brands on the platform.
It suggests small changes first, such as shopping on second-hand clothes sales platforms rather than using fast fashion, before suggesting more laborious switches such as changing an energy supplier.
“We haven’t stumbled upon anyone that feels joy in switching energy suppliers,” says Anselmsson. “Even if you enjoy being sustainable, it’s quite heavy to flick through a sustainability report.
“Rather than saying, ‘This is your life, you have twice the CO2 emissions you should have, do these 20 things, completely change your lifestyle,’ we’re rewarding the customer, and trying to move them gradually.”
Consumers turn to climate-conscious banks
These changes in consumer behaviour should in turn penalise businesses that aren’t prioritising sustainability. An increasingly environmentally savvy consumer base, making the ‘right’ decisions, could expose organisations that lag.
Current EU regulations require companies with more than 250 employees to report their diversity and sustainability efforts. New legislation introduced this month requires UK-based businesses with more than 500 employees to report on their environmental impact.
Anselmsson believes widespread use of open banking data creates an imperative for larger companies to improve, and for smaller operations to report their ESG efforts.
“We can indirectly incentivise SMEs and companies that don’t have a legal requirement to report,” says Anselmsson. “It creates an imperative. We’re trying to create a natural urgency for companies of all sizes to improve.”
Alexis Normand, CEO of Greenly, agrees. “Businesses typically begin their climate journey when a customer requires them to report it – because they are themselves working for a larger company which wants to reduce its emissions through its supply chain,” he says. “When you start losing business because you’re making fewer sustainability efforts than your peers, having a low carbon strategy suddenly shifts from a ‘nice to have’ to a ‘must have’.”
Greenly uses data from an SME’s banking and accounting output, and information sources such as cloud computing usage and travel software, to calculate the carbon footprint along its value chain. Working with these third parties can put pressure on the large financial institutions. Tink’s research found that 52% of 18- to 34-year-olds would not bank with a provider that held assets or investments contributing to climate change.
“Younger generations of consumers now demand their provider is climate conscious and their money is invested ethically and sustainably,” says Tasha Chouhan, UK & IE Banking Lead at Tink.
Time, then, for financial service providers to innovate in sustainable practices to better understand the climate liability on the bank’s books.
