Sustainable Banking: From Vision to Reality

There are virtually no areas of the global economy untouched by the quest for sustainability and net-zero emissions. Meeting net-zero emission goals in financial services is one of the most important drives toward a sustainable future. 

Global banks fund, invest and partner with the world’s leading organisations – it is up to them to take the lead on green financing projects and meet the growing desires of their customers for green products. 

“Consumer demand is surging, not just for ESG-focused offerings, but for products with clear links to well-defined metrics and impact mandates,” says Shuvo G Roy, VP and Head of Banking Solutions (EMEA) at Mphasis. 

Statistics do not lie – the call for sustainable products resonates across demographics, from rural retirees to young urban entrepreneurs.

As Shuvo notes: “Recent research suggests that customers are willing to dedicate a significant portion, up to 40%, of their savings to green products. This trend is reflected in the rapid rise of green assets under management (AUM), now approaching 10% of global AUM.”

Today, a lot needs to be done for banks to meet the demands of consumers. And, just as banks take action to reduce emissions, new technologies contrive to drive energy consumption upwards. 

As the banking sector continues to explore ways AI can be leveraged to best serve its customers, this presents a challenge in that it consumes vast amounts of energy, too. 

Francois Terrade, Global Head of Structuring at Demica, says: “Addressing this issue requires a collective effort from the entire banking sector. For green banking initiatives to be effective, they must be collaborative and progress uniformly to ensure widespread adoption.”

Banks need to focus on several factors to build a greener future, as outlined by Shuvo: 

• Redefining investment and lending policies to prioritise global energy transition and funding circular economy projects 

• Reading investor expectations to facilitate weaning off environmentally unfriendly assets in their portfolios

• Setting clear and measurable objectives and covenants for borrowers, as well as partnering with data providers to acquire necessary data to evaluate performance against these objectives

• Aligning their supply chains and vendor ecosystems to promote nationally and UN-mandated sustainability objectives

• Increasing the pool of tradable instruments backing green Investments, thereby attracting higher participation from both institutional and individual investors.

ReFi’s role in shaping a sustainable financial future 

One area of promise that financial institutions are tapping into is regenerative finance (ReFi) projects – which focus on investments that restore and regenerate ecosystems while promoting the principles of a circular economy.

Unlike traditional models, ReFi aims to create a positive impact on the environment by channelling funds into projects that enhance biodiversity, improve soil health and restore natural habitats.

One of the core principles of ReFi is its emphasis on long-term sustainability rather than short-term financial gains.

Robin Yan, CEO of Fana, says: “This approach not only supports environmental restoration projects but also drives economic activities that recycle and reuse resources, thereby reducing waste and promoting sustainability. 

“By integrating ecosystem services into financial decision-making, ReFi initiatives help quantify and monetise the environmental benefits, providing a clear financial incentive for sustainable practices.”

Shuvo hails the structure of ReFi projects, which champion thematic investment to regenerate emerging markets. “These projects can make a positive impact on local ecosystems and economies, leading to increases in productivity, better healthcare and poverty alleviation.”

However, as with other financial sustainability initiatives, more could and should be done in the ReFi project space. 

“The vast majority of investments in ReFi have been through the buy-side players and as such banks have played a fairly limited role,” says Shuvo. “ But where they have – through initiatives like micro-finance programmes – they have witnessed tangible success and made longer-lasting impacts on society. 

“At the heart of such programmes is the ability to access and manage reams of data and generate insightful intelligence from these.”

Emerging technology and compute power now allow vast quantities of data to be handled in near real-time, to create and manage targeted ReFi programmes across various geographies.

The means are there for ReFi projects to be undertaken in much greater volume – financial institutions need to do more in building regenerative, circular economies. 

As Robin puts it: “While some institutions have begun integrating ReFi principles into their operations, the actual implementation and outcomes of these initiatives need to be transparently reported and evaluated.

“It is crucial for these financial entities to not only commit to ReFi but also to demonstrate real-world impacts and improvements in ecosystem services and circular economy metrics.”

Sustainable tools for consumers: Carbon tracking, offsetting

As we’ve discussed, the data is clear on consumer willingness to champion green, sustainable products. Today, banks can do more to support consumers in making sustainable decisions in their everyday lives, too.

Carbon tracking tools allow consumers to understand the environmental impact of their purchases. 

Fintech startups such as ecolytiq have come to market, offering banks the means to supply their customers with means to track the environmental impact of every purchase. 

"We sit on top of the banking infrastructure and analyse your spending behaviour,” ecolytiq Co-founder and CEO David Lais told us at Money20/20 US 2023. “And then, we try to figure out what your influence is in terms of CO2, water and other elements and guide you through it – ultimately to give you all the information you need to be part of the solution."

Fana CEO Robin says the advent of carbon tracking tools not only allows consumers to monitor consumer tracking, but it also integrates “environmental accountability into everyday transactions”, prompting a shift to “conscious consumerism”. 

Carbon offsetting complements this by enabling individuals and corporations to compensate for their carbon emissions by investing in environmental projects. Such projects include reforestation and renewable energy initiatives. 

“Financial institutions are increasingly embedding carbon offset options directly into payment platforms, simplifying the process for users to contribute to climate action with each transaction,” Robin adds. 

However, barriers remain to the widespread adoption of these technologies, as outlined by Shuvo. These include:

• Data accuracy: Standardisation and reliable data collection methods are needed for accurate carbon footprint calculations

• Offset quality: Ensuring invested offsets actually remove the promised amount of carbon dioxide needs verification

• Accessibility: Making these features affordable and user-friendly is key to wider adoption.

Fana’s CEO adds that the integration of complex carbon tracking and offsetting systems into existing financial infrastructures remains a challenge, as it “requires substantial investment and technological upgrades”.

The technology is there, though, to bring these tools to market. But using technology to create new carbon tracking tools – added compute power and AI included – creates higher energy requirements, as suggested by Francois. 

Shuvo calls this conundrum a “classic green paradox” and an area banks should look to juggle carefully. “Banks will need to look at infrastructure efficiency and, wherever possible, accelerate their journey to the cloud,” he adds. 

The intersection of finance, sustainability and technology

For financial institutions, the conundrum in meeting sustainability goals is how they champion net-zero initiatives leveraging technology while keeping energy consumption to a minimum. 

Robin concludes: “The role of innovative financial solutions like carbon tracking and offsetting in promoting environmental stewardship becomes crucial. 

“These tools not only foster transparency and responsibility in consumer behaviour but also enhance the capacity of financial systems to support global sustainability efforts. 

“By overcoming the existing challenges, banks and financial institutions can play a significant role in driving the adoption of environmentally conscious practices across industries.”

To read the full story in the magazine click HERE

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