Sustainable banking: the future of finance

Climate change is a hot topic for many industries, but some are surprised to hear that it is playing an increasingly significant part in the world of financial institutions. Like most sectors, banks and credit unions are assessing their role in environmental and social issues to help determine what steps they can take to tackle this global challenge.

Why should banks and credit unions care about sustainability?

Financial institutions are often pillars of their community and greatly influence the actions of their customers. After all, each community bank or credit union provides funding for businesses, personal loans or lines of credit. Their terms and specific conditions can help fuel certain industries and influence purchases. For instance, some banks offer discounted rates to customers seeking electric vehicles or funding for solar panels. As such, these offerings can directly affect the success for green initiatives.

From a strictly practical perspective, the effects of extreme weather, perhaps fueled by climate change, are often a burden to the economy. Participating in environmental efforts is becoming more of a necessity than an option.

What is green banking?

First established in the 90s, green or sustainable banking can refer to several products and services. Largely, the initiative denotes the actions undertaken by financial organizations to help reduce their carbon footprint, encourage positive environment-friendly practices and support customers in their endeavours to be more eco-efficient.

This approach is also known as ESG: environmental and social governance. In recent years, many major companies have begun to produce yearly ESG reports to update investors and clients on their efforts and results in this area. For example, the  latest report for Western Union outlines our strategies and commitments, including standards for energy-efficient office locations, waste reduction practices and digital alternatives to physical travel.

What do customers want?

Interestingly, one of the main reasons banks refrain from focusing on environmental issues is that they perceive a low level of customer interest. In fact, the vast majority of customers actively seek out green-focused organizations, even in banking. About 90% of consumers increase their trust and brand loyalty to companies that support environmental initiatives publicly or within their practices.

Is it profitable?

Because of emerging Fintechs, banking today is an increasingly crowded field and investing in an area proven to be important to consumers is a great way to stand out from the competition. In terms of dollars, one global financial group with only 36 institutions has a whopping 24 million customers and $110 billion in managed assets.  A recent study by Deloitte found that financial institutions with good ESG ratings significantly outperform their counterparts with low scores.

Of course, aside from attracting new customers and revenue, green-friendly initiatives can also act as a cost-savings boon. Eliminating checks, pushing customers toward digital transactions and allowing mobile friendly platforms are just some of the ways banks can reduce their bottom line.

What are the first steps?

Traditionally, many community banks and credit unions required an in-person visit to complete an action, such as sending an international payment. Not only does this require travel, but it can also be an inconvenience for customers. Moving operations online can not only help save your branch cash but can increase user satisfaction.

Reconsidering the use of checks can also reduce overhead. If a branch is spending significant funds towards producing, sending and depositing checks, even for their own payroll, they may want to consider switching to electronic payments which can be cheaper and more reliable.

Many organizations are also moving towards paperless workplaces by reducing printing. Communicating with clients via email or phone, even occasionally, can reduce the amount of money allocated towards stamps and production.

Is it right for your institution?

Making the move towards creating a more sustainable and environmentally-conscious organization can be daunting. However, recent data shows that there are major financial and branding advantages towards shifting to this perspective. Small changes and considerations can help any community bank or credit union take steps towards becoming a more sustainable financial center. As the issue becomes more important to many customers and links are made between these efforts and financial results, it is key that community banks and credit unions raise this issue to the forefront of their planning.