Thursday, July 18, 2024

From risk to opportunity: How the banking sector is innovating for sustainability and climate action


In the past decade, climate change has continuously increased with an increase in greenhouse gases in the atmosphere, resulting to changes in weather patterns that affect industries such as agriculture. This calls for an intervention in sustainable banking to mitigate these negative impacts. Green banking is a term used to refer to sustainability in the economy, society, and environment. Its aim is environmental protection alongside ethical banking. This includes encouraging the reduction of banks’ and customers’ carbon footprints by creating environmentally friendly practices and investing in sustainable activities. By reducing our carbon footprint, we can help to reduce the effects of climate change.

A way to influence financial groups is with a green micro-prudential policy. This is when policies include social and environmental points. One example is to discuss climate-related financial risks and give advice on how to reduce these risks. In comparison, the macro-prudential policy is about setting the rules for the banks and reducing the economic risks related to climate change or global warming. The green credit allocation policy encourages giving money to industries that may be at risk from the effects of climate change such as water, energy, and farming. Some banks set aside a minimum amount of lending which should go to these types of industries. Finally, the market-making policy is about green investments.

Central banks create some guidelines to promote green and ethical banking. As technology evolves and FinTech takes a grip on the financial services industry, today’s banks have a distinct opportunity to engage consumers through financial innovation that not only better supports savings, purchases, and investments, but does so with positive sustainability credentials and a reduced environmental impact. Even over a decade since the severe financial crisis of 2007-08, the activities of banks and other financial services providers remain under a great level of scrutiny. And none more so than when it comes to their environmental impact and green credentials. The Banking on Climate Change report revealed that 35 of the world’s leading banks have provided $2.7 trillion to fossil fuel companies in the four years since the adoption of the Paris Agreement (2016-2019).

This is equivalent to more than $1.5 billion for every day since the end of 2015, with no downward trend and no assessment of the carbon impact of that finance. The formation of The Partnership for Carbon Accounting Financials (PCAF) – a global partnership of financial institutions committed to facilitating transparency and accountability of the financial industry to the Paris Agreement – and the launch of the first global standard to measure and report financed greenhouse gas (GHG) emissions associated with their loans and investments, was a signal of intent for the industry.

The spotlight on institutions, however, is no longer solely being pointed by local and international regulators, but also by a wider public including clients, employees, and investors concerned about sustainability. All this combined means sustainability, responsibility, and the disclosure and reporting of carbon emissions are now very much a critical competitive advantage within the financial services sector. As banks seek to quell public and regulatory pressures and improve their environmental credentials, technology has become a fundamental tool for delivering sustainable business operations.

FinTech is already an innately sustainable alternative to traditional banking, allowing consumers to manage their finances using digital technology, removing the reliance on paper-based transactions and even the need to travel. Banks, for instance, are enhancing their low-carbon offering and reducing climate risk through intuitive technologies such as chatbots and virtual assistants, artificial intelligence and machine learning-powered robot-advisors, as well as increasingly intuitive banking apps. Digital integration is being executed to bring together the platforms used for transactions, data management, and customer interactions for a seamless and sustainable omnichannel delivery model. Such platforms are not only allowing financial institutions to take the necessary technological steps towards sustainability but also delivering better service for consumers. Secure and almost always at hand, they make the process of carrying out financial transactions, accessing products, getting advice and financial updates far simpler, reducing the need to visit branches, or make calls.

Of course, before widespread technological change is adopted, banks must ensure they have the most effective and efficient CCM solutions in place. Organizations are increasingly seeing the benefits of adopting a single, centralized, customer communications management delivery model – a “one platform” approach that underpins communications across all channels and technologies. By doing so, banks can ensure they have the delivery infrastructure to support a truly frictionless customer experience across a multitude of traditional and digital channels, while at the same time facilitating transformation at pace.

A consolidated perspective of communications can facilitate the analysis of lifecycle sustainability impacts, allowing financial organizations to choose supply chain partners that are committed to the same values including negative emissions, zero waste to landfill, and creating an environmentally resilient future. In a bid to deliver a roadmap to Net Positive Communications, banks are working with knowledgeable partners to help them implement the tools and technologies that will make net-zero emissions technologies deployable at a significant scale, in turn, delivering on their long-term sustainability goals and aspirations.

Dr. Edward Mungai
Dr. Edward Mungai
The writer, Dr. Edward Mungai, is a global sustainability expert. He is the Lead Consultant and Partner at Impact Africa Consulting Ltd (IACL), a leading sustainability and strategy advisory in Africa. He is also the Chief Editor at Africa Sustainability Matters. He can be contacted via

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