Towards The Future, Towards Green Banking
We’ve been discussing how banking has changed over time, how far we’ve come, important digital trends that have replaced retail banking, and future developments in banking for a while now. We speculate and take part in the discourse. From policymakers to regular customers, everyone offers countless suggestions for enhancing the banking experience. Simultaneously, the existence of innovation enabled us to knock down several barriers to easy and accessible banking. And yet, one huge area remains open for exploration and investigation – sustainability in banking.
Green Banking – a set of practises banks use to combat climate change. This set of practices could range from switching to eco-friendly light bulbs and recycling materials to investing in the production of renewable energy, which is precisely what SBI did in 2010 when they invested in a wind farm. Whichever approach banks choose, the goal has always been to promote eco-friendly practices that minimise the carbon impact of financial services. However, times have changed, and global warming triggered by human activities has increased. Luckily, due to global initiatives such as the Sustainable Development Goals (SDGs), financial institutions today have a better understanding of climate change and are actively devising practical ways to address it.
Importance Of Green Banking
Like any other business, banks also exist in physical form and directly impact the environment. Banks significantly increase carbon emissions through the use of a variety of resources, including paper, power, stationary, lighting, air conditioning, electronic equipment, etc. Even though banks’ impact on the environment is arguably lower than that of their counterparts, like the oil industry, some would still say that by funding big industries that pollute the environment, banks are indirectly responsible for climate change.
As a result, banks are under increasing pressure to incorporate sustainability into their business models. The importance of embracing green banking has grown for a number of additional reasons as well. Reasons include increasing energy consumption and energy prices, rising consumer interest in environmentally friendly products and services, rising public expectations on businesses’ environmental duties, and rising regulatory and compliance requirements. Additionally, the UN’s Sustainable Development Goals (SDGs) have underlined the significance of sustainability to the point where a number of organisations have established positions like chief sustainability officers to address issues relating to the environment, society, and governance (ESG).
How Can Banks Benefit From Green Banking?
Primarily, green banking practices can help banks become more cost-efficient. Small eco-friendly steps mean lower utility bills, which ultimately means fewer costs. Improving customer impressions is another advantage of going green. By implementing eco-friendly strategies, banks can easily position themselves as a sustainability-focused, environmentally responsible organisation. This alone may attract new target customers.
Cost saving for you and convenience for your customer – Green Banking is a win for both!
Second, and most significantly, green banking translates to banks investing more actively in low-carbon, sustainable companies that generate long-term profitability and support the advancement of regional and global climate goals.
Although historically speaking, banks have been comparatively slower to join the sustainability movement. Technology and digital banking have been speeding up the process to help banks go green.
How Emerging Tech & Digital Banking Promote Green Banking
The way we view and comprehend banking has changed due to technology. Digital banking has replaced traditional banking, which is now more economical and environmentally friendly. Although the banking industry was slow to adopt emerging tech such as AI and ML, it is now moving quickly to cloud-based digital strategies to take advantage of their many benefits.
Reducing carbon footprint defines green banking, but at the same time, cost efficiency is also necessary. This is where Green IT comes into play.
As mentioned above, the advantages of migrating to the cloud are two-fold: cost efficiency and a reduced carbon footprint. Banks find the sweet spot between the two by migrating apps, data, and infrastructure to the cloud, much like US-based fintech bank Varo, which takes pride in being able to operate 75% less expensively than a traditional bank.
But more importantly, migrating to the cloud also ensures the achievement of the SDG goals.
Let’s put it this way, imagine if 22 million cars were taken off the road. The result would be reduced noise and air pollution due to the reduced emission of 59 million tons of CO2. If banks migrate to the cloud, their carbon emissions will be reduced by this amount globally – a yearly 5.9% reduction in total IT emissions. Due to this, the rates of cloud computing services have skyrocketed as financial institutions rush to leverage AI & ML to launch products quickly. There is also a clear link between cloud computing and fulfilling other business priorities, according to the EIU report.
As the banking and fintech industry moves deeper into innovation, more and more banks understand the significance of cloud computing and that there is more to ESG than the environment.
Environmental benefits are not all; cloud computing also dramatically improves the social and governance sides of things. Innovative solutions like cloud computing enable the development of more ethical and socially responsible products by reorganising legacy processes to suit the digital sustainability-focused era. In places like the Netherlands, banks have already started providing their clients with cloud-based technology to automate and streamline their financial life cycles.
The Future Is Green And Banks Ensure It
Be it a minor adjustment to an office setting, such as turning off the lights at lunch or moving to the cloud and doing away with the enormous server rooms. Any action that promotes sustainability is a step in the right direction.
Today, it is imperative that everyone, from business executives to the general public, start thinking about the conditions in which we live. But given the kind of strength and capability the financial sector possesses, banks are automatically under pressure to influence and make an impact. Financial institutions must visualise and execute their sustainability agendas. With the potential of digital transformation, it is time for banks to start making a real difference in areas that matter.