Appetite is soaring not only for products that are sustainable but so too for brands that operate via a sustainable business model. The problem is that as little as 10% of this demand is being met…
Like most industries, the world of banking and finance has roundly agreed that sustainability needs to become a priority – which means integrating the principles of ESG (environmental, social and governance) into its core functions.
Rightly so – amidst what experts are calling a “climate emergency,” increased consumer awareness and a strong legislative drive to be more sustainable are putting pressure on all of us to be more eco-conscious.
As a result, the demand for sustainable finance products is soaring, and so too is the demand for sustainable business models. In fact, more than two-thirds of consumers want the financial institutions they use to be more sustainable, according to new research.
What exists, however, is a huge gap between supply and demand. It seems that there’s plenty more work to be done to turn banking and finance green.
“Sustainable finance encompasses all activities by financial service providers that aim to reduce harm to the environment and climate, to promote social engagement and to encourage sustainable corporate governance.”
PWC
Green car loans, energy efficiency mortgages, alternative energy venture capital, eco-savings deposits, and green credit cards – just some of the sustainable finance products offered globally by a raft of traditional and digital banks.
In an age where environmental risks and opportunities abound, so too have the options for joining both environmental and financial goals. It’s a market that’s growth is accelerating. In 2021, it was valued at $3.65 billion – but that’s a figure that in a decade, will have a compound annual growth rate of more than 20%.
$22.5 billion
The value of the global sustainable finance market by 2031, according to new research.
Of particular note is the sustainable global transaction banking (GTB) market. Still in early stages, its potential for growth is significant. Estimates by McKinsey suggest that revenue from sustainable trade finance and cash management products will grow by 15 to 20 per cent annually to total combined revenues of $28 billion to $35 billion in just a few short years.
Yet supply still lags behind demand – the World Supply Chain Finance Report found that as little as 10% of demand is met. There lies a gulf of opportunity not just in fulfilling customer demand for green products, but green practices.
“The banks that successfully utilise sustainable digitisation will be the ones that retain customers, enhance their talent base and optimise business performance. The bank of the future will be a digital lifestyle enabler that has an eco-conscience to retain and grow its customer base.”
Consultancy
Wary of big banks merely paying lip service, customers recognise that actions matter. Sustainability has to be less about setting targets and more about putting in place the strategies that will help actually achieve them. Inherently more green than their traditional counterparts are digital banks, that leverage technology to minimise their carbon footprint.
40% of all industrial wood goes into the paper industry and the production of materials like paper and cardboard.
World Wildlife Fund
Going paperless might sound minimal, but as the above stat demonstrates, the potential positive impact is enormous – particularly given the regulatory requirements associated with onboarding customers. Digital banks that embrace e-documents and shun paper trails are not only driving environmental benefits but operational efficiencies, too.
Cutting out expenses related to the delivery of paper documents, storage costs and extras such as envelopes has a distinct impact on an organisation’s revenue. In addition, electronic information is easier to process and reduces the need for repeated data entry. Access to structured data can also enhance decision-making regarding budgeting, customer insights, KYC etc.
In another example of digital banks leading the way in sustainable practices, their use of cloud-based solutions reduces the need for travel and paper-based transactions. And digital bank-favoured virtual cards can replace plastic options entirely.
The optimised internal and external business operations as a result of embracing sustainable digitisation retains and grows customers, too. Fast-changing consumer awareness and preferences have put pressure on banks to act sustainably and offer full transparency about how it’s done – and the very nature of digital banks means they’re coming out on top.
73% of global consumers say they would change their buying behaviour to reduce their impact on the environment.
NielsenIQ
Not only is there green demand – but there could be a justification for any potential markups for being so.
37% of UK customers are willing to pay a 10% premium for an ESG product.
Kearney
The impact of digital sustainability extends beyond the environment. Research has found that it leads to:
In 2022 and beyond, sustainability and success will be intrinsically linked. And while sustainable finance products catch up with demand, the green practices of digital banks will have positive impacts on the environment as well as their customers and shareholders.
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