Sustainable banking – A new model that banks must focus on.

In recent years, the idea of sustainable banking has expanded. But does achieving other social goals require trading profits for sustainable development?

The concept of sustainable banking

Sustainable banking is a strategy involving banking and investing practices that prioritiszes environmental sustainability, social responsibility, and trustworthy corporate governance over profitability. These three elements are referred to as ESG (Environment - Society - Governance).

An ESG framework guides investment and business decisions by integrating environmental factors, social concerns, and corporate governance as they are connected to a company's profitability and performance.

For banks, this might include initiatives suchlike as responsible lending programs and products that encourage customers to participate in climate change by creating transparency and mindful consumption.

Banks, for example, may provide consumers the service of evaluating their consumption’s carbon footprint and guiding them in selecting alternatives. The more information the bank provides, the more attractive the bank's service will be to customers.

This is a new business model along with new products and services that banks must focus on developing in the face of more complex climate change and changing customer behavior.

According to the US Visa Sustainability Research Study - 2022, 72% of customers value sustainability.

The figure in the UK, according to Tink Sustainability Research - 2023, is 40%, and around 28% of customers will choose a bank that provides tools to track their carbon footprint.

Digital transformation is critical for banks’ sustainable development.

Delivering new mandates to drive climate education and action throughout banking experience, as well as allowing customers to make a positive impact on the climate through banking activities, which is difficult for traditional banks to meet, necessitates banks digitally transforming and applying new digital technologies to build adaptive digital products.

A person uses a smartphone for roughly 5 hours every day, primarily for social networking and banking applications. The amount of time a customer spends on a banking app is based on its ability to attract and retain customers.

Green banking products are in high demand from clients, who are turning to their banks in increasing numbers. The secret for banks to retain clients on their applications is to recognisze this demand.

According to a poll by cloud banking platform Mambu, 67% say they want their bank to become more sustainable in the future, whereas 2 out of 5 believe their present bank properly communicates their sustainability commitments.

While 40% of UK customers want their banks to give tools to tracnk their environmental effect, just 24% really do, according to the other Tink poll mentioned above.

For banks, this creates enormous opportunities.

Providing climate-responsive features may have a real impact on both business?success and environmental conservation, according to research from Ecolytiq, which collaborates with cloud banking platform Mambu to offer sustainability services to consumers. Customers of the bank reduced their CO2 emissions by 13% on average in the first year, 81% raised their awareness of sustainability, and total in-app engagement climbed by 145%.

A recent McKinsey poll found that 64% of customers were more inclined to respond to a bank offer to install solar panels than to engage directly with a supplier. Consumers trust banks to offer them financial advice and analysis, which banks should use to encourage more sustainable purchasing behaviors.

Consumers clearly have a rising willingness for banks to take a step further and act as advisors and facilitators for their personal sustainability transformations.

Higher engagement translates into higher loyalty. Customers who feel connected to their bank are more likely to stay and bring in more revenue for the bank. According to the Ecolytiq platform, among its banking customers, customers increased their spending by 18.6% in the first 6 months of using the platform. Brand affinity from positive activities also brings a more positive reputation to the bank.

The new banking model, therefore, has changed the traditional conception of sustainable banking as a trade-off between profit and charity. The present sustainable banking model benefits not just clients and society, but also the bank. And this is what truly sustainable development looks like. Banks must use their digital capabilities to support sustainable services, contributing to countries and the world's overall sustainable development goals.