For consumers, supporting the environment has become a major priority.
What started as foregoing plastic straws and using reusable shopping bags has evolved into a worldwide push for greater environmental consideration. The sustainability movement has impacted all sectors of business – including the banking industry.
An October 2020 survey showed that more than 73 percent of consumers cared about the sustainability and environmental friendliness of their banking provider.
As a result, more and more banks are adopting green banking strategies.
In this article, we will examine 3 of the top green banking trends emerging in 2021 and how they will affect the financial sector moving forward.
What is Green Banking?
The term “green banking” refers to a wide set of principles and practices used by financial institutions to boost their sustainability. This can include everything from cutting back on overuse of resources like paper and ink to working to reduce energy expenditures.
A green bank will typically involve 3 core initiatives:
- Reducing Resource Use: Be it energy or physical supplies, green banks often commit to reducing both the use and waste of natural resources.
- Funding Green Projects: Green banks will often use portions of their funding to attract private investors and other private capital to lend themselves to green projects.
- Transparent Reporting of Data: A major factor that makes a green bank truly green is honest and transparent reporting of sustainability data (such as carbon footprint, emissions, etc.)
As the sustainability movement continues to evolve, so do the trends within the realm of green banking.
3 Green Banking Trends to Watch in 2021
Here are 3 of the biggest green banking trends to expect in 2021 and beyond:
1. Digital Billing and Paperwork
Cutting back on the use of physical resources, like paper, is one of the easiest and fastest ways for banks to make immediate progress towards a green initiative.
In the days before advanced digital databases and online document sharing platforms, paper and pen dominated the banking industry. Everything from bills to onboarding paperwork had to be filled out by hand and shared through the postal system.
Nowadays, billing and opening accounts can all be carried out online. This allows banks to eliminate a significant portion of their resource expenditures.
Digital billing and paperwork are not just trends but are a cornerstone for achieving green banking.
2. Financial Incentives
Getting the majority of financial institutions on board with green banking is crucial for creating an entirely sustainable banking industry.
However, making the switch to green banking is not without costs. Changes to in-house operations and digital processes take both time and monetary resources, making some banks resistant to push for sustainability.
As a result, financial incentives used for promoting green initiatives will likely become a major trend in green banking.
The biggest evidence for the effectiveness of this trend currently comes from China. The People’s Bank of China created green incentives in a re-lending policy, according to the Climate Policy Initiative.
The Climate Policy Initiative further states:
“Green loans are now accepted as part of the standing lending facility (SLF), and green bonds at AA rating are accepted as collateral in its medium-term lending facility (MLF), both of which deliver favorable capitalization and interest rate benefits.”
We are likely to see this kind of incentivizing spread throughout the world, as countries strive to implement policies that decrease their carbon footprints.
3. Renewable Energy Support
Renewable energy offers a multitude of advantages to green banking.
First and foremost, banks can transition from traditional energy sources to renewable energy over time. This helps immensely with energy expenditures – and many banks are already making such changes.
The U.S. Bank, for instance, commits more than $1 billion to renewable energy investments each year!
This brings us to the second big advantage of renewable energy becoming a green banking trend – investing.
As renewable energy becomes more widely used and accepted, so does its investment proposition. And the more banks invest, the more accepted it becomes by the general public – and the cycle goes on.
This cyclical relationship will ultimately help propel this trend to the forefront of green banking.
A final bonus trend: Banks are helping customers to achieve their own environmental sustainability goals.
As the financial industry becomes more environmentally conscious, enabling customer participation is key. As banks work to reduce their carbon footprints, customer needs must not be forgotten.
Green banking will transform the banking industry through partnership, initiative, and innovation.
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Written by Cesar Cotait, CEO at CPQi Latin America