The banking industry plays a vital role in combatting global warming by funding solutions, yet it is so often overlooked in broader discussions about the problem. Not only has financial gain been one of the driving forces behind why the climate crisis has continued unchallenged for so long, but the banking industry’s impact will continue to put excess pressure on all aspects of our economy, including financial institutions.
Research published in January found £674bn ($841bn) of UK taxpayers’ money could be needed to save banks and ensure financial stability unless the City prepares for the collapse of fossil fuel value. With funds already being stretched by rising inflation and the cost-of-living crisis, this is another implication our financial institutions can ill afford.
Banks have the power to choose which initiatives are funded, sustainable or not. The misconception of sustainable choices not being profitable for investors has been disproven. There is no reason why banks should continue to suppress rather than support positive change towards a more sustainable future.
The traditional industry standard needs to change
It’s no surprise mainstream banks have not been playing their part in tackling the climate crisis. Many of their practices are actively working against it. According to the 2023 Banking on Climate Chaos Report, global banks have paid more than $5.5trn into the fossil fuel sector over the past seven years, highlighting that commitments like the Paris Agreement are insufficient to create institutional change. Disappointingly, the UK remains in the top five countries for fossil fuel financing, with at least five of the large high street names featuring on the list of banks contributing to this.
It’s clear more regulation is needed, and it is coming. The International Financial Reporting Standards (IFRS) is working to finalise their Sustainability Disclosure Standards, which may help to make requirements more concrete and harder to avoid. But consumers are looking for immediate action when it comes to sustainability and are growing impatient, waiting for these structural and regulatory changes to come to fruition.
Consumers are asking for more from their banks and financial institutions
The rise of the conscious consumer is bringing attention to the need for more sustainable practices. This influences people’s decisions when choosing who they bank with, with 67% of consumers saying they want their bank or financial institution to become more sustainable. Forty-nine percent of consumers would also consider switching to a provider with a stronger commitment to sustainability. Banks need to rise to the occasion and meet consumers where they are.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below formBy GlobalData
And yet, even with the best of intentions, greenwashing tactics are making it harder for conscious consumers to choose the more sustainable option and make an educated decision about where to put their money. Research conducted by technology firm Mobiquity led them to claim that the sector has a “systemic problem” with greenwashing. These tactics have seen ads published by mainstream banks banned by the UK advertising watchdog due to greenwashing claims and past pledges promoted as showing positive, sustainable change not going far enough to bring about a real and material difference.
How digital banks are challenging the status quo
The end of the ‘easy money’ era and current market volatility has brought the bad banking practices of many mainstream banks to the fore. A good example of this is the banks that came under fire for failing to pass interest rates on to savers alongside the inflation-driven Bank of England base rate rises. Teaser deals have continued to be prevalent, and consumers often don’t realise that the short-term benefits lead to poorer long-term returns. This becomes a financial literacy concern as small print creates a barrier for customers to understand what they are being offered.
Digital banks, by their very nature, are changing the narrative and embracing the opportunity to ‘do better’ by their customers and within the industry more generally. Many are refusing to shy away from their responsibility to make this change a positive one – not only for the planet but for their customers too.
Digital banks: enhanced customer experience, better deals, transparency
Thankfully, new technologies allow digital banking to provide a greater customer experience, better deals and more transparent product information. They also recognise that sustainability must be part of the modern banking and financial services industry for it to continue to thrive.
Many benefits come from starting from a blank slate as a new bank because it means you don’t have the same legacy of damaging funding practices as many mainstream competitors. Plus, the lack of physical stores or branches means reduced direct emissions produced.
This is not to say that digital banks have cracked the code when it comes to sustainability. But the difference is that Kroo and many other digital banks are putting action behind their words and doing their best while acknowledging their imperfections. This includes setting tangible net-zero goals, partnering with sustainable initiatives and recognising our work is never over.
Kroo and One Tree Planted: target 1 million trees planted by 2024
At Kroo, we are doing our bit and are dedicated to being the sustainable bank every consumer needs. For us, this means aiming to plant 1 million trees by 2024 with the help of our partner One Tree Planted, working together to build communities in Guatemala and India. We are also building criteria into our sign-off process with the aim of safeguarding against greenwashing, ensuring customers get fully transparent information.
Sustainability isn’t about being perfect but taking meaningful and actionable steps to drive change in the right direction. It is about understanding the importance of being transparent on progress and reporting. The banking industry has been lagging in the fight against the climate crisis, but they’re no longer ignoring this. In my role at Kroo, I want to help drive this change to be better and build a more sustainable banking environment for people and the planet.
Editor’s note: This column first appeared on our sister site Retail Banker International.