Over the last few years, there has been a fundamental shift towards more sustainable habits across societies. From cutting back on plastic to using public transport more, to choosing brands that use sustainable materials, the momentum is moving in the right direction. But this is just the proverbial tip of the iceberg. Ultimately, consumers and businesses need to be able to do more.
With the UN climate change conference COP26 happening in November, and countries around the world feeling the pressure to meet net zero commitments, it’s no longer enough to just talk about sustainability. Everyone and every company are being challenged to cut carbon emissions.
Some industries for example, transport, manufacturing, FMCG and energy, have always had a clear role to play in reducing their environmental impact. And now it’s increasingly important for the financial services sector to play a larger role in achieving a more sustainable future.
Empowering consumers and businesses
Today’s conscious consumers and businesses are increasingly driven by environmental concerns when making purchases, but they often struggle to understand their carbon footprint. After all, they can have only so much visibility over the environmental impact of what they spend their money on. Fortunately, open banking offers a solution for financial services to empower positive change by providing the clarity that can help people and businesses to be greener.
The financial sector handles vast amounts of data and this is especially true of consumer-facing banks. According to the European Banking Authority there were 101.6 billion debit, credit and card transactions in the euro area last year, which offers exciting opportunities for analysis.
Current accounts, for example, are a source of daily insights — even from one single transaction, a huge amount of information can be derived about the amount spent on energy, travel or shopping. By aggregating, categorising and analysing billions of transactions, open banking enables financial institutions to unlock more meaning from their customer data. Banks and fintechs can identify patterns and provide businesses and individuals with actionable insights. These can then be used to help change behaviour for the better — shining a spotlight on how they can reduce carbon footprint.
Sustainable open banking in action
And this approach works. Smart financial services firms are linking carbon footprint analysis to current and future patterns of spend. By doing so, banks and fintechs – in partnership with open banking platforms – can show customers and businesses how their spending directly impacts the environment.
French startup, Greenly, is already achieving this. It automatically tracks the impact of the expenses a person, or business, makes and creates a dashboard showing them what to focus on to reduce their carbon footprint. By aggregating transaction data from bank accounts across Europe, Greenly can offer a carbon tracker for individuals and businesses either through its app or by partnering with banks to attach the tracker directly to bank accounts.
NatWest is a great example of a bank taking huge strides in this area, launching a carbon tracker within its money management app in partnership with CoGo and Tink to help NatWest customers reduce the climate impact of their spending.
In Sweden, Svalna, helps consumers slash their carbon footprint. The app – using Tink’s Transactions product – analyses financial data to help users understand the environmental impact of their day-to-day purchases and make simple changes that make a big difference to the planet.
While Swedish startup Gokind is introducing the world’s first ‘loyalty programme for the planet’. By combining sustainability data from brands with user’s own transactions, users earn ‘impact credits’ for every sustainable purchase they make. And German digital receipt platform epap has developed a sustainable alternative to paper receipts that allows users to connect to their bank account and get a real-time overview of their balances, receipts and purchase history.
These are some of our partners’ innovative use cases that are helping businesses and their customers become more sustainable today. In the future, it could become easier to track environmental impact more precisely. For example, online retailers may start to meta tag products so that their inventory system has the carbon cost of every single item.
Bringing more clarity through data can help businesses and consumers make clearer sense of their environmental impact. But we need to acknowledge that sustainability isn’t something that will be solved overnight. This is going to be a long and complex journey to become a more sustainable world. Our focus is to create the right infrastructure that will help to solve this challenge over time, as the value of partnerships that create this overlay of meaningful financial data compounds, with tech solutions going ever deeper into solving this problem.
A more sustainable regulatory environment
As well as aiding companies and consumers to better understand the way their day-to-day habits impact the environment, open banking can also help financial services firms meet their regulatory requirements for sustainability.
By December 2021, all UK banks will need to have embedded climate change into their risk framework. And with the Prudential Regulation Authority (PRA) also looking for evidence that systems are in place to identify, monitor, manage and disclose climate risk, steps need to be taken now to meet these goals.
Open banking forms a big part of the answer; by enabling banks to understand the carbon footprint of their individual and business customers, and in turn, to better understand the climate liability on the bank’s books, which is integral to Scope 3 emissions reporting.
Such innovations are of particular importance given the UK is the first country in the world to make the global climate risk disclosure standards, recommended by the TCFD, mandatory. This means that by 2025, all mid and large-sized UK companies will have to report on their operational carbon footprint, as well as that of their suppliers and customers. Open banking will be invaluable; helping to provide banks with the detailed business, supplier and customer data they need to help identify risks, and address them.
The game changer
With data being a driving force to unlock important environmental gains, it’s clear that open banking can be an empowering force for good — offering a way for banks and fintechs to build services that really make a difference, by using transaction data in a meaningful, actionable way.
And with the FCA recently announcing that it is rolling out a series of innovation programmes — TechSprints, sandbox pilots and a Green Fintech Challenge — to support the transition to a net zero economy, it’s clear that what we’re seeing today is just the first step.
By harnessing open banking, banks are becoming the agents of change. As such, it’s likely that cross-industry collaboration and powerful partnerships will continue to form between banks and fintechs. Working together will enable them to build services that use transaction data to empower everyday decisions which reduce carbon emissions. This is a game changer for sustainability.