Stepping out in front: how innovative climate benefits are giving banks a competitive advantage in a crowded marketplace

By Emma Kisby, UK & Europe CEO of Cogo

Since COP26 in Glasgow last November, the pressure on banks to provide more transparency around their climate impact has stepped up, with a number of new regulations coming into force, including the Climate-related Financial Disclosure (CFD).

While these new requirements hold banks to a higher environmental standard, the real pressure comes from much closer to home. Though most consumers will be unaware of regulations such as the CFD, they are ever more interested in their own impact on the world and that of the companies they spend their money with. Appealing to these carbon-conscious consumers and small business owners is vital in reflecting customer priorities and future-proofing relationships.

An increasing number of banks are now tapping into environmental impact data to provide their customers a better sense of how their spending decisions affect the world around them and how they can make a difference through more ethical and sustainable spending choices.

The expectation of customers

Retail customers have historically chosen a bank based on interest rates, mortgage options, overdraft limits and added perks, such as cashback and free insurance. Currently, looking at the top five banks in the UK, there’s little differentiation based on the first three factors. It therefore follows that when researching a new provider, customers are looking for what the banks offer that are included as extra ‘value-added’ services.

A recent ONS survey shows that 81% of adults in Great Britain made lifestyle changes in the past year to help tackle climate change. So, it figures that banking benefits which support these choices could play well. Examples include offering green loans, ESG investment portfolios, green money newsletters, and carbon reporting on transactions, with tips on how to reduce carbon footprint and the option to offset the carbon emissions of spending.

Anything which clearly differentiates the offering and demonstrates a reflection of what consumers care about, is likely to stand out.

The need for SMEs

In the UK, there are 5.6 million SMEs (small and medium-sized enterprises), accounting for 99.9% of the total business population. NatWest Group research from March, revealed that 87% of UK SMEs are unaware of their business’s total carbon emissions. This is no surprise. Calculating emissions can be perceived as costly, time-consuming, and hard to measure. Not to mention, confusing to understand.

In better news, there is a clear appetite to improve, with almost half (45%) of UK SMEs recognising that it is important to lower their emissions soon. Banks, with access to vast quantities of data, can help here by offering extra reporting of financial transactions, which helps businesses measure and reduce this element of their carbon footprint. Reducing the time and effort needed for hard-pressed small business owners in this way, could again provide a useful point of differentiation for banks in a competitive market.

Banks as a force for collective good

Banks have long been a source of capitalism and growth. As key drivers of the economy, they are, by extension, key drivers of everything the economy affects, including climate change.

The climate crisis demands that global consumption be reduced to protect the survival of future generations. If banks offer the basic framework for positive change, they can boost their brand to appeal to the conscious consumer or business owner.

The pressure put on financial institutions is a double threat. With the increasingly slight differentiation in banking offers, the fight for retention and attrition will be played out in the extras they offer. Carbon emissions are an easy to compare metric which is an increasing part of everyday conversation and growing in understanding amongst consumers and SMEs. This makes it an obvious choice for any bank looking to stand out from the crowd.

The expectations on banks to offer more to customers and businesses will only increase with the new generation of banking customers. By offering better carbon footprint data, visionary banks will strongly appeal to growing businesses and climate conscious retail customers, future-proofing for years to come.