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Green banking for a competitive edge

Smaller institutions may be able to differentiate themselves by shifting toward a sustainability-based identity.

Feb 15, 2022 / DEI & ESG

Carbon emissions, sustainability and green living are important issues for today’s customers when selecting a financial services provider. Consumers are increasingly aware of how businesses approach these topics and are factoring those responses into their financial decisions.

Much of the discussion about environmentally friendly organizations focuses on industries that have a clear impact on sustainability, such as transportation, food and mining. A recent European study labeled banks a leading contributor to climate change through their financing of fossil fuel projects and other business activities. Switching financial institutions could be seen as a more effective way for individuals to reduce their carbon footprint than adjusting their behavior in travel, eating and commuting.

Many are shocked to learn that banking has a significant impact on the planet because the reason is not immediately obvious. It’s because many large financial institutions use their considerable wealth to fund projects that worsen climate change. So, what does this mean for smaller players?

Smaller institutions typically serve neighborhood businesses and local families, so they could be at an advantage as consumers place increasing value on green-first banking. In fact, some climate action groups are actively encouraging people to switch from bigger banks to these organizations for just that reason.

After years of losing wallet share to emerging fintechs and larger banks, community banks and credit unions can easily shine in green, or sustainable, banking – a variety of practices, products and services aimed at reducing their environmental impact and encouraging their customers to follow suit.

In recent years, many financial organizations have begun to produce annual environmental, social and governance (ESG) reports to update customers on their efforts and results in this area. These reports outline strategies and commitments, such as standards for energy-efficient office locations, waste reduction practices and digital alternatives to physical travel.

Many institutions have been slow to adopt a strong stance on environmental issues, in part because they perceive a low level of customer interest. But in fact, the majority of customers seek businesses that pursue environmental initiatives.

Cost is always a consideration for credit unions and community banks because they have smaller revenue potential. A green approach, however, can be both worthwhile and economically feasible, as well as being a way to stand out from the competition. A recent study by Deloitte found that financial institutions with good ESG ratings significantly outperform their counterparts with low scores.


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Five simple ways to get started with sustainable banking

Financial institutions have no shortage of options when it comes to starting their green journey. Institutions of any size should consider the following actions:

  • Publicize your clientele: If your institution supports local businesses, especially those with their own environmentally friendly practices, celebrate those customers. It will be mutually beneficial.
  • Go digital: Although many institutions consider in-person visits a cornerstone of their brand, branch visits require travel. Facilitating at least some transactions online saves customers time, money and hassle. It can also help a bank save on staffing and branch costs.
  • Reconsider checks: Checks are among the most costly and time-consuming forms of payment. Branches that spend significant funds on producing, sending and depositing checks—even for their own payroll—should consider switching to electronic payments, which are cheaper and more reliable.
  • Go paperless: Although many institutions have already given customers the option of digital billing, consider moving some marketing initiatives online as well. Targeted emails and social media campaigns are low-cost actions that also provide detailed ROI information through tracking capabilities.
  • Educate customers: Community institutions typically have in-depth, personal relationships with their customers. Offering sustainability tips to both business and personal customers is a simple way to emphasize your brand’s commitment to the environment.

Creating a more sustainable and green-focused organization can be daunting, but there are major financial and branding advantages in shifting to this perspective. Small changes can help any community bank or credit union become a more sustainable financial center.

Stephen Kuhl is head of financial institutions and strategic partnerships at Western Union.

Learn from thought leaders and gain ESG insights in the BAI Executive Report, “Banks are embracing their ESG future.”