Financial news

European banks are taking the lead in leveraging data and technology to address environmental, social, and governance (ESG) concerns. A recent study by fintech Cogo highlights the importance of carbon footprint tracking, revealing that customers using carbon trackers have higher satisfaction levels with their banks.

With 24 per cent of banking customers willing to switch if their bank does not prioritise ESG practices, European banks have a unique opportunity to maximise their commercial advantage by embracing climate innovation.

Emma Kisby, CEO of Cogo in the EMEA region, stresses the significance of carbon footprint management for banks, stating that it has become a crucial differentiator for customers.

Cogo currently works with 16 banks, with plans to double this in the next 12 months.

“Carbon footprint management isn’t a ‘nice to have’ – it is a necessity for banks. We know from our research and work with many European banks that customers increasingly want this. Quite simply, customers will switch if they don’t see their bank taking measures to help them address their climate concerns.”

Customers using Cogo’s carbon footprint tracker also show a higher likelihood of recommending their bank to friends and family. This indicates that European banks that utilise technology and data to tackle the climate crisis can not only enhance customer loyalty but also win the loyalty race in the global market.

Kisby emphasises the leadership role banks can play in solving the climate crisis, given the direct relationship between personal impact and spending habits.

“It is far better for banks to take a leadership position on sustainability and the climate,” she also said. “While ESG legislation is tighter in some markets than others, it is an inevitability as climate concerns grow. Those banks in Europe that are on the front foot and doing it well are in a great position, and will be able to use this to help their customers, in turn giving them a commercial advantage in future.”

Greenwashing

Last week, the European Banking Authority warned of widespread greenwashing in financial services, with a ‘clear increase’ of banks overstating their sustainability efforts.

The analysis reveals that greenwashing may taint market participants’ ESG strategy and objectives, their ESG performance, as well as the ESG labels and certificates, with pledges about future ESG performance considered to be the most prone to greenwashing.

Steve Round, co-founder at cloud native core banking engine SaaScada, argues that banks can no longer cherry-pick their sustainability credentials – they must build the foundations for comprehensive ESG reporting.

“In the absence of regulation, we’ve long-lacked clear guidelines on how to measure the sustainability of investments and financial products, making it easier for greenwashing to slip under the radar,” said Round. But with EU regulators cracking down on sustainability misrepresentation, FS firms will be forced to keep up. Those that fail to do so could risk costly fines and reputational damage in the future.

“FS firms must make it a priority to build the foundations needed for comprehensive reporting of the environmental and social impact of their operations. But, many struggle to gain a picture into their impact due to a lack of reliable and accurate data for ESG reporting.

“The best way the sector can tackle this problem is by defining clear metrics and data categories that should be logged in ESG reporting and adopting the tools to gather this data effectively. Only then can firms address greenwashing and build sustainability into business models.”