With products such as green mortgages and loans for hybrid cars, the financial industry has joined the fight against climate change

Given the seriousness of environmental challenges facing humanity, efforts aimed at combating the deterioration of the planet have shifted from NGOs to large industries, and finance is no exception.

Green banking offers eco-friendly services and includes best practices for internal development, which add an ethical and ecological aspect to the processes.

Sustainable protocols increase business competitiveness by reducing costs and improving resource efficiency as users increasingly embrace brands that show a commitment to sustainability.

This new requirement applied to the financial arena is manifested in products that provide a transparent option to reduce the footprint left by banking.

For some time now, customers have been looking to financial institutions to reduce their direct impact and deliver environmental benefits, according to the United Nations’ North American Task Force (NATF) Green Finance: Products and Services report.

And 90% said the climate crisis makes them insecure about their future, according to a 2019 climate survey by consumer trend forecasting company WGSN, which indicates that the planet is a high priority for consumers.

But how can a bank create a financial product that has a more eco-friendly profile while at the same time ensuring it is useful and attractive to the customer and doesn’t sacrifice profitability for the institution?

Strategies for developing green banking

There are several ways for financial institutions to support the fight against global warming and thereby align themselves with their customers’ expectations.

Sustainable loans are a good example. This type of financing is characterized by a lower or flexible interest rate, as long as it targets projects or businesses that produce less waste and pollution.

In the US, for example, some lenders are providing loans for the construction of buildings that have a long-term green footprint, especially in energy-efficient materials and equipment for condos.

This category includes green mortgages, which is an eco-friendly option that commercial banks around the world have been focusing on. These mortgages are designed for the purchase of energy-efficient homes, energy-efficient appliances, or energy generation using solar panels.

There is also the option of providing real-estate loans for home upgrades that replace conventional energy systems with more sustainable ones.

The vehicle market is also an ideal space to take advantage of the development of sustainable financial products. Green loans for hybrid and electric vehicles can be attractive for customers due to their more competitive interest rates.

Online banking = Green banking

E-finance is proving its ability to simplify processes to make them cleaner, more efficient, and environmentally aware.

Technology has enabled the digitalization of many products and processes, leading to a reduction in the use of office supplies in financial transactions. With the development of digital signatures, customers face less paperwork and a reduced need to travel from one point to another to obtain credit, open an account or deal with other banking matters.

Digital banking also allows data to be collected quickly and more cheaply, increasing transparency and enabling access to information that allows banks to better plan their environmental actions, such as issuing virtual cards or purchasing electric cars, with the goal of more effectively targeting their loan offerings.

Another financial initiative that can work as part of the eco-friendly trend is the issuance of carbon credit cards, which measure the pollution associated with the user’s purchase activity and can help them limit its harmful effects. However, weak digital infrastructure, as well as the limited availability, value and utilization of sustainability-related data for financial decision-making, could present a challenge.

In any case, it is worth having a sustainable vision for the future, both for social responsibility and reputation as well as for business strategy.

Andy Tran