While ‘green’ or climate-based initiatives seem to be everywhere, its often difficult to identify tangible progress when it comes to tackling climate change.
Now, Tandem Bank, the UK-based digital bank offering sustainable ways to save, borrow and spend money, has published the latest instalment of its ‘Monthly Green Index’, revealing that while the picture for the UK’s climate transition is improving as more people take action (up 0.6 points to 109.6 in March), the overall pace is slowing – meaning significant intervention from the financial world is needed.
This monthly update continues Tandem’s Green Gap report, providing a real-life viewpoint and understanding of the relationship between the British public’s intention and action in reducing their carbon footprint.
Overall, the slowing of pace means that the forecasted gap by October 2024 is now 24.5 points; which is 1.4 points worse than last and and 4.7 points than the start of the year.
Alex Mollart, chief executive at Tandem Bank, commented: “For the third month in a row, the forecasted gap between intentions and action at our next annual survey has deteriorated. The good news is that consumers are continuing to take action – but the pace of that action is slowing. That’s hardly surprising given immediate pressures on household budgets or changing tack by governments.
“The resignation of the head of the Climate Change Committee, Chris Stark, and his open criticism of the government’s de-prioritisation of climate change is a testament to the changing of the goalposts we’ve seen in recent months. The UK needs clarity and confidence now, to ensure we remain committed to our pathway to greener lifestyles.”
While Tandem Bank is calling for government intervention, it is hardly a secret that the financial industry has a significant part to play in addressing these issues.
Banks must ‘proactively steer capital towards climate solutions’
Rachel Delacour, CEO and co-founder of climate accounting firm Sweep, discusses how banks have already shown their potential, but must now become more proactive: “The slowing pace of UK climate action highlighted by Tandem Bank’s green index is concerning but not surprising.
“Leading financial institutions are starting to decarbonise their lending and investment portfolios, but progress is uneven. Barriers include the lack of standardised emissions data, short-term business pressures, and varying levels of in-house climate expertise. If we are to see more robust action, mandatory climate risk disclosure, science-based emissions reduction targets, and climate stress testing of balance sheets could provide the necessary impetus.
“The Net-Zero Banking Alliance represents 40 per cent of global banking assets and shows the sector’s potential for impact. But scrutiny is growing around the integrity and implementation of banks’ net-zero commitments. Ultimately, financial institutions must go beyond managing climate risks to proactively steer capital towards climate solutions and a just transition.
“This demands board-level ownership and credible transition plans which can only be formed when financial institutions have a clear and detailed overview of their financed emissions and climate impacts across all assets and portfolios. Granular, actionable data on the carbon footprint and climate performance of companies and projects is essential for banks to effectively align their activities with science-based net-zero pathways.”
‘Banks have a dual responsibility’
As Kim Jenkins, MD of APIs at data and payments fintech Moneyhub, explains, banks have a responsibility to reduce their own impact, as well as help their customers do the same.
“Banks have a dual responsibility when it comes to the fight against climate change; reducing their own impact but also helping their customers to understand their own footprint. We often overlook the latter, but it could hold the key to helping every customer across the UK make sustainable changes.
“The consumer spending data that banks have access to has the potential to both inform and change behaviours. By using this spending data, it is possible to show consumers their true carbon footprint, and from here provide the insights needed to make real steps that make a tangible difference to our impact on the environment.
“However, accessing this data can be challenging for banks, particularly established high street banks with legacy systems. And once accessed, banks need credible partners in order to analyse this data, and transform findings into actionable insights. This can often be too steep a barrier for organisations that already have other competing priorities within their data teams. But there are solutions available; using open banking, banks can easily access the connections and provide the insights to customers to help influence their buying decisions and live more sustainably.”
Where financial services firms lead, others will follow
Henry White, CEO of xUnlocked, the financial education platform and provider of sustainability and ESG courses, also explains how financial firms can lead the way to becoming more sustainable.
“Financial services firms have an opportunity to support the broader societal transition to sustainability. Where they lead, other sectors will follow. For this ambition to be realistic, firms need to ask themselves whether they have in place the right systems, incentives and capabilities to truly help move the dial for their customers. Arguably, the third of these is the most challenging area.
“Firms who have set about building this colleague capability quickly find it’s a multi-layered puzzle. With a topic evolving as quickly as this, it is a huge task – and the regulators are watching closely!”
“Green skills should not be reserved for any one specific role, or reserved just for the most senior employees. We need to democratise the topic to create a truly engaged workforce, while at the same time embedding these new skills in a way that is consistent, actionable and timely.”
Banks should be askig more questions
For Anna Roberts, head of market development at iov42, a technology firm specialising in digital identity, trust, and data integrity, banks need to take greater care in where they invest their money.
“Deforestation accounts for around 12 per cent of global carbon emissions. Although deforestation as an issue is on financial institutions’ radars, they are not taking swift enough action to reduce their exposure to risk both within their own businesses and in their portfolios.
“The EU’s imminent Deforestation Regulation (EUDR), which comes into force on 31 December 2024, makes clear that goods placed on the European market shall not result from recent deforestation, meaning that the land has not been cleared or degraded after 31 December 2020.
“One of the key components of the EUDR is an obligation for due diligence, mandating that every company ensures traceability back to specific plots of land. Failure to do so risks fines (up to four per cent of company turnover within the EU), temporary exclusion from public procurement/access to public funding, and confiscation of goods. It also risks significant reputational damage and a potential negative impact on share price.
“Our own research indicates that 18 per cent of European timber importers say they are unaware of the legislation. For those claiming to not be aware there is clearly a danger that they will not be ready.
“The biggest risk for banks and investment firms lies in whether the companies they invest in and/or lend to are found to be in breach of EUDR. Banks should be asking these companies questions around how they obtain and analyse supply chain information given the scale of data. How are they incentivising and equipping their suppliers? How are they building their teams to handle the incoming legislative changes?”
