Cloud platforms for greener banking

In this guest post, Kalliopi Chioti, chief environmental, social and governance (ESG) officer at  Temenos, explains how cloud technologies are helping the financial services sector go green.

Banks are uniquely positioned to influence the transition to a low-carbon economy by both reducing the impact of their own operations and the emissions they finance.

Underpinning this transition is a move from legacy infrastructure to cloud banking platforms. Banks are heavy datacentre users and with the growing adoption of energy-intensive applications like artificial intelligence (AI) to deliver personalised customer experiences. Being a part of this positive trend will have a significant impact on emissions.

The leading public cloud hyperscalers – Microsoft, Google and Amazon Web Services (AWS) – estimate that businesses using their cloud infrastructure generate around 95 per cent fewer carbon emissions compared to on-premise systems. According to data from IDC, cloud computing can reduce over 1 billion tons of carbon dioxide over the next few years when compared with legacy IT systems.

Clearly, banks that have set themselves bold and ambitious targets to reach net-zero have little chance of getting there in time if they don’t make the shift to using cloud technology.

Consumers shaping sustainability

Consumers are a leading voice in ensuring the financial industry focuses on the climate agenda by aligning their choice of bank with their values and voting with their wallets. This is particularly true with the younger generation. Research shows millennials are placing their money with banks associated with a strong ESG record and commitment to sustainable banking more than any other generation.

Banks can’t afford to ignore this trend. Today, a bank’s green credentials matter just as much as their financial services or application offering. Customers are looking for banks that are socially and environmentally responsible and agree with their personal values.

We have already seen new players entering this market. Green-conscious customers triggered the creation of 27 operational green banks in 12 countries last year, with 25 more set to follow this year. Three out of every five (61%) banking customers in the UK said they want their banking provider to “do more to create a positive, social and environmental impact”.

Banks understand the urgency to act. We have seen this with the Net-Zero Banking Alliance, representing over 40% of global banking assets, as well as the Glasgow Financial Alliance for Net Zero and the Principles for Responsible Banking, all committing to the transition to a low-carbon, climate resilient future and accelerating the financial sector’s transition to net zero. Going one step further, Citigroup CEO Jane Fraser said that the bank will be expecting its clients to measure and communicate their emissions and that climate impact may determine which clients it chooses to serve in the future.

Better still, if a bank can develop financial services that empower customers to take control of their own carbon footprint. In a recent survey, a third of people said they want banks to do more than just publish their climate data. Examples include being rewarded for environmentally friendly purchases, ensuring deposits don’t end up funding fossil fuel activities and planting a tree with every roundup.

Meanwhile, pressure is coming from regulators, with the resilience of banks against climate change risks facing increased scrutiny. The regulatory framework has developed at a rapid pace over the past few years in the EU and the US. The European Central Bank as well as the Bank of England have already launched supervisory climate risk stress tests to assess how prepared banks are for dealing with financial and economic shocks stemming from climate risk.

Cutting carbon emissions

By using cloud-native SaaS offerings, such as the Temenos Banking Cloud, banks can incorporate ESG as a service to help banks gain carbon insights on each of their products, and track progress towards reaching their sustainability targets.

This combination changes the current assumption of many climate conversations that to reduce your carbon footprint, you must give things up and be prepared to do less. Instead, cloud technology provides the perfect blend of digitalisation with sustainability.

One example is Flowe – a cloud-enabled digital bank built on green principles to grow sustainably, passing on benefits to customers for a cleaner, greener planet and a better society. Flowe is the first bank in Italy to be certified as a B-Corp and is also carbon-neutral, resulting in significant popularity and welcoming 600,000 customers in its first six months.

Another bank that is making this happen is EQ Bank. It is the first bank in Canada to be fully hosted in the cloud and runs on the Temenos Banking Cloud. EQ recently announced it had become carbon neutral. Its president and CEO Andrew Moor noted that ‘enriching the lives of Canadians can and should be accomplished simultaneously alongside a low carbon transition,” citing digital banking capabilities and energy-efficient, cloud-based architecture as key drivers of this alignment.

Empowering greener customers

Financial data can play a big part in the fight against climate change, so open banking is increasingly becoming one of the best tools to achieve that. With open banking enabling the integration of third-party applications at ease, banks can build apps that give their customers the tools to measure and manage their carbon footprint.

We have been working with many banks, fintechs and developers on such initiatives. By integrating third-party applications on our open platform for composable banking, banks can easily build apps that give their customers tools to measure and manage the carbon impact of their spending so that they can make more mindful spending decisions, be rewarded for their contributions toward sustainability, have options to offset or reduce the carbon generated from a credit card payment, more easily invest in sustainable funds or switch to non-fossil-fuel energy providers.

We recently launched ESG investing-as-a-service for banks and wealth manager customers to roll out sustainable investments. The service will accelerate time-to-market for ESG-compliant products and reporting, help private banks and wealth managers to become compliant, and help their customers invest with a purpose. With the ESG service, banks will be able to create investment products and power digital experiences that allow investors to build their portfolios around their values.

The potential use cases are limitless. And beyond the collective contribution these individual products will make to carbon reduction, they provide banks with another way to attract new customers. This is sustainability and commercial savviness in perfect harmony.

Walking the walk

To achieve tangible reductions in emissions, there needs to be accountability. The banking industry is currently affected by new climate-related regulation globally, stressing the need for transparency, ESG targets and reporting. Banks and their customers must be able to trust green and other ESG-labelled services and products.

So, the pressure is pushed down to the IT suppliers of banks, like Temenos. It is essential for CIOs to partner with technology providers who have incorporated ESG into their value chain and they can trust with their net-zero ambitions. We are all becoming more alert to greenwashing and there is growing scrutiny of companies and their ESG reporting.

This places growing importance on ratings providers like Dow Jones Sustainability World Index (DJSI) and Carbon Disclosure Project (CDP), the world’s largest environmental disclosure platform, TCFD reporting and science-based targets, as well as the right product offering and know-how to help banks transition into a low carbon economy.

More than ever, the banking technology sector has a critical role in driving change in the banking industry and leading by example. Sustainability should be complementary to technological excellence. Be that agility, security, breadth of services or any other criteria that banks ultimately need to grow market share and transform into smart and sustainable institutions.

And this is the ultimate point. Innovation and addressing environmental challenges go hand in hand. More than that, digitalisation is reliant on sustainability, and vice versa.

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