How to turn customer transaction data into actionable insights for green banking
In recent years, there has been a growing awareness of the impact of human activities on the environment, leading people to seek more sustainable ways of living – specifically, reducing the environmental damage associated with their lifestyles. One of the fundamental metrics for estimating the damage that people cause to the environment is the amount of greenhouse gasses (GHG) emitted through the consumption of goods and services. When calculated for an individual, this measure is referred to as their “carbon footprint” (CF), and so the market needs effective methods to address and reduce personal carbon footprints, promoting environmentally friendly practices.
Currently, only a small number of people are aware of the extent of their carbon footprint. A primary challenge contributing to this knowledge gap is the need to account for both “direct” and “indirect” emissions within an individual’s carbon footprint. Direct emissions come from sources owned or controlled by the person, while indirect emissions arise from the third-party production of goods and services used by the individual. For instance, when someone purchases gasoline, direct emissions are generated from burning the fuel to run their vehicle. In contrast, indirect emissions originate from processes such as oil extraction, refinement, and fuel distribution.
Financial institutions can play a key role in the transition to net zero. They can use their position and power to mobilize finance to decarbonize the economy and support greater carbon literacy in society. Financial institutions can contribute not only by providing finance to decarbonize assets, products and services, but also by helping their customers measure, understand, and reduce their carbon emissions. Since financial institutions hold customers’ transaction data, they are well-positioned to help customers understand the carbon impact of their spending and help them in adopting more sustainable behaviors: Indeed, approximately of CO2 emissions are driven by consumer behavior, presenting a significant potential for carbon savings.
Strands' latest paper explores how banks can leverage transaction data to provide customers with personalized carbon footprint insights.