This November, Glasgow will play host to the UN Climate Change Conference (COP26), at which political and business leaders will convene to discuss climate change targets and the action required to reach them.
At COP21, which took place in Paris in 2015, an agreement was reached to limit global warming to below 2 degrees. At this year’s conference, it is hoped that even more ambitious targets will be set, given that there is a growing urgency to act to avert further climate disaster.
But the onus is not just on governments and leaders at COP26 to come up with solutions, the financial services industry has its part to play as well.
It’s not easy being green
There is now an increased awareness of the role of Open Banking in creating products and services that make it easier for consumers and businesses to make more sustainable financial choices.
Rafa Plantier, head of UK and Ireland at Tink (pictured), an Open Banking platform, says that with COP26 approaching, countries around the world are under pressure to meet net zero commitments and improve sustainability.
“But even the most climate conscious, well-intentioned consumer will find it hard to take the action they want because of a lack of information,” Plantier adds. “The financial services sector — and Open Banking in particular — has a vital role to play in helping to overcome this challenge.
“Current accounts are a source of vast amounts of data — even from one single transaction, a huge amount of information can be derived about the amount spent on energy, travel or shopping, for instance. By aggregating, categorising and analysing transactions, Open Banking allows us to create meaning from data so that people can make their own informed decisions about sustainability.”
Dylan Thiam, head of marketing at TESOBE / Open Bank Project, agrees that it can be difficult for consumers to track their carbon footprint, but that new mobile and web applications “are changing everything”.
“You can categorise transaction data based on merchant type and calculate the average emissions that a product creates during its lifecycle,” says Thiam.
From regulation to innovation
Regulation, at both a global and regional level, is behind some of the sustainable finance-focused product innovation from banks and fintechs.
Josh Gregory, founder and CEO of Sugi, which uses open finance to help retail investors understand the environmental impact of their investment portfolios, points to the Task Force on Climate-Related Financial Disclosures (TCFD).
It was created by the Financial Stability Board to “improve and increase reporting of climate-related financial information”, the TCFD website states.
“The TCFD’s work has really driven a wider conversation around sustainable finance, and the entire green fintech space has benefited from following tailwinds, both on the investment side and from consumers – who are becoming more aware of climate issues and the need for new tools to engage with impact at the retail level,” says Gregory.
The UK’s banks have a specific deadline looming though.
“By December 2021, all banks in the UK will need to have embedded climate change into their risk frameworks,” explains Plantier.
“This, coupled with the fact that the [UK’s] Prudential Regulation Authority (PRA) is looking for evidence that they have systems in place that are operational and can identify, monitor, manage and disclose climate risk, means that action needs to be taken now to achieve these goals.”
While he acknowledges that the scale of the task is huge, he points to the fact that banks and fintechs are collaborating to create new digital services focused on sustainability.
Among the sustainable finance innovations using Open Banking that really stand out to Thiam are French startup Greenly, which “helps businesses by analysing their expenses and estimating their carbon footprint”, and Gothenburg-based green tech company Svalna.
According to Plantier, Tink works with both fintechs. He explains that the Svalna app uses Tink’s “Transactions product” to analyse financial data so that users can “understand the environmental impact of their day-to-day purchases, and make simple changes that make a big difference to the planet”.
Ahead of the curve
It does appear that Europe is leading the way when it comes to using Open Banking to power sustainable initiatives, products and services.
Thiam says that this is because Europe “has a head start on Open Banking”.
“Perhaps other countries are currently in the ideation phase, or their solutions are still growing,” he adds.
“In Europe, the sustainable Open Banking scene is so fast-growing that it’s almost hard to keep track of innovation,” says Sugi’s Gregory.
“In the Nordics and Central Europe there are a number of upcoming green neo-banks which combine ringfenced green savings accounts and transaction footprinting along with a high level of platform personalisation to allow engagement with green causes.
“We are starting to see some of the mainstream neo-banks in the UK follow suit with some of these features, as well as a few specialist startups, but the sustainable Open Banking scene in the UK is generally dominated by transaction analysis apps.”
Europe may be ahead of other geographies, and key markets within the continent may be experiencing their own Open Banking surges, but Plantier is keen to point out this is not solely about business innovation or competition between jurisdictions.
“It’s not about a race of one country versus another,” he concludes.
“This is, by definition, a global problem, where businesses need to work together across countries and markets to create global solutions.”