Sustainable Banking: Operational Strategies to Meet Gen Z Expectations

Explore ways your bank can connect with Gen Z by prioritizing sustainability and ethical practices. This blog covers strategies to engage environmentally conscious customers as well as the implications and considerations to take operationally within your bank.

What is Sustainable Banking?

Sustainability, at its core, refers to the capacity to meet the needs of the present without compromising the ability of future generations to meet their own needs. In the context of financial services, sustainable banking involves a comprehensive approach that considers not only the direct impacts of operations but also the broader effects of lending, investing, and advisory activities on the environment and society.

Corporate sustainability programs typically span a wide range of initiatives, from reducing carbon footprints and enhancing energy efficiency to promoting financial inclusion and supporting sustainable development projects. This means adopting practices that ensure long-term profitability and stability by aligning business models with the principles of sustainable development.

“Green” Lending is More Than a Trend

The concept of “green” lending is not new, but its importance has skyrocketed with the increasing awareness of climate change and social responsibility. Banks like HSBC and Barclays offer products specifically for environmentally conscious consumers, including loans with lower interest rates for green home improvements or electric vehicle purchases. This shift is not just about meeting customer demand; it’s about banks taking a proactive role in funding a sustainable future, and reducing their environmental footprints to align with global initiatives.

An Opportunity to Align with Gen Z Values

The financial sector is at a pivotal juncture, especially when it comes to catering to Gen Z, who places a premium on sustainability and ethical business practices. This generation looks for brands and institutions that talk the talk and walk the walk when it comes to environmental and social issues. There’s a growing expectation among young consumers for banks to exhibit genuine commitment to sustainability, which influences their banking choices.

The challenge is not just to attract, but to meaningfully engage with these future financial powerhouses. Studies indicate that Gen Z is willing to pay more for products and services from companies committed to environmental sustainability, underscoring the importance of integrating these values into lending practices.

Sustainable Banking Strategies for Banks to Attract Gen Z Customers

By integrating the following approaches, you can strengthen your commitment to sustainability and build stronger connections with your customers.

1. Develop and Promote Green Financial Products

Offer loans with incentives for sustainable projects, such as solar panel installations or energy-efficient home renovations. Publicize widely to capture the attention of environmentally conscious consumers.

2. Leverage Technology

Use digital platforms to make sustainable lending options more accessible. Mobile banking apps can include features that allow customers to track the environmental impact of their investments or savings.

To ensure the success of your digital initiatives, it’s crucial to be aware of common pitfalls in technology implementation. We recently wrote about avoiding 10 specific blind spots that often derail digital technology projects. Blind spots we often see include underestimating data integration needs, overlooking the user experience, neglecting cybersecurity measures, and failing to scale. Read the full blog for practical advice and strategies to achieve seamless and effective integration by avoiding the pitfalls.

3. Engage in Transparent Communication

Clearly communicate sustainability goals, achievements, and the tangible impact of green lending practices. This transparency builds trust with Gen Z, and all green-conscious customers.

4. Partner with Sustainable Business

Collaborate with companies that are leaders in sustainability. This not only expands your bank’s network in the green economy but also aligns lending practices with broader environmental goals.

When choosing business partners, banks should consider the following attributes:

Critical Thinking: Seek partners who can analyze and plan “green” initiatives, adapting to regulatory changes and environmental objectives.

Empathy: Select partners who understand your unique sustainability challenges and can effectively communicate benefits to stakeholders.

Effective Communication: Ensure your partners can tailor messages to different audiences, from executives to operational staff.

Big Picture Perspective: Choose partners who integrate green practices into broader strategic objectives, recognizing synergies and potential conflicts.

Cultural Compatibility: Work with partners whose values align with your bank’s commitments, fostering collaboration and avoiding conflicts.

These attributes will help you effectively navigate your sustainability journeys with the right partners. For more insights on each attribute, check out our entire blog on the 5 attributes to look for in your change management partner.

Sustainable Banking Implications for Financial Institutions

1. Operating Model

Environmental, Social and Governance programs (ESG) cut across and impact organizational verticals in different ways. To avoid traffic accidents or ball-drops, clear delineation of roles and responsibilities and strong governance are required.

2. Risk Management and Ongoing Control

Sustainability risks are multifaceted and often interlinked with a bank’s established risk categories, such as credit, operational, and reputational risks. To ensure comprehensive risk coverage, you can embed sustainability risks within existing risk taxonomy. This alignment allows for more effective monitoring and management, letting you proactively address potential threats to sustainability goals.

Given the evolving regulatory landscape, lenders must also strengthen risk controls to address both traditional and emerging sustainability risks. This includes enhancing data collection and analysis capabilities to better understand the impact of ESG factors on operations. You can adapt a proactive approach by continuously reviewing and updating control mechanisms to address new sustainability-related challenges as they arise. In our experience, effective controls have four main qualities:

• Automated for efficiency
• Scheduled on an appropriate frequency
• Provide representative sampling
• Allow for timely corrective actions

When controls adapt to these four qualities you can focus on enhancing your risk management and regulatory compliance. Here’s our article that details each of the four qualities above – read it now.

3. Organizational Alignment

Opinions vary on climate science but, irrespective of personal opinions, sustainability requires an approach that is fully embraced at all levels of the organization to effect meaningful, enduring change.

Carefully consider how you communicate with your team about process changes and new workstreams. Do not underestimate the importance of explaining the reasons for change. While change communications typically cover the “what” and “how,” the crucial “why” is frequently overlooked. People crave understanding – they want to know why change is necessary, the effects of not doing anything and why change now. Addressing these questions is essential to winning the hearts and minds of your team.

4. Infrastructure

Be prepared to invest in skilled resources and new data sources to translate ESG concepts into practical, actionable strategy.

Sustainable Banking is a Win-Win for Lenders and the Planet

Making sustainability a cornerstone of lending practices is both beneficial for attracting sustainability conscious customers and future-proofing the banking industry. By investing in sustainable projects and initiatives, banks can contribute to the global fight against climate change. Also, they can enhance their reputation, customer loyalty, and ultimately, profitability. The transition to green lending requires a holistic approach, incorporating innovative products, digital solutions, and transparent communication strategies, all of which are key to a successful sustainability program.

In adopting these practices, banks can lead by example, showing that financial institutions can play a crucial role in driving positive environmental change while also securing their position in a rapidly evolving market landscape.

Bridgeforce is Your Partner in Sustainability

Bridgeforce recently helped a super-regional banking client stand up their climate risk program. Our disciplined approach to program management and experienced team helped set up our client for success. When it comes to deep ESG expertise, we are proud to partner with Perigon Partners, a specialist ESG consulting firm who provide a full range of diagnostic and advisory services. Contact us to find out how we can help you build a successful ESG strategy.