As sustainability and ESG (environmental, social and governance) concerns rise in importance, the digital banking sector is not immune to the shift. Regulatory pressures and growing consumer demand for responsible practices are driving the strategic direction of digital banking, with sustainability and ESG commitments playing a central role.
But just how central are these values to the sector’s future?
We reached out to industry experts to understand the importance of integrating sustainability and ESG into their strategies. They shared how these priorities are influencing innovation, shaping long-term goals and driving the financial services industry towards a more responsible future.
Balancing customer expectations with sustainable practices
“Over the years, consumers have become increasingly invested and educated around topics relating to the environment,” notes Karine Martinez, head of sales at electronic money institution Edenred Payment Solutions.
“A quick search of Instagram hashtags shows that #sustainable has 16.9 million posts, #sustainablefashion has 20.2 million and #ecofriendly racks up an impressive 22.2 million posts. People not only care, but actively want to share explicitly how they value supporting the environment.
“It’s easy to look at this as something that applies to lifestyle brands, but it would be a huge mistake for banks, neobanks, and payment providers to not realise this applies to them too. In 2024 customers have a high expectation of all the companies they interact with when it comes to protecting the environment.
“There are big and small ways companies can do this, from eco-friendly cards like those we’ve seen made of wood, or carbon offsetting programs that help educate customers on how their spending affects the environment.
“But one of the biggest ways we’re investigating reducing our emissions as a payments provider is by finding partners with data processing hubs that contribute as little CO2 to the environment as possible. These huge data centres take a lot of energy, and while it’s hidden in the back end of the payment, it doesn’t make it any less important or relevant to the strategy, and ultimately the customer.”
Moving beyond tick-box initiatives
Steve Round, president and co-founder of core banking platform SaaScada, suggests that many ESG initiatives in digital banking are still reactive, treating sustainability as a tick-box exercise.
“Many ESG initiatives in digital banking are still reactive, and lag behind where they should be. But the reality is ESG is a way for banks to do business, and must be addressed proactively at the top of every board’s agenda.
“If FS firms want to make a tangible impact on greenhouse gas emissions and promote financial inclusion, ESG must be deeply embedded in their business models, and can no longer be an afterthought. There are eight billion people on the planet, with approximately one billion not having access to financial services.
“This means that FS firms interact with seven billion people, giving them the potential to be major instigators of global change. However, more must be done. Offering a single ‘green’ product in a sea of traditional offerings won’t cut it; instead, all digital banking products must be developed with an ESG framework in mind. This means financial institutions must overhaul their core banking infrastructure to ensure that sustainability and social impact data can be reported on effectively in every product offering.
“Without access to the right data, FS firms are flying blind. A real-time data-driven approach allows firms to track everything from the carbon footprint of product offerings to the impact of everyday customer transactions in a quick, cost-effective way. These insights drive environmentally and socially responsible business decisions, and offer incentives to customers who make positive changes.”
The competitive advantage
Anuj Shah, managing director, at global consultancy Stax, sees the integration of ESG principles as essential not just for sustainability but for gaining a competitive edge.
“Digital banks have numerous opportunities to embed ESG principles into their operations – whether by offering sustainable financial products like green loans, reducing the energy intensity of their platforms, supporting financial inclusion for underserved communities, or fostering innovation in ESG-focused services.
“By integrating these elements, digital banks not only contribute to a more sustainable future but also meet the growing expectations of stakeholders who prioritise responsible business practices.
“When charting their strategic course, digital banking platforms should weigh several factors: understanding stakeholder demands and interests, conducting thorough market assessments, and evaluating their own strengths and brand alignment.
“It’s essential to identify areas where they have a distinct ‘right to win’ to ensure efforts are both impactful and authentic. By aligning ESG initiatives with core competencies and brand values, digital banks can effectively differentiate themselves, build trust with customers, and drive long-term value.”
Addressing energy challenges of digitisation
For Hassan Nasser, head of product, digital banking at Sopra Banking Software, , the challenge lies in balancing the energy demands of digital innovation with sustainable business practices.
“Banks continue investing heavily in digitisation, many are in the early stages of determining how they’ll balance the energy consumption needed to power new digital experiences with sustainable business practices.
“With the advances in GenAI, Banks have a great opportunity at their hand in ESG and a challenge due to the significant energy consumption of GenAI. We’ve already seen a few major players introduce standards around their own carbon emissions and, more recently, some have started to choose technology partners based on their ability to comply with these standards.
“10 years from now, this will be the norm, and banks will have to prove their carbon neutrality across all of their operations — digital or not.”
Key to future-proofing digital banks
“ESG has three core impacts for banks,” according to Abhishek Bhattacharya, GVP, technology, financial services at tech transformation consultancy Publicis Sapient.
“Firstly, it allows banks to invest in green opportunities that positively impact the climate. This is now a regulated space, with regulations encouraging banks to monitor their lending into green sectors.
“As the framework for measuring ESG matures, banks will need to develop sophisticated systems to capitalise on access to green funds that governments are channelling into key sectors. Strong data and reporting will make it easier for banks to access these initiatives, and credit models will need to evolve as more ESG-related data becomes available.
“Secondly, ESG is critical for investors. There is a shortage of ESG-approved investment opportunities, and banks that can prove their ESG credentials will be more attractive to investors. Many investors have pledged to channel capital into eco-friendly projects, and a robust ESG regime will facilitate this investment.
“Lastly, sustainability and ESG are increasingly important to millennial and Gen Z customers, who are more socially and environmentally conscious. For digital banks, differentiating on sustainability can be key to attracting this demographic, helping them stand out from traditional banks.”
Long-term business success
The integration of ESG into digital banking isn’t just about meeting regulatory requirements – it’s about building long-term resilience and competitiveness.
Shailendra Singh, chief strategic growth officer at global technology services firm SLK, comments: “As the global emphasis on sustainable practices grows, financial institutions recognise the need to align their operations with these values.
“This shift is not merely a trend but a critical component of long-term strategy, ensuring resilience and competitiveness in an evolving market landscape. Digital banks are uniquely positioned to champion sustainability and ESG initiatives due to their technological agility and innovative mindset.
“By integrating ESG criteria into their core operations, these institutions can drive positive social and environmental impact while also meeting the growing demands of conscientious consumers and investors. This alignment can enhance brand reputation, foster customer loyalty and unlock new market opportunities.
“Moreover, the adoption of sustainable practices can lead to operational efficiencies and cost savings. For instance, leveraging digital platforms reduces the need for physical infrastructure, thereby minimising the carbon footprint. Additionally, incorporating ESG factors into risk management frameworks can improve financial performance by identifying and mitigating long-term risks associated with environmental and social issues.
“In this context, digital banks are exploring various avenues to embed sustainability and ESG principles into their strategies. These include offering green financial products, such as loans for renewable energy projects, and implementing transparent reporting mechanisms to track and communicate their ESG performance. Furthermore, partnerships with fintechs and other stakeholders are pivotal in advancing these initiatives, enabling the sharing of best practices and driving industry-wide progress.”
