A Banking Service for a Warming World: Emissions Tracking for Consumers

If dire warnings about climate change on a planetary scale still seem abstract at the everyday consumer level, then the financial industry may be in a position to bring the message home by delivering tangible measures of carbon emissions.

In December, for example, Bank of the West announced that it would provide “a digital, on-demand view” of the CO2 impact of customers' purchases.

The San Francisco-based subsidiary of BNP Paribas thus became the first U.S. bank to work with Doconomy, a Stockholm-based provider of carbon emissions tracking software. Founded in 2018 at what it calls “the intersection of technology, finance and sustainability,” Doconomy developed the DO mobile banking app and is one of a cluster of firms - others include Carbon Trust of the U.K., CoClear of New York, Enfuce of Finland, Svalna of Sweden and Thinkstep of Germany - with tools for measuring the environmental impact of consumers' actions.

Mastercard, Visa, Ant Financial of China, and a host of Scandinavian financial institutions including Bank of Aland and Nordea are among those offering these climate-conscious monitoring tools.

The Aland Index

In the case of Bank of the West, customers are invited to link a payment card to the Doconomy software. It uses purchase information from the customer's account to analyze the environmental impacts, which are communicated to a mobile app or in an email alert. The calculations are based on the Aland Index, originally developed by Finland's Alandsbanken (Bank of Aland).

With Aland Index Solutions, a Doconomy-Alandsbanken joint venture, “we can engage all financial players in the fight against climate change,” Doconomy chief executive officer Nathalie Green said in a November 2019 press release. “This collaboration is a milestone in creating a global standard for measuring the impact of consumption and totally changing the way we consume through connecting spending patterns with climate impact.”

According to Doconomy, the index is based on carbon data from 15,000 companies globally that is made publicly available via annual reports, the Carbon Disclosure Project or the Dow Jones Sustainability Index. The data employed includes data categorized under scope 1 and 2 emission standards, as well as scope 3 data limited to upstream activities in the supply chain per the Greenhouse Gas Protocol Corporate Value Chain standard.

In its latest iteration, the index relies on carbon impact metrics from S&P Global's Trucost, and calculates the cost of a given consumer transaction based on a sector average and specific item cluster analyses.

Millennial Attitudes

According to Vikram S. Gandhi, a senior lecturer at Harvard Business School and founder of VSG Capital Advisors, an impetus for climate-conscious services is the Millennial generation, ages 23 to 39, whose members “actually do want to see the impact of their spending and investment activities on the environment.”

Banks could therefore find this to be a compelling offering. But they are relying on third-party providers whose methodologies and effectiveness need to be validated from both a risk management and environmental, social and governance (ESG) perspective.

Satyajit Bose, associate director of the Program in Sustainability Management, Columbia University, and co-author of The Financial Ecosystem: The Role of Finance in Achieving Sustainability, points out that just as there are different ways of assessing the impact of interest rates on a portfolio, there are different ways of calculating carbon emissions impact.

“It is very hard to know if any tracking software program will have any real impact, unless they are up front about their methodology,” Bose says, noting that he favors a system that is transparent in its approach and is aligned with an established research program.

He mentions as examples the Science Based Targets Initiative, a partnership of CDP Global, the UN Global Compact and World Resources Institute that helps companies determine how much they need to reduce their greenhouse gas emissions; and the 2 Degrees Investing Initiative, which promotes the integration of climate risks in investing strategies.

In addition, there are university researchers such as Christoph Meinrenken, associate research scientist at Columbia University's Earth Institute and chief data scientist of analytics venture CoClear, who has created Carbon Catalogue, a free product-life-cycle visualization tool based on data for 866 consumer products produced by 145 companies.

Questions for Evaluation

Bose says that aside from their personal carbon metrics, it would be helpful if bank customers could also be informed about emissions resulting from a bank's loan portfolio: “Are they lending money to coal companies and other fossil fuel emitters, or not?”

Olaf Weber, who holds the University of Waterloo, Canada's Research Chair in Sustainable Finance, says that risk managers should be asking about the scientific basis of the data or framework employed for assessing consumer purchases, the sources of the data, and how or whether introductions of new products are integrated into a given index.

Lila Holzman, energy program manager at ESG advocacy nonprofit As You Sow, views bank-offered carbon tracking as “a sign of the increasing awareness of climate change and recognition that it is something that everyone wants to take action on.” As You Sow's 2020 update of the Carbon Clean 200, publicly-traded companies that are leaders in advancing “a clean energy future,” included only one bank: Banco do Brasil.

Holzman says that carbon tracking services will ideally disclose specifics about where the emissions data is coming from, and the different scopes or categories of emissions being tracked. Is the service tracking direct emissions, or do they include emissions from the extended supply chain?

“In the Right Direction”

It would be beneficial, she adds, if consumers could compare products' emission levels in order to make more climate-friendly choices, compare their footprints to an average customer score, and determine, over a year's time, if they have significantly lowered their levels of carbon.

“Such services are a move in the right direction,” Holzman says, though “there will be challenges in making sure that the data provided is actually useful.”

Upon the release of Bank of the West's service with Doconomy, bank president and CEO Nandita Bakhshi said, “Consumers have realized that their purchasing actions have the power to impact positive change. That's why the Bank of the West is thrilled to be the first U.S. bank to team up with Doconomy and let consumers track the environmental impact of their purchases.”

Said Doconomy CEO Green: “Bank of the West is one of the only major U.S. banks that has chosen to restrict the financing of activities harmful to the planet, and is also accelerating energy transition and developing renewable energy, making them the ideal partner for our entrance into North America. Together, we're putting even more power in the hands of people to have a positive impact on their - and the planet's - future.”

Further burnishing the environmental credentials of the BNP Paribas group, the parent bank on February 24 announced the closing of a sustainability-linked loan (SLL) with JetBlue Airways, a first for an airline-sector revolving credit facility (RCF). It relies on an ESG score provided by Vigeo Eiris for tracking alignment of strategic initiatives with sustainability objectives.

“BNP Paribas has acted as sustainability coordinator or sustainability structuring agent for many sustainable finance transactions,” the bank noted in the announcement. “Earlier [in February], the bank closed the first sustainability-linked syndicated credit facility in Canada with WSP Global, one of the world's leading professional services firms, and [in January] closed a bilateral, incentive-linked corporate RCF with Brookfield Renewable Partners in Canada, one of the first SLLs offered in Canada.”

Katherine Heires is a freelance business journalist and founder of MediaKat llc.