If an environmentally conscious consumer knew that the laptop she just purchased contributed, over the course of its life, as much in carbon dioxide emissions as three car trips between Boston and New York, might she think twice about making the purchase in the first place? Or if she was aware that a two-hour flight produced 281 kilograms of CO2 emissions, would she look to offset the impact by reducing consumption elsewhere?
Those are the types of questions customers at Bank of the West could soon be pondering, after the bank’s rollout of a new tool that lets consumers track not just their spending, but also the impact that spending is having on the environment.
The tool, the Åland Index Solution, was developed by Doconomy and is being offered to banks as a feature to provide to their customers. Doconomy, of Stockholm, launched the index in November, and Bank of the West is the first U.S. bank to implement it.
While the tool may never be a big moneymaker for the $91 billion-asset bank, it could be a useful selling point in attracting customers and recruiting employees, industry experts said.
“Millennials and younger generations are focused on these issues,” said Mayra Rodriguez Valladares, managing principal at MRV Associates.
Its rollout also furthers Bank of the West’s commitment to incorporate sustainability into its business practices. The San Francisco-based bank has pledged $1 billion to finance sustainable energy production and has vowed not to finance Arctic drilling, tar sands mining or coal-fired power plants, for example. Earlier this year it became the first corporate sponsor of the Sustainable Ocean Alliance, a nonprofit that supports startups focused on improving the ocean’s health, and it recently began
Nandita Bakhshi, Bank of the West’s president and CEO, said she is “thrilled” that her bank is the first in the U.S. to enable customers to track the environmental impact of their purchases.
“Consumers understand their purchasing actions have the power to impact positive change,” Bakhshi said in a news release.
The United Nations’ Intergovernmental Panel on Climate Change has warned that man-made carbon emissions will need to be cut to net zero by 2030 to avert the worst effects of a warming world. As the issue gains prominence with consumers, particularly younger generations, banks are recognizing that
The Åland Index is a cloud-based program that relies on data from S&P Global Trucost and calculates the cost of a given transaction based on sector average and specific item cluster analyses. Banks pay a licensing fee to use the index, which they can customize to create their own carbon-tracking tool for their customers.
A customer then links a payment card to the tool in question, and the index pulls purchase information from that account to analyze the environmental impact of that person’s spending. The index uses application programming interfaces to connect with the bank to pull that spending information and return its analysis.
The customer can then see that analysis in their mobile banking app or in the form of an alert, however the bank chooses to present it. A financial institution might also decide to offer an option to compensate for that environmental impact by investing in a project that promotes sustainable energy in developing nations.
Bank of the West did not provide details about how it plans to use the index, but for the U.S. subsidiary of BNP Paribas, the initiative is likely less about the bottom line than it is about demonstrating its values to its customers, shareholders, employees and communities it serves, Valladares said.
“Banks have been challenged with net interest income compression, the low rate environment, and significant competition from nonbanks,” Valladares said. “They’re making money, but they’re under pressure, so they’re thinking about, how do we reach out to different segments?”
It could also help in recruiting employees, she said.
“It’s great for HR to be able to tell these younger people, this is who we are, these are our corporate values,” Valladares said.
Currently, there are various online tools consumers can use to calculate the carbon costs of their spending choices, but Doconomy CEO Nathalie Green said she wanted to create a simpler way for people to determine their everyday impact. She likens Doconomy’s tools to nutrition labels that tell people the caloric content of their food.
“When we talk about climate change, we often talk a lot about how politicians need to make decisions and legislation needs to change and systems need to change,” she said. “But I think it’s important to stress the fact that each and every one of us can contribute and we need to contribute. This is a pretty good way because the greatest part of a person’s carbon footprint is linked to the way we spend our money.”
The index is one of two tools Doconomy has developed. The other is a mobile app called DO, which is currently offered only in Sweden. DO is a direct-to-consumer offering that allows people to track which types of purchases have the biggest carbon impact. It also gives them the option to compensate for that spending by investing in U.N.-certified climate compensation projects in developing countries.
The fintech also recently partnered with Mastercard to offer a credit card that operates on a similar principle. Unlike other credit cards, the DO card also cuts customers off when they’ve hit their carbon limit. That card will launch in the first quarter of 2020, a spokeswoman for Mastercard said.
Just two other banks currently use the index, Bank of Åland and Nordea Bank, both of Finland, but Green wants to bring on more banks.
“Our ambition is really to create a global standard for measuring the impact of consumption,” she said. “To do that, we need to collaborate and partner up with big players."
