How data modeling and cloud make the “E” in ESG easier for banks

Banks want to be part of the solution

Many leading banks have garnered headlines with pledges to move away from financing projects likely to contribute to global warming. It’s a key aspect of the “E” portion of environmental, social, and governance (ESG) programs. The Net-Zero Banking Alliance, an organization led by the industry and connected to the United Nations, includes member banks committed to a net-zero emissions loan and investment portfolio by 2050.

What about emissions from banking operations? Reducing emissions from all sources--including operations--furthers environmental goals. Many banks see that and want to lower their emissions. It starts with measuring emissions from operations. You may be familiar with the business management saying that what gets measured gets improved. That’s true. But in the case of emissions from banking operations, measuring requires sophisticated data modeling.

The trend towards cloud computing makes tracking and lowering emissions a smoother process. And while the pandemic-fueled move towards work from home (WFH) can complicate the tracking side of environmentally friendly programs, a cloud-hosted data model, fortunately, can help.

Customers care about the environment

Banking leaders see lowering emissions as a key component of their ESG commitment. That reflects what their customers want. The Banking Administration Institute (BAI) recently reported that more than 50% of Gen Z and Millennial customers would switch to a financial services provider with a higher commitment to ESG goals. Older customers care, too, with 38% of Gen Xers saying they would switch for ESG considerations.

Employees also care about ESG. PwC reported that 86% of employees prefer to work for companies that care about the ESG issues that are important to them. That same report shows that business leaders agree, with 91% of leaders believing in the importance of acting on ESG issues.

Whether communicating the impact of environmental commitments to customers, employees, or bank leaders, it’s crucial to have reliable emissions data. Otherwise, it’s impossible to track improvements, spot opportunities for improvement, or benchmark against peers. Having helped banks develop cloud-based data models, I’d like to share some best practices—and point to a key improvement opportunity.

Measuring and tracking environmental footprints from operations

Many countries require emissions reporting of greenhouse gases. Depending on the emissions threshold, this may or may not apply to your bank. Even when not required, many banks track their environmental footprint to some degree. It’s relatively easy to track energy use in office and bank branch environments, and from aspects of operations with consistent energy use, such as ATMs. Here are a few areas where calculations get complicated:

• Employee commutes: How do your employees get to the office? Alone in a car (electric or not), via carpool, or using public transit. You can find out about typical commutes through surveys and then create a model that lets you track the output. You could also use regional averages. Incentivizing the use of transit and carpools can help lower your footprint.
• WFH energy footprints: With the rise of WFH and hybrid work, banks need to account for where employees work. There’s no commute to account for, but there are complexities. Your data model can account for typical home energy use in the areas where your people live and according to the lifestyle of your employees.
• Transactions: Every transaction takes energy, but there are many possible variables for individual transactions. An instant payment between individuals (using phone numbers in bank mobile apps for example) is likely to have a lower footprint than a trade-based transaction between organizations, which triggers many more electronic exchanges. Your data model can also account for regional variations differences among transaction types.
• Datacenters: On-premise technology accounts for a significant percentage of the carbon footprint of many banks. Few banks power their data centers with renewable energy. The drain of on-premise hardware will only grow as banks embrace new technologies, such as artificial intelligence (AI). A recent study found that compute-intensive AI has a significant carbon footprint, with a single AI model potentially having an impact similar to that of five cars with internal combustion engines.

Cloud lowers emissions and simplifies tracking

Tracking your carbon footprint gives you the insight to help reduce it. But there’s a proven way to reduce your carbon footprint dramatically—and streamline the way you manage your IT infrastructure. That’s the public cloud. Where most on-premises data centers rely on non-renewable energy, public cloud providers have embraced renewable energy. Public cloud data centers are also designed to optimize energy efficiency, this is mainly due to its large scale and built for purpose hardware that reduces consumption, shared infrastructure that maximize the usage of each server, compared to on-premises installations.

Consider Amazon Web Services (AWS). Research shows that using AWS can reduce carbon footprints by about 80%. AWS plans to power its infrastructure with 100% renewable energy by 2025. The company also offers a tool that helps users calculate their carbon footprint. Microsoft provides a similar tool for users of Azure. It’s called the Emissions Impact Dashboard for Azure. Microsoft also plans to use 100% renewable energy by 2025. Google also announced in June its fifth year running on 100% renewable energy.

At Amdocs, we’ve witnessed clients use the cloud to rapidly meet their goals for emissions reductions. A bank client in Australia moved more than 1,000 applications to AWS. This played a role in the bank’s progress towards net zero operational emissions by 2025. But the bank did more than improve the “E” in ESG. It deployed a cloud-native, application-aware compliance engine as part of its move to the cloud. The engine improved security and compliance without slowing workflows, boosting governance-related processes.

Let’s calculate—and reduce—your carbon footprint

Having the right data allows you to calculate your carbon footprint. That’s a key step to meeting your environmental goals. You can take an even bigger step by moving away from on-premise infrastructure and embracing the public cloud. Amdocs helps banks migrate to the cloud as they reduce risks and improve the customer experience. Talk to Amdocs to get started.