Reducing customer emissions: The potential for banks and CDR

In a promising move, Australia’s largest banks have committed to the Net Zero Banking Alliance (NZBA). It's a move that will see them set - and aim to achieve - intermediate emissions targets by 2030 with the goal of achieving net-zero emissions by 2050. 

Australian banks will have to reduce not only their Scope 1 and Scope 2 emissions, but also indirect Scope 3 emissions from elsewhere in their value chain – most importantly, from their pending portfolios (“financed emissions”). 

The green mortgage value proposition  

One way in which banks are looking to reduce Scope 3 emissions is through green mortgages, a form of sustainable financing aimed at rewarding customers with preferential terms if they can demonstrate their property meets certain environmental standards. This isn’t limited to just the acquisition of residential homes but also commercial properties, and renovations that will improve a building’s environmental performance. 

Reducing the environmental impact of buildings will be crucial to Australia’s climate agenda as real estate accounts for nearly a quarter of the country’s annual emissions. Furthermore, considering the size of their contributions to banks’ overall portfolios, targeting mortgages may yield significant impact on banks’ Scope 3 emissions.

Recent analysis by the major banks shows that residential are one of the largest contributors to overall emissions, despite the low emissions intensity of properties individually. 

In this example of green mortgages, banks have an opportunity to capitalise on customers’ preferences by offering financing that is targeted at meeting demand for more sustainable options. This will help build trust and reputation, while also reducing the banks’ own financed emissions.

From a consumer perspective, greener builds are capable of delivering substantial cost savings by reducing buildings’ energy load and demand on local grids. In some cases, we have estimated customers could entirely remove the cost of energy consumption, or even become positive through solar generation back into the grid.

Better data for better services

Although green mortgage offerings are in the process of becoming mainstream, Australian banks still lag behind their European and UK counterparts due to the significant challenges in data access. Currently, Australian banks struggle to accurately measure and report on the emissions profile of individual properties. 

In comparison, European and UK banks have access to databases such as the Energy Performance Certificate (EPC) ratings database which allows assessors to accurately identify a property’s energy efficiency. 

From November 2022, energy became the second sector to enter the Consumer Data Right (CDR) regime which could prove transformative as it will require all key Australian energy retailers to give consumers access to their usage and connection data in a standardised format in almost real time. This includes detailed information on energy consumption at individual households and commercial properties. The regime will empower consumers with more control over their personal data and potentially provide banks with access to energy data from which they can draw an accurate picture of their portfolio’s emissions. 

This virtuous cycle can yield significant benefits for not just the bank and customer, but also the wider net-zero agenda. CDR will reduce banks’ reliance high-level benchmarks by providing access to granular consumer information—not just their energy usage, but also their spending habits and preferences e.g. a homeowner mostly consuming solar-generated energy

Not Smooth Sailing... Yet 

However, some challenges remain for banks looking to leverage the CDR.

Privacy restrictions will remain a core concern for many consumers, especially in light of major data breaches such as the 2021 Optus breach and the government’s commitment to stricter regulations. 

What’s encouraging is that current restrictions relating to the CDR are already very stringent, and the types of attacks that have occurred recently would not be successful because of these. Conversely, however, this creates challenges in terms of the cost and complexity of solutions required for companies to make meaningful use of this data. 

Aside from government support, industry and consumer buy-in are critical for the success of the CDR—currently, the envelope is largely being pushed by the neobanks, fintechs, and startups. However, with cross-industry initiative, we see a future characterised by great potential and meaningful emissions reduction across the supply chain. 

Australian banks recognise the importance of making the CDR economy-wide, and steps are being taken by a few banks to estimate customer emissions based on transaction data. It is a long path ahead, but a promising and we think critical one to take.

Chris Evans heads Oliver Wyman’s Australia digital team and is a Partner in the global finance and risk practice.

Chris and the wider team at Oliver Wyman have been focused on designing CDR use cases in financial services, from instant regulatory compliant POS credit decisions to new main financial institution value propositions in transaction banking and deposits. They also play a key role in designing climate data operationalisation infrastructure, operating models and analytics.