Look, think, act: a data-driven sustainability approach

In just over a month, the Corporate Sustainability Reporting Directive will finally come into effect. The directive mandates large enterprises to report on their ESG impact. But what if their measurement methodology is based on dated and incomplete data? In such cases, a new solution from The Data Agency comes to the rescue. Banken.nl spoke about it with Associate Partner Edwin Kooge and Chief Innovation Officer Ronald Langendoen.

Companies aiming to become more sustainable often think of an electric fleet, improved insulation, solar panels on the roof and less air travel. However, for banks, it's a more complex challenge. Even if they manage to eliminate all their direct CO2 emissions, they have only made 0.01% of their total operations sustainable. A very small piece of the pie.

Here's the issue: as a company, you are also responsible for your indirect emissions, and for banks, these are relatively huge. This includes the emissions from individuals and businesses that have received credit from a bank. A bank that truly wants to become sustainable needs to focus primarily on this "financed emissions."

Take, for example, a consumer who has bought a house with a mortgage. The CSRD states that banks are (partly) responsible for the CO2 emissions of that house. To become more sustainable, banks should steer their clients towards greener choices.

And they will: The CSRD legally obligates banks to attach an action plan to their ESG reports, stating how they intend to reduce their CO2 footprint. The pressure is on; this massive task must be executed well.

DOOMED TO FAIL

But how do you do that exactly? "By looking, thinking, and acting," summarizes Edwin Kooge. While it sounds simple, the Associate Partner of The Data Agency points out that many banks stumble at the first step (looking). For example, when it comes to making the mortgage portfolio more sustainable, which actually comes down to making the housing stock more sustainable.

"For that to happen, you need to know how sustainable a home currently is," explains Chief Innovation Officer Ronald Langendoen. " To assess this, banks mainly look at the energy label, but in 30% of cases this is incomplete and outdated. Sustainability efforts often happen after the home purchase and the energy label is rarely officially updated."

So, banks rely on outdated data; in reality, the Dutch housing market may be more sustainable than banks are aware of. A bank or mortgage provider unaware of this information will struggle to provide the right incentives to its mortgagees to take action. They are doomed to fail.

LOOK, THINK, ACT

This is where The Data Agency can assist banks. The company has developed a solution that, based on public data and using the calculation rules of Milieucentraal, can provide a current estimate of CO2 emissions per residential address in the Netherlands. This data is then combined with the results of lifestyle surveys conducted by The Data Agency per region, neighborhood or customer segment.

Moreover, the company can apply this process to many more categories than just the mortgage portfolio. In the areas of transportation, clothing, travel, food, and goods, the company can help its clients drive sustainable behavioral change among their clientele.

"In the end, the results provide us insights into two crucial dimensions," Kooge continues. "On one hand, we map out the potential for sustainability; for example, the possibility of installing solar panels on the roof. On the other hand, we identify the willingness to become sustainable; to what extent consumers are willing and/or able to become more sustainable."

And knowledge (thinking) about both dimensions is essential. According to Langendoen, knowledge about just the sustainability level of a home is not enough. " You also need to know, for example, why people become more sustainable. Are they doing it for financial reasons or out of idealism? Although both types of consumers are open to sustainability, the motivation they need to further embrace green practices is entirely different."

"Some consumers, for instance, need to be convinced with a clear overview of the financial returns of solar panels or better insulation," adds Kooge. "While other idealistic consumers, who may already have a home with the highest energy label, can be interested in green investment funds."

In short, with The Data Agency's data-driven sustainability approach, banks can better understand their customers' motivations, making them better equipped to guide their customers to the next step (acting). "Regardless of how you spin it, behavioral change always starts with insight and recognition," Kooge summarizes.

"With our matrix and consultants, we then help banks develop the right communication strategies, ensuring that consumers receive the right message and understand clearly how the mortgage portfolio can be further sustainable," adds Langendoen. "Since we update our database every six to twelve months, we also know whether the chosen strategies are working, or if adjustments are needed. The process never stands still."

READY FOR THE FUTURE

Kooge and Langendoen emphasize that the solution is still in active development. "With our methodology, we aim to contribute to a reliable standard to provide the market with insights into the CO2 emissions of customer segments across a multitude of categories. But, of course, we can't do this entirely on our own."

The gentlemen challenge financial institutions to collaborate with the company to determine, validate, refine, and use CO2 emissions to achieve a substantial reduction. And it's much needed. Langendoen points out that 50% fewer solar panels were installed last year compared to the previous year. With the CSRD on the horizon, The Data Agency's solution comes at just the right time.

"This is the right time to break the stagnation and boost sustainability," concludes Kooge. "With our technology, banks not only reduce their risks but also present better ESG figures. Using our data-driven approach, demonstrate that as a bank, you know what you're talking about when it comes to sustainability. Show that you are ready for what is to come - now and in the future.”

This article was published on banken.nl.