SUMMARY - Sustainable Banking Behaviours
Banks and financial institutions have been in the spotlight of climate talks at the recent COP26. They indeed have a tremendous role to play in accelerating the transition towards a green economy, especially by investing in companies with positive social and environmental impacts. That being said, we, as individuals and customers, can also participate in changing the current banking system by making better-informed personal banking choices. By choosing the right banks, we can decide where our money will be invested.
And in this context, the impact of our everyday deposit accounts matters, as many banks currently use this money to loan to companies, including fossil fuel companies. While we can rarely decide who our deposits will be lent to, our personal choice of a bank will determine whether or not we participate in increasing carbon emissions globally. Amongst the many pro-environmental behaviours we can engage in, shifting to a sustainable bank can massively increase our contribution to a better planet, as it tackles the climate crisis at the root.
A report by ideas42 brings together insights from behavioural science to understand how to best encourage individuals to adopt sustainable bank deposit accounts. And it seems that our mental models of banks, the invisibility of banking behaviours and heuristics all prevent us from making good decisions. Let’s dive deeper into the topic:
Mental models of banks
Mental models are representations of the world that we use to make judgments, solve problems and make predictions. The report states that most of us hold inaccurate mental models of the banking system, which prevents us from looking for more sustainable options.
First, most people think of their deposits as sitting passively in their accounts and as accumulating interest without any effect on the world. People rarely make the connections between the deposits that banks hold and the loans that they make.
Additionally, our mental models of sustainable banking are also incorrect. Many tend to assume that a sustainable bank is a bank that is online-only, provides paperless statements and recycles. Few people consider the sustainability of their banks in terms of the impact of their operations and investments.
Banking behaviours are invisible and private
Another challenge lies in the fact that, just like many of our daily behaviours, banking behaviours are private and invisible. This means that they are free from social pressure, and therefore difficult to influence via social norms and comparisons. Yet, social norms are powerful motivators of change, as it is in our human nature to imitate others. In the context of banking, it is difficult to observe other people’s behaviours and people rarely feel comfortable talking about that topic. It may even be taboo for some. The beneficial power of social norms is therefore limited as people cannot easily copy the good and sustainable banking behaviours of others.
Mental shortcuts and heuristics
Because of the many different options out there, choosing a bank becomes a complex process with high stakes. When faced with a multitude of choices, people tend to rely on mental shortcuts to make a decision, which means that they will focus on the most salient features of a bank and ignore others. And you might have guessed it: the environmental impact of banks is rarely one of their salient features. In this context, we might also be inclined to stick to the status quo and what we already know to spare us the mental efforts of switching to a new, more sustainable bank.
In conclusion, it is important for all of us to be aware and mindful of the impact our personal banking choices have on the planet. Moreover, sustainable banks can make use of behavioural insights to help customers overcome the barriers in making a more sustainable choice. By switching our bank accounts to those that don’t finance fossil fuel projects, we all have an opportunity to send a clear message in favour of a green transition.
‘Bank on What You Believe’, ideas42: https://www.ideas42.org/project/sustainable-banking-climate-change/i42-1196_sustainable-banking_jan22