By: Adrienne Manns, Alexa Mauro, Elsa Jensen, Julia Reynolds, Nikhil Dewan, Nina Strasky and Samantha Frenkel-Popell
Published: June 13, 2024 | Updated: June 13, 2024
Read time: 10 minutes
- Table of contents
Introduction
Sustainable consumption is a broad view of consumer behavior that prioritizes purchasing goods and services that are designed, manufactured, and sold in environmentally or socially responsible ways. It results in fewer negative impacts and potentially greater positive ones on both people and planet.
Sustainable consumption also includes making lifestyle choices that improve resource efficiency, increase the use of renewable energy, minimize waste, and holistically consider the lifecycle of goods and services.
The current consumption rate of global resources reaches 1.7 times the earth’s capacity, far surpassing what our ecosystems can support, according to the 2023 publication “Sustainable business: Managing the challenges of the 21st century.” There is an immediate need to shift toward more sustainable patterns.
The typical U.S. household’s greenhouse gas emissions generated by consumer consumption generally fall into one of three categories, according to stats from the Union of Concerned Scientists (UCS):
- Consumer Goods: About 40% of a household’s carbon footprint, including creating and transporting food, clothing, furniture, electronics, and other goods purchased.
- Transportation: About 28% of a household’s carbon footprint, including driving personal vehicles, air travel, and other modes of transportation.
- Home Energy: About 32% of a household’s carbon footprint, including electricity, gas, propane, and other fuels used for heating, cooling, and appliances in the home.
However, consumer demand for more sustainable products has grown sharply over the past five years as more people prioritize sustainability when making purchases.
In 2020, there was a 71% increase in online searches for sustainable goods and 66% of all consumers noted that they consider environmental sustainability while shopping, according to research from McKinsey & Company.
Consumers want to feel good about what they buy, but they typically don’t have the information or tools to make informed decisions. For many financial institutions, providing that guidance can be an effective way to connect with consumers on a level that appeals to their growing awareness of the environmental impact of their purchases.
- Explore more
Glossary: Sustainability and financial inclusion terms
How payment card popularity lays a pathway to sustainable consumption
The three-part role of financial institutions in sustainable consumption
A shift towards more sustainable consumption requires the collaboration and concerted efforts from various stakeholders, including individuals, governments and the private sector.
Individuals can contribute by adopting environmentally conscious behaviors in their daily lives. Governments can implement policies and regulations that incentivize sustainable behavior and practices. And the private sector can drive innovation and investment in sustainable technologies and business models to foster economic growth while reducing environmental impact.
This systemic transformation requires a proactive partnership across entities. Financial institutions are uniquely positioned to be critical facilitators as they are:
- The backbone of the private sector, providing the necessary capital for businesses to grow and innovate
- Facilitators of government flows that provide economic stability
- Providers of access to cash and credit for individuals and small businesses to make transactions and of tools to help consumer and business buyers of all sizes make informed decisions
As the demand for more sustainable product offerings across industries grows exponentially, financial institutions are also shifting to accommodate this growing demand.
The opportunity in this space to attract and retain sustainability-minded customers can drive business value. Two-fifths of U.S. consumers report interest in climate-linked financial products, according to a 2023 McKinsey study. Of those consumers, two in three would allocate more than 40% of their savings or monthly credit card spending to a “green” retail banking product.
By being an early mover in connecting consumers with information and banking products that support sustainable choices, financial institutions can differentiate and lead in an emerging market. They can also create stickiness in customer relationships.
We explore how financial institutions, large and small, can inspire, inform, and enable conscious consumption.
1. Inspiring
Financial institutions can build loyalty through reward programs that inspire customers to make conscious consumption choices while also cultivating rich customer relationships.
Card issuers, retail banks, credit unions and fintech companies have the unique opportunity to reward or incentivize spend through cashback, points and other consumer rewards.
When asked about their preferences for checking accounts, 73% of U.S. Gen Z consumers (ages 21–25) said they would be “very interested” in a product that gave 3% cash back on purchases from companies with climate-aligned policies, according to a 2021 survey by financial software company Meniga. Furthermore, 73% of Gen Z and 69% of millennial consumers (ages 26-40) said they would be interested in using a carbon footprint tracker from their bank.
Financial institutions of all sizes can capitalize on the growing consumer demand for sustainable goods through various methods, such as offering credit and debit card rewards designed to incentivize lower-impact spending.
Here are a few products that offer such value propositions:
- Atmos
Atmos is an American fintech company that offers similar products to larger, industry-leading banks, while also prioritizing sustainability-focused rewards.
The Atmos debit card, made from recycled plastic, allows cardholders to earn 1% to 5% cashback on categories like bikes, electric mobility, sustainable clothing and apparel, purchases from climate-wise farms and ranches, and a number of other climate-focused categories.
In addition to rewarding spending at select merchants, accountholders can track the environmental impact of their deposits and donate to environmental nonprofits. As Atmos allocates 100% of its loans to clean energy projects, all customer deposits work to directly fuel climate progress.
- Aspiration
Aspiration, an American bank, offers Aspiration Spend & Save — a cashback account and debit card that allows account holders to track the impact of their spend. The basic and paid tiers offer 3–5% and 10% cashback, respectively, on Conscience Coalition purchases. The Conscious Coalition is made up of socially and environmentally conscious companies selected by Aspiration. Every purchase is also rounded up to the nearest dollar and trees are planted with the spare change.
The paid account offers the ability to automatically compensate for the negative climate impact of driving a car. Aspiration tracks gas station purchases, citing local gas prices and U.S. Environmental Protection Agency (EPA) data, to calculate the CO2e emissions, and buys carbon offsets on behalf of the consumer to counter their impact.
2. Informing
Beyond rewarding consumers making sustainable decisions, financial institutions can use data to inform consumers of the impact of their purchases and help promote transparency and more conscious decisions.
For example, Mastercard collaborated with Doconomy, a Swedish fintech company, to develop the Carbon Calculator to provide consumers with a snapshot of the estimated carbon emissions generated by their purchases across spending categories. This feature is easy for banks to adopt and customize for climate-conscious consumers who are looking for more ways to be informed about their spending.
The carbon calculations are powered by the independently verified Åland Index, used by 90+ financial institutions in 40+ countries to help customers convert every transaction into its CO2e footprint. Calculations can be further enhanced with relatable and easy-to-understand equivalents, such as the number of trees required to absorb the same amount of CO2e, and tips about how to reduce emissions in the future.
Mastercard's Donations-as-a-Service consulting solution helps financial institutions implement successful donation initiatives for environmental causes, including the design, implementation, and launch of successful donation products.
These solutions can include the option to contribute to forest restoration projects using the Mastercard Donate ecosystem, which can be integrated into third-party websites to launch fundraising campaigns, embedded as an option to donate at checkout, or deployed as a point-of-sale roundup at physical shops.
ESG Quant is a Mastercard assessment for small and medium-sized businesses. The diagnostic survey assists businesses in assessing their ESG readiness, which is determined based on actions taken to improve performance on ESG issues and reduce associated financial and regulatory risk.
Datasets associated with reporting initiatives like the Sustainability Accounting Standards Board (SASB) are used to determine ESG readiness and provide benchmarks, which include specific recommendations to improve progress towards social and environmental sustainability strategies and initiatives.
Card-linked programs are also gaining popularity by providing consumers with spending data and information on how retailers align with their social and environmental goals and interests.
3. Enabling
Financial institutions can target most of the household greenhouse gas emissions from the top three emissions-generating categories identified by UCS: consumer goods, transportation and housing.
Consumer Goods
The consumer goods market represents a broad swath of the emissions puzzle. Lowering its associated emissions takes not only consumers considering their everyday purchasing choices, but also the support of governments and the private sector.
Financial institutions can enable customers to spend at sustainable retailers through card-linked offers, higher cashback, and reward points at spotlighted retailers. These retailers can be selected on the basis of third-party verification, such as a certification from Green Seal, a nonprofit organization that conducts scientific analysis of the environmental impact of a product, or from B Corps for social impact.
Transportation
Few factors affect an individual’s day-to-day life more than how they move around. Whether by car, public transport or by foot, efficient transportation affects quality of life — and has a direct impact on carbon emissions.
Gasoline-powered vehicles pose one of the biggest challenges to sustainability and the environment. They produced about 30% of total U.S. CO2 emissions in 2022, according to the U.S. Energy Information Administration. As a result, the private sector has started providing consumers with alternative transportation options.
- Citi Bike
Since 2013, Citi has sponsored Citi Bike, a partnership between the New York City Department of Transportation and Lyft. The program provides New Yorkers a more sustainable, affordable, and often more accessible option to get around the city than cars.
In July 2020, Citi Bike reached 100 million all-time rides in New York City and in 2023, it hit 200 million. August 2023 saw a monthly record for the system: over 4 million rides taken that month. The Citi brand has become synonymous with urban mobility in New York City — the New York Times declared the program “transformative” and “part of New York’s street life.”
The implementation of over 30,000 Citi Bikes and 2,000 docking stations enabled 1.4 million people in 2023 to lessen their transportation-driven emissions by reducing the use of personal cars and other forms of transportation that negatively affect the environment. Citi’s investment in this initiative helped embed the company’s commitment to socially and environmentally responsible initiatives into consumer perceptions.
Most major cities have a bike share program of some sort, and while not all are at the scale of Citi Bike, other banks have invested in similar urban mobility solutions elsewhere. Santander UK has sponsored Santander Cycles, a 14,000+ bike-sharing program in London, since 2015.
As of August 2021, there are nearly 10 million shared bikes and 3,000 bike sharing systems globally, according to bikeshare provider PBSC Urban Solutions. The demand for bike sharing programs is rapidly growing, and financial institutions have a unique opportunity to capitalize on this momentum by sponsoring local programs.
Removing friction from the payment process helps increase usage of urban mobility programs, including bike shares and mass transit. Mastercard helps issuers gain top-of-wallet status by partnering with transit authorities around the world to create open and contactless payment systems for transit options. A recent example is the Philippines, where Mastercard will be the first international payment network to enable tap to pay on public transport. Transit systems around the world are moving towards open loop payment technology for consumer convenience, operational efficiency, and sustainability reasons.
Lastly, for people who rely on cars, some credit cards have begun offering higher cashback or points on electric vehicle charging to incentivize drivers to make the switch to electric vehicles.
Housing
A further option for financial institutions is to offer “green mortgages.” All types of buildings, residential or commercial, are responsible for 39% of global energy-related carbon emissions, according to the World Green Building Council: 28% from operational emissions, including energy needed to heat, cool and power them, and the remaining 11% from materials and construction.
The term "green mortgage" often denotes new resource-efficient builds, but it can equally apply to the financing of improvements, such as an older home adding environmentally friendly options like a heat pump, solar panels, well-insulated windows, or an electric vehicle charger. Fannie Mae and Freddie Mac, two U.S. government-supported enterprises that finance about 70% of the U.S. mortgage market, offer “green financing” options through their affiliated lenders.
Between 2017 and 2021, financing for residential adoption of clean energy rose on average 19% annually, according to McKinsey. The growth demonstrates consumer demand for more energy-conscious living spaces. Additionally, the lower running and maintenance costs of energy-efficient products and their longer life expectancy may give borrowers a better debt-to-asset ratio, which could be a further justification for lower interest rates.
Government-subsidized loans allow financial institutions to offer competitive “green loans” with lower interest rates, lower down payments, and longer terms. Sustainability-linked loans may tie interest rates to business performance relative to pre-determined environmental metrics.
Conclusion: Consumers want support making sustainable choices
Consumers want to spend responsibly and lower their environmental impact, but they need inspiration, information, and accessible options.
Financial institutions have a unique opportunity to capitalize on shifting demand for sustainable goods and services to capture a larger share of consumers while simultaneously helping reduce consumer-driven emissions. There is an unmet need for innovative products that incentivize climate-conscious spending, and the financial institutions that can fill this gap will be well positioned.
Financial institutions have the opportunity to position themselves to consumers worldwide as leaders in sustainable consumption. They can:
- Inspire consumers to spend consciously with innovative core reward offerings.
- Inform consumers with information about the impact of their purchases.
- Enable consumers to choose sustainable options.
As the next generation of consumers increasingly prioritizes sustainable consumption, financial institutions can take steps now to capture this demand.
Contact us to learn how Mastercard's suite of sustainability products and services can support consumers’ social and environmental priorities through consulting, marketing, analytics, and loyalty solutions.
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