Most consumers are willing to pay more for green finance products, but banks can’t differentiate them
- Consumers are willing to put money where their convictions are when it comes to combatting the climate crisis.
- However, limited understanding of product offerings and inability to differentiate in green financial products may be leading to an intention-action gap.
As the realities of climate change are setting in, customers are becoming interested in products that help combat the climate crisis and financial products are no different. However, recent research by McKinsey shows that although consumers are interested in green financial products, their understanding of different product offerings by different banks is low.
Motivation to make banking greener is about to hit the halfway mark as 40% US consumers report interest in choosing climate-linked financial products such as a green checking or a climate screened index fund. Moreover, consumers are willing to put their money where their convictions are with two in three saying they would assign more than 40% of their savings or monthly credit card spending to a green retail banking product.
These interest levels persist across levels of income, household savings, and geographic location.
Make money matter
Nearly 40% of consumers said they would opt for a green savings account with an annual percentage yield (APY) that was 20% lower than a traditional savings account, according to McKinsey. If such cases ensure a positive impact on the climate, consumers say they will be willing to pay more or compromise on savings. The findings of this research confirm previous research results which show that when customers trust they are making a positive impact on the climate crisis they are more likely to compromise on issues like price.
Help me go green
67% of consumers want their banks or FIs to be more sustainable in the future. This does not mean, however, that consumers completely understand what banks are offering as a response to this demand. For example, 35% of consumers report they don’t understand the difference between ethical finance and green finance. Banks have a unique and privileged position that can overcome this gap. Due to perceived expertise and legacy, consumers look towards their retail banks for advice that can help them take on a transition to more sustainable living. Two in three consumers are willing to ask a bank for financing solar panel purchases rather than working directly with a solar panel installation company.
Gaining an edge in green financial products
While ESG and climate linked offers are growing, it is likely that the efficacy and impact of these options will be lost on consumers. Consumers don’t generally prefer specific green banking products. While this data can also signal a genuinely divided preference among consumers, it is more likely that consumers are unclear about what different products mean and their utility, according to research from McKinsey.
As such, without proper communication on how a particular financial product combats climate change, consumers may continue to remain confused about which products best fit their sustainability goals and motivations.
While this research, like other studies, shows that consumers say they are motivated to choose green financial products, few actually follow through with their wallets. For example, Harvard Business Review reports that while 65% of consumers reported wanting to pay for purpose driven products, only 26% actually did. This intention-action gap may be emerging from a lack of proper understanding of different green finance products as well as an inability to access proper guidance from their FIs and banks.
To encourage consumers to follow through with their expressed intentions, banks may have to step up their communication strategies when it comes to green finance products – this not only includes creating awareness around different financial products but also providing concrete roadmaps that enable consumers to make a shift.