The Green Finance Podcast Ep. 4: How banks can leverage carbon data to enable a net zero future with Doconomy CEO Mathias Wikström

I’m super excited to announce our upcoming Banking on the Planet Conference, where we’ll be talking everything green finance - the intersection of climate risks, sustainability, ESG investments, bringing together leaders from the banks set out to make a difference and the fintechs and technology providers bringing us closer to a net zero future.

Join us for free virtually at Banking on the Planet Conference 2022 on July 26th for a day of critical dialogue on the responsibility bestowed upon the financial industry, and the players rising to the challenge. 

One of the speakers that will join us at the conference is Mathias Wikström, the CEO of Doconomy, who is also my guest today on this podcast episode. 

Doconomy provides data services that help businesses monitor and assess their environmental footprint based on transactional and financial data. Consumers can find out the footprint of their lifestyle choices, brands can calculate their product’s footprint. 

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The following excerpts were edited for clarity.

Tell us about Doconomy's journey to what it is today.

Mathias Wikstrom: It's a very interesting part of the market and we see this evolving quite rapidly. The Doconomy backstory is that in 2016 we developed the world's first methodology to put the carbon intensity to each and every transaction made using your payment card or credit card. And since then that has developed into a diverse set of tools and impact methodologies, aiming to engage users in everyday climate action, but also to make use of the efficiencies within the financial services system, making the banks the hub for actionable insights with regards to climate impact for every user.

How can we leverage some of the technologies in the banking and finance sector to provide such carbon-related insights?

Mathias Wikstrom: I think that the financial services platforms today have really shaped an opportunity for a safe and secure environment, quite heavily regulatory driven, of course, on which you can have conversations around any kind of financial impact. Replicating that carrying information around climate impact, I think we can make use of the same efficiencies, instead of reinventing the wheel, to fast track the trajectory to a netzero lifestyle. If we’re aiming to hit the 2030 and the 2050 reduction targets, the financial services industry and banking is to me the best suited in doing so. Because if we can take the efficiencies in the financial system, creating wealth over a long time, and have that catering to the fragilities of the ecosystem, I think we will be in a good place sooner rather than later.

You're developing products at a consumer level, enterprise level, and you're also developing an impact dashboard, which is a management reporting tool for the consumer credit portfolio that enables banks to aggregate the information provided to their consumers. Can you tell us more about that?

Mathias Wikstrom: It's the other side of the coin. The one side of the coin is the benefits for the user of understanding the impact, measuring it, enabling reduction of this impact, as well as directing your funds, your investments, your savings into sustainable efforts. This uses traditional financial instruments that banks provide, but potentially also additional new financial instruments driven by the transparency opportunities that comes with the new technology that exists today, disrupting the financial services industry. 

Another side of the coin is the upside for the banks that is also heavily regulatory driven, or in the making, that will ask for the banks to better understand what is it that our money is enabling really? This means looking at impact dashboards around their consumer credit portfolios, looking at what kind of consumption that their credits enable and the footprint of that consumption, making that language consistent and comparable so that it’s not just an opinion by someone somewhere. But this is a language and an infrastructure that becomes actionable also for the bank side in adhering to regulatory efforts, but also to drive innovation in ESG.

Considering you're speaking to a lot of banks and collaborating with them, what's the demand you're seeing for a product like yours? And what are some of the biggest challenges in implementing that?

Mathias Wikstrom: I think the challenges won't surprise anyone – it’s always balancing the resources and trying to fit in within the tech backlog that is probably already existing. In order to facilitate the implementation side of things, we developed a portfolio and have SDKs in order for banks to go to market fast and to enable them to integrate within their own applications, so that the tech burden is not so heavy. 

The other side is that we see a tremendous uptick in interest, we see an uptick in the number of RFPs and RFIs. Going out on a global level, we see geographies that have been lagging to some extent, waking up, coming to terms with the fact that this is going to be the new normal, every transaction will carry information that is not only monetary, but also planetary. And those that understand this are the ones that aim to be the change makers rather than the change takers.

You're working with companies across multiple industries and geographies. Given that climate data is still quite fragmented, what are the challenges aggregating all that data and trying to put it together in a cohesive way?

Mathias Wikstrom: That’s one of the most important cornerstones of this, because to me, it boils down to trust. So the data needs to be treated with great integrity, both out of a precision perspective, as well as a privacy perspective. So that's one thing. But we got to start somewhere, right. And starting with those considerations, I think it is the most important one. Once you have that ambition, you can start communicating around what is possible today, and what is possible tomorrow. 

Looking at what's possible today, so say on financial transaction level calculations. For example, as an economy, we calculate both transactions or spend based impact as well as the product carbon footprints to the 2030 calculator, their lifestyle, carbon footprint through a collaboration with the UN and our corporate calculation offering. But looking at the transaction side, what we do is we look at this from an evolutionary perspective. So number one, calculate the carbon intensity per category, and the categories become more and more granular, as more and more data becomes readily available. We calculate the impact of every transaction, not only card transactions, then you can see connecting it to our API asking the question, this band in this category represents what CO2 footprint.

What about banks' scope three emissions? What are the latest developments there?

Mathias Wikstrom: To some extent, it comes down to what it is that the banks enable out of a scope three perspective. Looking at what you see in your reporting, you're going to be able to understand your spend based on carbon screening of sorts. But if we go to the greenhouse gas protocol, the vast majority of those categories are activity based. So in order for us to make use of a more precise carbon score per company so that we can make relevant and better informed purchasing decisions when choosing between different providers, we need to do this in three steps. 

The first step is to calculate all of the transactions or accounts payable on the books of the company to provide a heat map on the carbon screening side, and that gives both the vendor as well as the buyer an idea of the impact of this company's operations. Next step is to export the spend base and relevant categories into a reporting tool that we're setting up together with leading banks around the world, in regard to adding your activity based impact factors. That can be done with precision through your auditors, or it can be done as a self assessment tool. And then of course, we make use of the understanding of your footprint in regard to the industry or in the energy mix in the area, what area you're working in, the size of your company, and so forth. And that is something that we are looking to disclose a lot in alignment with COP 2022, in Sharm el Sheikh and reporting back on this project that I find extremely interesting. 

The third component is adding additional sustainability criteria, such as the science based targets initiative. What is this company doing outside of the actual calculable data? What are the missions here? Because what we see more and more is not only the data becoming more precise, but also the language around these claims. So looking at carbon offsetting, for example, being replaced by contributing beyond not only looking at what is the theoretical Net Zero component, if you're only paying for carbon offsetting, is that really an honest and sincere attempt? Or should we really be looking at the sustainability strategies of operations of the companies looking how they can reduce impact and then potentially at the end of the day, offset for what they are not able to avoid? So both from a data perspective and a language perspective, we're seeing higher levels of precision that can help our understanding of the scope three emissions.

Is the responsibility we place on the consumer proportional to the actual impact and effect that the consumer can have versus a bank? How can we make sure that we're putting that data in the right context, to understand how it impacts the world and what actions we need to take as a result of that analysis?

Mathias Wikstrom: I completely agree with you that the disproportional weight on the individual consumer is something that we need to avoid. But we're people, we're not consumers -- we're more than just what we buy. And in those roles, we need to step up to this challenge. And there, I think that it can never be disproportionate, we need an all hands on deck to do exactly what we can and to direct our abilities into reducing impact.

But to your question, what can we expect from institutions, financial institutions? I think the short answer is quite a lot. And the institutions that don't get this will be replaced by institutions that do. Institutions that understand that they need to not only review their own operations, the way they do things, but also the way they handle credit and what they provide credit to because they are the greatest enablers of development in the world leading up to where we are today. So we need the experts, and we need the power of the financial institutions to enable this transition as well. They have the language, they have the funds, they have the network, they have the tech. But more importantly than that, I believe that they also have a fundamental trust from each and every one. If you put your money into a bank account, you're pretty sure that that money will still be there today, and not many institutions have the same trust and trust is what is needed in order to engage everyone to participate in contributing to the journey to a netzero economy.

Considering all the resources that you’ve mentioned that the sector has, and then you pair those with the booming climate tech startup sector, there's so many startups entering the market to create new ways for businesses of all sizes, and in all industries to manage carbon emissions monitoring, reporting, and ultimately drive emissions down. So what’s the potential that we could unlock? How do you think having access to more carbon related data and all these insights will change the finance sector going forward?

Mathias Wikstrom: I think the accessibility to comparable data is going to increase the courage in the financial sector, because it's risk averse to begin with. And that's something we pay for them to be. So we shouldn't expect anything less. At Doconomy, we're not so interested in doing what's easy – doing what's easy, it's never hard, but doing the hard things is what's required. And that's where we want to be. That's why we started working with MasterCard, as one of our partners implementing our methodology in their global transaction platform, adding carbon as a component to every transaction. If someone had told me that five years ago, I would be like nah, I mean, who would who would do such a thing? Now,  a few years later, that's the natural state of things.

The better the data gets, the more granular data gets, the more democratized the data gets, the more forceful the reduction will be able to be, and the more precise individual as well as institutional activities will be able to be. And I think this is all about shaping a new relationship between the clients and the financial institutions that are data based and insight driven, substantiated by data.