Evaluation of the Climate Change Mitigation Potential of Digital-Only Banks and a Quantitative Analysis of Their Adaptation Co-Benefits

The banking sector has begun to take an interest in its potential to contribute climate change mitigation. This study holds significance in pioneering the methodology for quantifying the effects of greenhouse gas (GHG) emission reduction of digital-only banks and further simultaneously evaluating their climate change adaptation effects. For quantification, we gathered data from a digital-only bank in South Korea and compared it with a hypothetical traditional bank. The hypothetical bank was created by averaging data from four leading brick and mortar banks and adjusted to the same asset size with a digital only bank ($29.6 billion). The analysis covers eight emission pathways in three sections: (1) transitioning from paper to digital including replacement of paper bankbooks, documents, and receipts to digital versions, (2) reducing building energy use, and (3) reductions in transportation use including absence in physical branch visits by customer, business vehicle operation, cash-in-transit, and employee business travel. Results indicate a substantial annual reduction of 12,935 tons of CO2 eq. by the digital-only bank. The most significant emission reduction was observed in the absence of physical branch visits by customers. If the top four brick and mortar banks in South Korea are transformed into digital-only banks, the emission reduction effect could expand to 604,200 tons of CO2 eq., which is equivalent to offsetting the CO2 emissions during the generation of electricity used annually by 262,000 households. The research further identifies climate change adaptation co-benefits of the digital-only bank. The reduction in water footprint by the digital-only bank was equivalent to sparing around 5.37 million 2 L bottles of mineral water. In addition, reduced transportation contributes to PM2.5 emission reductions, which indicates digital-only banking's positive impact on urban air quality, human and ecosystem health. Considering the expected rise in demand for certified carbon credits, our method could provide a robust methodology to quantify carbon reduction effect of digital-only banks and further be applied to assess carbon credit quality considering multidimensional climate change adaptation co-benefits.