Is Starling A Sustainable Bank? (Sustainability Strategy Analysis)

One of the most sustainable choices you can make is who you bank with. 

Banks with ethical policies are more likely to pursue green investments, pay their fair share of tax and adopt environment-friendly policies.

If you are considering whether Starling is an ethical bank choice, I believe they are.

Belief and hope are not quite enough though. To access true sustainability, we need to look at the data and objective actions that Starling are doing.

Rob from Emission Index takes a closer look at Starling’s green initiatives.

Sustainability Strategy

Starling aims to achieve net-zero emissions by 2050. They have an interim target to reduce carbon emissions by one-third by 2030.

In 2021, they undertook a carbon emissions audit to set the benchmark for continuous improvement. In 2022, they took this further to align measurement with the Greenhouse Gas (GHG) Protocol.

Carbon Footprint

As a digital-first bank, Starling does not have branches. Although they have offices in London, Cardiff, Southampton, Dublin and Manchester.

Being branchless, their carbon footprint is relatively low. However, they acknowledge that they are not blameless and emissions in their supply chain increase their carbon footprint. 

In their 2023 annual report, the bank noted a year on year increase in energy consumption. This is something that a cautious consumer or investor should monitor. 

In this instance, Starling notes that the increases are due to two reasons. 

1. The move to a larger London office
2. Increased occupancy rates due to the removal of COVID-19 restrictions

As both are related to headcount growth/activity, the important ratio to keep track of is their Carbon Intensity Ratio. They measure this as a proportion of headcount. In this case, the number of emissions per full time employee has declined from 68 per person to 62.

Their total emissions are broken down into direct (Scope 1 and 2) and indirect (Scope 3) emissions. Here’s how that looks.

Scope 1 and 2 Emissions

Being a digital bank, Starling’s direct emissions (Scope 1 and Scope 2) are minimal when compared to conventional banks. 

Yet, there’s always room for improvement. While reducing emissions is crucial, Starling also invests in carbon avoidance and sequestration credits to counterbalance both direct and indirect emissions. 

This includes supporting projects like woodland establishment, ocean-focused initiatives or peat conservation efforts. These projects are influenced by employees voicing their opinions on areas to focus.

Scope 3 Emissions

Approximately, 97% of Starling’s total emissions are Scope 3 emissions. These are emissions the bank is indirectly responsible for through their supply chain. Scope 3 emissions are the hardest to manage.

The top 3 contributors to supply chain emissions are:

1. 60% from purchased goods and services
2. 20% from downstream transportation of letters and bank cards
3. 10% from employee commuting

Employee actions are key to reducing these emissions. Starling addresses this through employee awareness workshops, public Slack forums, cycle-to-work schemes and refining their communications strategy.

They have also adapted their procurement policy to ensure environmental impact is a key consideration in selecting vendors.

Green Initiatives

Internally, Starling have adopted five key approaches to sustainable finance.

1. Digital-first. A focus on branchless and paperless banking. This reduces the need to take up space and resources.
2. Eco-friendly cards. In 2021, Starling launched the UK’s first recycled debit card. The cards are made from 75% recycled plastic. The remaining 25% is non-recyclable and consists of the chip and laminated surface. 
3. Recycled packaging. The cards are delivered in 100% recycled packaging and uses water-based glue to separate them from paper.
4. Greener offices. The London, Southampton and Cardiff offices run on renewable energy. Southampton also has a charging point for electric vehicles in the car park.
5. Encouraging UK home retrofitting. Starling recognises the importance of energy-efficient homes. Fleet, the buy-to-let lending branch, has improved its offerings to motivate owners and promote retrofitting.

Partnerships

Partnerships and collaboration are key to Starling’s sustainability initiatives.

Instavolt

InstaVolt is a leading electric vehicle charger network using 100% renewable energy. They aim to reduce air pollution and encourage more electric cars on the road. 

InstaVolt offers rapid charging through easy, contactless payments. No subscriptions or cards are necessary, and a tree gets planted when customers pay using a Starling card on InstaVolt’s app. 

Seat at the Table

Seat at the Table was an 11-part YouTube documentary series released in October 2021. Starling sponsored the series following Jack Harries on a journey across the UK. 

The filmmaker and activist has 3.7 million subscribers. He used his platform to bring the conversation on sustainability to wider audiences. The journey ends at COP 26, the UN Climate Change Summit. 

The series shares stories of people fighting climate change from farmers to firefighters. It also featured special guest appearances from Sir David Attenborough and Jane Goodall.

Kew Gardens Initiative

Maintaining parks and gardens in cities is crucial to protect UK’s biodiversity.

Starling sponsored the Secret World of Plants programme at the Royal Botanic Gardens to support this.

Trillion Trees

Forests act as the earth’s lungs, with trees being vital shields against rising carbon dioxide levels. In 2020, Starling launched an eco-friendly referral scheme for its personal and business clients. This was made possible through a collaboration with Trillion Trees.

For each successful recommendation of Starling leading to a new customer, a tree was planted in gratitude. By the end of this partnership in March 2023, Starling had sponsored the planting of 100,000 trees.

It’s a shame Starling have stopped this.

TechZero Charter

As a founding member of the TechZero Charter, Starling underscores its dedication to aligning technology and sustainability.

Carbon offsetting projects

From local to global, Starling backs initiatives that neutralise their carbon footprint.

Guided by their staff’s feedback, Starling Bank supports seven projects. Each project aims to either:

• Remove harmful CO2 from the atmosphere
• Prevent further emissions

Furthermore, each project is either Verified Carbon Standard (VCS) or Gold Standard Verified Emission Reduction (GS VER) certified.

Deforestation Initiatives

Starling backs three projects focused on forest conservation:

1. The Kariba REDD+ Project in Zimbabwe.
2. The Mai Ndombe REDD+ Project in the Congo Basin.
3. The Uganda International Small Group Tree Planting project.

Fuel-Efficient Cookstoves in Tanzania

In Tanzania, Starling is supporting a project that aims to distribute and install half a million fuel-efficient cookstoves via Ecologi. You can read my Ecologi review here.

This move will avoid the production of 18.8 million tonnes of greenhouse gas emissions over the next decade.

Renewable Energy Ventures

Starling supports three renewable energy projects:

1. The Kubratovo Wastewater Biogas Project in Bulgaria focuses on both methane emissions reduction and energy production.
2. Solar water pumps produced by SunCulture in Kenya help farmers adopt sustainable practices by replacing CO2 emitting petrol or diesel pumps.
3. In India, Powerica oversees a project where wind power is produced by six turbines and fed into the Indian grid.

Carbon Credits and Partnerships

Starling has bought carbon credits for these projects via:

• Ecologi
• Carbon Footprint
• Patch

Also, the bank has maintained its collaboration with Carbon Footprint for a second consecutive year. It also forged a connection with Patch, being a founding member of the Tech Zero climate action group.

It’s these actions that make Starling one of the most ethical banks in the UK.

Starling’s Approach to Climate Risk

As climate change progresses, financial institutions, including Starling, must adapt and respond to the various risks presented.

Here’s how Starling is navigating this terrain.

Understanding Climate-Related Financial Risks

There are two primary avenues from which climate-related financial risks emerge:

Physical Risks

• Emanate from increasing intensity and regularity of climate and weather events, such as rising sea levels and floods.
• These risks have numerous ramifications, including property damage, disruptions to business supply chains, agricultural output reductions, and more severely, loss of life and mass migration.
• Consequently, asset values decrease, companies face lower profits, public finances suffer and insurance coverage can develop gaps.
• On a broader scale, these direct effects are magnified by macroeconomic challenges like diminished productivity.

Transition Risks

• Linked to the shift towards a net-zero emissions paradigm, necessitating major structural economic changes.
• This transition triggers asset value re-evaluations, energy price fluctuations and the declining creditworthiness of some borrowers.
• Such adjustments can result in potential credit losses for banks and market losses for investors. However, they also offer financial sector opportunities.

These risks, be they credit, operational or market-based, can lead to both anticipated and unanticipated financial losses for banks.

Starling’s Current Climate Risk Profile

A quick explainer of a couple of terms relating to climate risk. 

In the context of banking and finance, especially when referring to credit risk:

• PDs: Stands for Probability of Default. It is a measure used by banks to indicate the likelihood of a borrower defaulting on a loan or credit obligation. It essentially predicts the likelihood that a borrower will be unable to meet their debt obligations over a specified period, usually one year.
• LGDs: Stands for Loss Given Default. It quantifies the amount a bank expects to lose if a borrower defaults. This is expressed as a percentage of the exposure at the point of default. For instance, if a bank lends £100 to a borrower and expects to recover only £60 in the event of a default, the LGD would be 40%.

Both PDs and LGDs are essential components of credit risk models used by financial institutions to determine capital reserves under regulatory frameworks such as Basel III.

For Starling, the prevailing climate-related financial risks are deemed low, as they’re not projected to notably affect its profitability or capital stance, either presently or in the foreseeable future. Breaking it down:

Small and Medium Enterprise (SME) Lending

Starling’s loans span up to a decade, with a diversified sector spread and no significant concentrations towards particular businesses. A significant portion of this book is UK Government guaranteed.

Mortgage Lending

This represents Starling’s principal climate-related financial risk zone. The bank keeps a keen eye on emerging risks such as:

• Increases in PDs and LGDs due to physical risks, like flooding.
• Transition risks affecting credit, for instance, when landlords invest in enhancing rental property energy efficiency.

The government’s recent discussions around obligatory energy efficiency ratings by 2028 and 2030 for residential and commercial properties respectively could lead to several properties becoming unrentable.

Any crystallisation of these physical and transition risks, coupled with mortgage lending regulation alterations, could impact consumers’ mortgage repayment or refinancing capabilities. 

This can escalate PDs and lower property asset value, thus increasing LGDs, and potentially leading to ‘mortgage prisoners’.

Government Policy Evolution & Starling

As government policies evolve, Starling may need to adjust its exposure to these climate-related financial risks. However, Starling also recognises the chance to collaborate with its clientele in enhancing their home energy efficiency.

Starling’s buy-to-let lending arm, Fleet, has already initiated product alterations to spur owners towards boosting property energy efficiency. They’re also in the process of developing newer offerings to champion these eco-friendly changes more actively.

Promoting Awareness and Providing Tools for Customers

Beyond their own efforts to diminish their carbon footprint, Starling Bank is dedicated to equipping their customers with the means to grasp and improve their environmental influence.

Here’s how Starling Bank is enlightening and guiding their clientele:

• Eco-awareness Tools: Starling Bank is crafting tools that offer insights into individual and business environmental impacts.
• Grants and Support: Especially for their SME customers, Starling Bank is pointing the way to valuable grants and backing that can drive eco-initiatives.
• Carbon Calculators: Users can gauge their carbon emissions and understand where changes might be most impactful.
• Green Success Stories: Through case studies, Starling Bank spotlights the perks of adopting environmentally friendly practices, illustrating tangible benefits of the ‘green’ shift.

For their SME audience, Starling Bank is collaborating intensively with the British Business Bank. This partnership aims to ensure that their guidance and messages align seamlessly, offering the most effective, unified advice.

You can find out more on the most ethical business bank accounts here.

Wrap Up: Is Starling a Sustainable Bank?

When looking at Starling Bank’s plans and actions, it’s clear they are committed to the environment.

From funding renewable energy projects to partnering with Trillion Trees to reduce carbon footprints. They also provide customers with eco-awareness tools, showing their commitment to sustainability.

My Verdict? Based on what I’ve seen, Starling Bank is definitely one of the most ethical banks, especially in the UK.

Their commitment to environmental responsibility stands out compared to other banking industry players.

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