Digital transformation: a vehicle for green growth

Since the beginning of the Industrial Revolution, economic growth for a society or a nation mostly came at the cost of the environment or without active consideration to preserve nature. The world was largely poor back then; limited capital, technology, natural resources and basic institutional support were available to use to develop basic infrastructure and to gradually lift the vast population out of poverty.

That was what our ancestors could do; no point blaming them today. We now know that promoting Green Growth is paramount to limiting carbon emissions to achieve our goal of limiting global temperature rise within 2 degrees centigrade from the pre-industrial level.

The energy sector draws most of the attention due to the significant usage of coal, oil and gas for substantial greenhouse gas emissions; manufacturing, transportation, and agriculture are other key areas from carbon emission point of view. Solar and wind energy production is still very low, and fossil fuel is expected to power a significant part of our electricity grids for many more years, especially in developing countries.

Energy efficient machineries are slowly being introduced, but the need for charging stations and conducive policies for electric vehicles are prolonging the reign of conventional vehicles and associated environmental damage. Climate-smart agriculture will help to gradually introduce drought and salinity-resistant varieties of crops in drought-prone and coastal areas, but vast areas of rice-paddy cultivation would continue to generate harmful methane gas, which is 80 times more harmful GHG than CO2 for years after it is released.

However, it is not all doom and gloom. Large enterprises and companies are increasingly aware of their carbon footprints and aligning resources to gradually move to greener operations. This optimism has a caveat: significant impact would only be visible in the long term - a scenario commonly termed as "too little, too late".

For a commercial bank to go green, a significant focus should be to reduce indirect or Scope 3 emissions - in excess of 90-95 per cent of its total carbon emission. In general terms, Scope 3 emissions include a corporation's upstream and downstream value chain (e.g. suppliers, distributors etc.), business travel, leased assets, and lending exposure. Bloomberg reported that banks produce 700 times more emissions from loans than from their offices. The tradeoff between revenue and planet would move a few banks to choose a pro-planet portfolio, which is also a long-drawn process due to current long-term engagements with large customers. With the help of thoughtful leadership, Green Transformation Funds and a conducive economic environment, the green portfolio is expected to grow for those who drive sustainable and green financing for corporate customers with passion and priority.

For banks with large Retail and Small & Medium Enterprise customer bases, affordable housing and electric vehicles are a few green/sustainable lending areas in our current sustainability guideline; both supply and demand sides are lagging far behind, and we see almost no impact. We can also consider extending preferential lending rates for energy-efficient consumer goods (hybrid vehicles, inverter-controlled air conditioners, refrigerators, induction cooktops etc.); uptakes are really low, probably due to high cost, lack of confidence in new technologies and lack of awareness.

When done at scale, customer-centric digital transformation has enormous potential to increase customer satisfaction, grow revenue, and serve customers. This piece aims to share what our digital transformation, specifically the "Astha" mobile application, brought for us and society at large. It has been a little over two years since we launched this customer-friendly app for retail and SME (sole proprietor) customers; it has attracted close to 400 thousand customers who perform their day-to-day transactions mostly through this app. And more than 90 per cent of transactions are now performed through alternate or digital channels.

With sustained and deeper penetration of digital technologies, customers who use digital channels would have more productive time and capacity to pursue many other important things, as is the case with bankers -- they would have quality time to focus more on customer relationships for understanding customer needs and serving better. Every visit to a bank branch comes at a considerable cost of time, effort, fuel etc., for the customer - equating two hours and two litres of fuel for such a visit would not be an overestimation considering Dhaka traffic.

With over Tk60 billion transactions in Aug '23 from over 1.4 million transactions, we serve more than 10 per cent of total internet banking transactions for the country. Few other banks are equally investing in digital transformation and apps; many other banks in Bangladesh are yet to make a significant presence in this space. We see distinct benefits of digital channels for the banks and for our customers, and there would be no turning back - we would continue to enhance, invest in digital channels and induct & incentivise customers to migrate to digital channels.

The most significant benefit from customer-centric digital transformations would be environmental benefits -- from saved fuel by not visiting branches, additional brick and mortar, paper trail transactions, electricity etc. Although it is not straightforward to quantify the positive environmental impact of digital transformation, it will probably not be audacious to estimate environmental saves from our Astha app use as one million litres of fuel saves per month (assuming internet banking substitutes about 500K branch visits per month, two litres of fuel saves per such visit). Digital transformation efforts from banks in Bangladesh might have saved 10 million litres of fuel per month due to avoidance of carbon-intensive branch visits.

There is a case for additional economic growth when customers can be served digitally, at scale (even in remote locations), in almost no time, and at no cost. This is green growth - financial institutions, government and private services, municipalities, utility services, schools and colleges can offer part or full services through digital channels to attract green growth for respective institutions and the nation.

"Shurokkha" digital app we used during the pandemic is a great example - Bangladesh had reasonable vaccination coverage in a few months and escaped with few fatalities. Without such a digital app (and, of course, vast logistics and sourcing of vaccines), who knew when and where to go and get the vaccine. I cannot think of the chaos and confusion, numerous failed visits to hospitals, and associated lost productivity; otherwise absence of "Shurokkha" digital app would have created.

Appropriate authorities for delivering health services solved the greatest problem we faced in this century with flying colors - with the help of digital mindset, coordinated efforts and benevolence. Other examples include eKYC for account opening, emerging digital lending apps, electronic statements of bank accounts, electronic tax return submissions, ticketing for buses, train and air travel, and utility payments through electronic channels. We would find varying degrees of penetration and adoption, though the overall trend is positive.

Digital transformation is a distinct lever not only for economic growth but also for green growth. At the same time, the return on such investments is much higher and faster than new infrastructure and business lines. Although some transformation will naturally happen, demand/supply-driven transformation will help to unleash societal benefit at a much broader scale.

This is precisely where government comes into the picture - with appropriate regulations/relaxations, incentives, rewards and reprimands, the government can accelerate this transformation journey for all government services and all services provided by large, medium and small enterprises. Smartphone and internet penetration is questioned in every discussion on digital transformation for a large population. While these are constraints, things are moving in the right direction, and both smartphone and internet penetration are expected to grow with income growth.

Effective digital transformation takes dedicated resources, investment and continuous effort to transform manual/paper-based processes. It is not a short-term project but a long-term endeavour. Again, winning formula takes a lot of work: human-centric design, appropriate/sizeable technical infrastructure, periodic infrastructure refresh, guard against cybre threat, and constant drive/incentive for frontline and targeted customers. No wonder many financial institutions, large and medium enterprises, are making half-hearted attempts at most. 

If green growth through digital transformation is much more valued than normal economic growth, we need to find ways to generate more energy, investment, enthusiasm, incentive, awareness and support from the board and management of all public service companies. The pandemic was a great force that turned our attention to digital transformation; it will be unfortunate if we slow down or deprioritise this journey.

In periods of uncertainty, economic downturn and geopolitical instability, businesses tend to hold back investment for less critical initiatives -- digital transformation gives the most return during wanting times. We must do all we can to bring green growth opportunities to the front burner in all possible sectors to do justice to SDG goals. And that takes national interest and concerted drive from all regulatory bodies.

M Sabbir Hossain is DMD & COO, BRAC Bank Limited, and completed his executive certification on Economic Development from Harvard Kennedy School.