What does sustainable finance really mean?
Sustainability – including climate, environment, social inclusion, and social equality issues – is fast becoming the most pressing issue facing the world, impacting all aspects of society and societal systems, including financial systems.
Increased regulation, governmental and fiscal policy change, and perhaps most importantly rapidly evolving consumer attitudes and public perceptions are all accelerating the urgency for action.
A long-term, sustainable approach centred around strong environmental, social, and governance (ESG) principles is more important than ever.
There is a huge opportunity for banks, insurance institutions, and FSIs that lead from the front.
Those that invest in the transition, innovate, educate, and fund the future will differentiate themselves.
In the summer of 2021, FullCircl held an interactive webinar attended by 70 FSI leaders to discuss how to create investment and build businesses that not only generate wealth but also produce positive impacts on society and the planet.
The highlight of the event was hearing from Gillian Lofts, Global Sustainability Finance Leader at EY, and Rob Keegan, Regional Manager at Triodos Bank, the leader in banking products and services that make a difference to people and the planet.
Here’s what they had to say…
What are the key issues shaping the sustainability agenda in FSI?
Firstly, regulatory pressure.
Regulators increasingly see ESG issues as systemic risks to the global financial system, therefore there’s a huge focus on the ability of central banks in particular, and FSIs more generally, to better identify and quantify sustainability risks and develop frameworks to tackle them.
In tandem with this, there is increasing governmental and fiscal pressure. Policy changes across all aspects of ESG concerns are continually nudging banks, insurers, and financial services providers, and indeed society at large, to make the changes needed now for a greener and more inclusive future.
Finally, the FSI sector is facing pressure from the general public, customers, and investors, who expect them to take the lead, by implementing the UN’s Sustainability Development Goals and the targets set out by the Paris Agreement.
They’re demanding more accountability, more transparency, and expect their banking providers to use the power of money to create positive change, with ESG right at the core.
In 2021 financial services had reached a digital inflection point because of Covid19; perhaps 2022 is the year it has reached a sustainability inflection point.
Respondents to an FullCircl survey suggest this is the case, with 82% agreeing that sustainability is a key issue for future growth and profitability in the FSI sector.
Cutting through the misconceptions around embedding ESG
Perhaps the biggest misconception is that embedding an ESG strategy costs more. Recent EY research in partnership with Royal London however suggests the contrary is true.
The study reviewed more than 30 academic and other published papers as well as 2,000 global empirical studies across a 25-year period and found that corporations with strong ESG ratings perform better than lower credentialed peers on measures such as return on equity and return on assets, alongside stronger stock market performance and reduced share price volatility.
Of course, early adopters may suffer inevitable first-mover costs, but making a strong ESG pledge now and setting out a firm sustainability strategy will pay dividends, even in just the course of the next 5 years.
What are the risks of not driving ESG change?
Perhaps the biggest risk of doing nothing is reputational – and the risk is real.
The Zero Carbon Business Partnership, has indicated that 71% of SMEs couldn’t name a single web source for advice on decarbonisation and1 in 3 businesses are still not familiar with the phrase ‘carbon zero’.
The Bankers for NetZero Project is working with Government to educate this 71%.
FSI organisations that don’t act will eventually run out of road. The volume of risk around ESG issues will keep growing and become an acute reputational issue.
The Government and the public expect the FSI sector to adapt, innovate and manage ESG risks; they must lean into the problem, assist the transition, and use their unique position to connect with all sectors of business and society to drive change.
In doing so they’ll realise the opportunity to better shape future reputations, by understanding how ESG issues should inform their future approach, and what action to take.
In FullCircl’s poll, respondents overwhelmingly agreed that the board of every FSI organisation should have continuous involvement in setting the sustainability agenda. They should lead from the top.
Making ESG thinking fundamental to all decision making
Leading the transition and funding the future means educating and engaging stakeholders, both internal and external.
92% of respondents to the FullCircl poll agreed culture change must come from within, and that employees must be engaged sustainability efforts.
Having a highly educated and motivated team and embedding ESG thinking is key to advancing the FSI sustainability agenda, achieving the greatest possible impact, and creating genuine and lasting change. FSI organisations must ensure that ESG risks are the lens through which decisions are made.
Likewise, they must work to understand the ESG goals of their customers, seek out opportunities to educate, enable and fund change, and always ensure that ESG issues are on the agenda of every customer meeting.
Putting ESG thinking at the heart of FSI
Most FSI providers still don’t have a centralised ability to collect and analyse ESG data. This is down to three factors:
- ESG data takes many forms and can be found in many places – internal, external, structured, and unstructured
- ESG data changes quickly and constantly – it’s hard to keep up, let alone analyse and react
- ESG data is big data – analysing such data from news, social, IoT, and building a picture across the entire financial services chain, from suppliers to customers, is a huge undertaking
Customer Lifecycle Intelligence (CLI) must therefore play a central role – from collection and triage of ESG data for due diligence and compliance, surfacing insights to sales and relationship management for prospecting, engagement, and onboarding, KYC, KYS, to ESG-informed C-suite decision making – if FSI organisations are to move in the sustainable direction future success demands.
How FullCircl can enable you to hold meaningful ESG conversations with your clients
Customer Lifecycle Intelligence from FullCircl provides instant access to sector news, which can be focussed on key topics such as pollution or cybercrime for example. This provides a rich selection of market news stories that can be used to inform customer engagements and trigger meaningful conversations.
FullCircl Engage provides following tips, such as an ability to receive alerts from the Environment Agency, which in turn could trigger new business opportunities or uncover potential risks.
By applying FullCircl’s taxonomy of 2,250+ topic filters to a list of target companies, FSI organisations can receive highly relevant, accurate and refined ESG insights that can be used to personalise messaging, improve client engagement, or generate content ideas.
With CLI tools from FullCircl, this can be done at scale across an entire client book, giving users the ability to intimately understand their customer’s world, sustainability risks and opportunities, and use this to provide a better service through tailored solutions that both assist the transition and fund the future.
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