A quick scan of recent headlines shows us that the relationship between the financial services industry and sustainability is anything but harmonious at present. Between the smashed windows of bank headquarters and Extinction Rebellion defacing the walls of the Bank of England, it would be easy to gather an image of a zero-sum game in which for one to succeed, the other must fail. However, the reality is much more nuanced. Banks are publicly committing to net zero futures. The chancellor has issued a £15bn green gilt drive and there is a clear impetus across the industry to align incentives towards a greener future.

So, where does the disconnect between financial institutions, their sustainability efforts, and public perception come from?

In this article, we explore the drivers behind the focus on sustainability, how financial services have reacted to date and what more can be done to meet expectations.

A special thanks to Taulia & BUD for their input.

What is behind the sudden shift in focus on sustainability?

Public Pressure/Perception

While Extinction Rebellion is at the sharp end of voicing its dissatisfaction, it is not just a case of a small minority who wants to see action in this space.

Consumers are monitoring the sector closer than ever before. We’re now seeing the likes of BankTrack publish leader boards for NetZero commitments and fossil fuel expansion. As a result, consumers are starting to vote with their feet.

Gordon Gekko made “greed is good” famous, but much like the cinematography, the message is starting to look somewhat dated. Investors are increasingly looking for a purpose as well as returns.

Regulatory Changes

With the impacts of Covid-19 beginning to subside, regulators are turning their attention to other key exogenous trends, such as climate change and sustainable finance. With the EU & UK seemingly leading the charge when it comes to ESG (environment, social, governance) regulations and expectations, several recent and upcoming regulatory changes are poised to significantly affect the industry.

According to many leading legal experts, Rishi Sunak’s Integrated Sustainability Disclosure Requirements announced 01/07/21 would require pension schemes and financial services to report on governance, strategy, risk management, targets, metrics and disclosures. Firms that don’t yet have a view or handle on this information will need to get one quickly.

How have financial services reacted?

With the aforementioned drivers noted, there is a spectrum of activity ongoing with financial services already. From established firms through to the disruptors, there are several examples worth highlighting:

Established

ESG Loans & Green Bonds – Preferential rates and great PR are on offer for firms who can obtain either product. A key issue to date is the number of firms able to access these products. Establishing and agreeing SPT’s (Sustainability Performance Targets) can often prove too complex and expensive for small and medium enterprises.

Growing

Sustainable Supply Chain Finance (Sustainable SCF) – Traditional Supply Chain Finance has been a funding option on the table for some years now.  Speaking to us recently, Peddy Hashemi, EMEA Director at the fintech company, Taulia,  explained how they are helping clients to make their supply chain more sustainable using innovative Sustainable SCF.

Taulia collaborates with large businesses and banks to deliver industry-leading supply chain finance programmes driven by positive social and environmental change. Taulia leverages third-party sustainability ratings to provide preferential discounts to suppliers who have achieved high sustainability ratings, thus rewarding suppliers with strong ESG principles and incentivising other suppliers to adopt more sustainable practices. In return, corporate treasurers can use the SCF programmes to promote their ESG goals across their networks and within their organisations.”

Disruptors

Serai by HSBC – Serai’s initial offering earned them the title - “LinkedIn for apparel suppliers”. At first, it targeted the retail industry before helping manufacturers, suppliers, and vendors to connect. However, its next move used its connection with HSBC to combine invoice and payment data alongside certificates of origin to offer proof of sustainability and provenance for suppliers and buyers. The recent move into traceability is helping stakeholders boost their ESG visibility.

Bud & Enfuce – Bud, an early leader in the Open Banking space, has signed a deal with Enfuce, the Nordic-based fintech responsible for My Carbon Action. This partnership not only boosts Bud’s offering to its FS clients, but it means UK Retail Banks can now provide their customers (business and retail) with a clear indication of how their spending impacts their carbon footprint.

Focusing on the disruptors, we asked Ed Maslaveckas, CEO of BUD, why they have moved into this space;

“Everyone has a picture of the kind of life they want to be living. Our role is to work out how we can use the insights within their financial data to help them get there. Challengers are offering customers so many new ways to identify with their financial providers, so for our enterprise customers, these really emotive services are becoming more and more important.”

What more can be done to meet expectations?

As disruptors continue to push expectations higher, consumers will inevitably ask for more from the incumbents. With that in mind, the five key areas financial institutions should consider are as follows;

1. Lead By Example – What better way to prove your credentials in the space than demonstrating the work your firm is doing. Top-down financial services firms, in particular, must start implementing their own sustainable operating models.

2. Be Proactive, Not Reactive – Ensure you have a clear engagement strategy on transitioning customers and their supply chains to a more sustainable way of working.

3. Prove Yourself Trustworthy – Regulation will drive some of this, but financial services firms have to go above and beyond to build transparency and accountability.

4. Substance Over Style – Any indication that a firm is greenwashing puts its reputation at risk. Whilst intentions may well be positive, people want action and results before marketing.

5. Purpose & Profit – Clients and colleagues want to work with boards and senior leadership teams that “get it”. Returns and salaries have to come with a clear purpose. Firms simply cannot ignore this anymore.

BJSS is proud to be a certified carbon neutral company with ambitions to be net-zero by 2025. We embed sustainability into the core of what we do, and we can help you to do the same.

We are already helping financial services firms with strategy consulting, people and change, technology advisory services, along with much more. If you feel we could be of assistance in any way, please don’t hesitate to reach out. Contact us.