The transition of financial services to ESG and green finance
As we tackle one of the biggest global crises of our time, green and sustainable issues are becoming more critical than ever for business leaders in the financial services sector. Julian Wells, director and financial services & FinTech lead at Whitecap Consulting, shares some perspectives.
Sustainability in business has tended to be primarily associated with long-term commercial performance issues such as with balance sheet strength, brand reputation, and enterprise value. Now, there is an additional movement gaining significant momentum and profile in the corporate landscape, with a broader set of non-commercial objectives becoming increasingly prominent for investors and consumers alike. For example, 93% of the world’s largest companies by revenue now formally report on Environmental, Social, and Corporate Governance (ESG), disclosing data on aspects like how many gallons of water they have conserved or how much plastic they have recycled (ISS EVA, 2019).
Throughout the past year, ESG practices have provided a strategic and cultural roadmap for organisations to navigate, adapt and emerge from the pandemic with their businesses not only intact but also providing a foundation for the future. Investor behaviour is also supporting this trend as inflows into sustainable investment strategies overwhelmed every other category and now top $1 trillion (LinkedIn, 2021), whilst in the UK, responsible investment funds saw net flows of £7.1bn in the first three quarters of 2020, 275% more than the £1.9bn measured in same period of 2019 (Financial Times, 2020).
Green and ethical finance, particularly in the context of ESG, are now firmly on the radar of CEOs of Financial Services and FinTech firms and are becoming areas of increased focus. This is a topic that Whitecap has experienced first-hand in our strategy consulting work, where we have observed an increase in interest and activity in relation to green and ethical considerations, product design and social purpose. Given the direction of travel of these topics, we expect to see continued strong focus on these areas.
Encouragingly, the UK has already made significant progress in green finance. For example, all the main retail UK banks now offer green loan programmes and over 500 investors have signed the UN’s Principles of Responsible Investment, making the UK home to a leading number of firms that commit to sustainable principles (The Global City, 2021). A further movement can be seen through the recently announced UK Centre for Greening Finance and Investment, which will run across hubs in London and Leeds, and aims to put climate and the environment at the heart of UK financial decision-making.
From the consumer perspective, there also appears to be a shift in behaviour towards choosing sustainable and ethical financial providers, especially amongst the younger generations. According to Triodos Bank, 94% of 18–34-year-olds said they’ve moved, or are looking to move, their ISA holdings to an ethical provider.
There are also multiple examples of digital financial services brands that have come to market with propositions that are focused on sustainability and ethical finance. To give just a few examples: Tickr enables customers to invest in companies spanning themed portfolios such as climate change or equality; Tumelo provides consumers and businesses transparency and influence on how their pension funds are invested, Tred is a debit card which enables consumers to reduce and offset their carbon footprint, ClearGlass is championing transparency of fees on pension fund management, and CurveBlock uses fractional finance to fund the development of energy positive housing.
In a world where environmental concerns are becoming more urgent, and consumers are increasingly engaging with sustainable and ethical products and brand, ESG and sustainability practices require organisations to take a comprehensive, end-to-end approach that considers all stakeholders in major strategic decisions. In the Financial Services sector, we can expect to see an increasing number of product providers offering ways for customers to save and invest whilst also having a positive impact on wider society.
Julian Wells is one of the speakers joining the free sustainability conference In the Circle on 19 May. He will be part Green is the Colour of Money panel which will look at how investors and funders use environmental, social and governance (ESG) as part of their decision-making criteria, as well as the rise of green finance and what this means for future business and investment decisions.