The COP26 Summit in 2021 dived into the necessary changes that would have to be implemented across every industry in order to cut CO2 emissions and work towards reducing global warming. The financial services industry was no exception and must play its part to help, but how can it do this?
Kevin Anthony is the Associate Director – Thought Leadership Sales at iResearch Services. Serving a wide range of industries like IT, BFSI, Telcom and Healthcare, iResearch Services has strategic expertise in thought leadership, CXO levels, and competitive intelligence studies at a global level. Its analysts cover a diverse network of 90 countries and 17 languages, with its integrated services including research advisory, market research, thought leadership content and lead generation.
Speaking to The Fintech Times, Anthony explained the necessary steps that must take place for the financial industry to truly embrace sustainable change, which included partnerships, active work and looking at the bigger picture:
A Global Viewpoint
We are yet to see if 2021’s COP26 Summit will accelerate the required global shift in sustainable practices. However, one thing is clear: radical changes need to take place worldwide and across each industry to minimise the potentially disastrous effects of climate change.
The meeting of world leaders, climate change organisations and government officials in Glasgow at the end of 2021 signalled a definitive marker between the sustainable assurances of yesterday and promises that will make a pivotal difference to the future of our environment.
Set out in the Glasgow Climate Pact, finance is one of four core pillars to drive environmental change across the globe. With many key points presented in the pact (climate finance, adaptation and loss and damage) centring around the complex gap between rich and developing countries, the pact notes how previous targets to help poorer nations were missed. It is therefore clear that financial systems need an overhaul to be fit for sustainable purposes.
There’s no denying that environmental and economic factors are intrinsically linked and present themselves consequences of each another, but just how reachable are the targets for businesses operating in the financial service industry – a sector that isn’t traditionally seen as sustainable?
It is evident that to succeed in achieving Net Zero, organisations must work together by building better systems and keeping each other accountable for a more sustainable tomorrow.
Our recent survey of 550 business leaders from around the world showcases a willingness within the financial services sector to partner with, impact and learn from industry peers to spearhead change. Almost two thirds (60 per cent) of firms operating within the financial services space already collaborate with several partners on sustainable initiatives, and 28 per cent work with one sustainability partner.
However, the most significant barriers to companies fully adopting sustainable strategies identified are prohibitive costs (45 per cent), the short-term impact of covid-19 (36 per cent) and a lack of resources (36 per cent).
Following COP26, regulation, support and benchmarking measures should help to ease external pressures that currently prevent financial organisations from embracing more sustainable practices. With 57 per cent of financial professionals calling out for governments to do more across the board, the opportunity for a renewed focus on sustainability cannot be missed.
The value of becoming more sustainable
Away from the obvious benefits that come with creating a more sustainable future, there are also immediate and more long-term advantages to upholding global climate agreements. Increased partnership opportunities is one example and evidence shows that businesses are becoming increasingly fussy with who they do business with. Our research shows that the vast majority (89 per cent) of financial professionals state that working with sustainable partners is important to their company and is a vital consideration when choosing whom to do business with.
With more and more investors looking to invest in sustainable companies and consumers now holding organisations accountable, those operating in the financial services industry must strive to achieve a bigger goal than profit. Previously driven by consumer and client demand, with the motivation of more revenue and business, now almost half (48 per cent) of financial professionals see sustainability as a crucial part of the company’s visions and values instead.
Bridging the gap
With public business and ethical credentials to meet, specific areas of financial services are leading the way in the adoption of sustainable practices. Our research shows that those working in the Investment Banking, Funds and Investments and Corporate/Commercial Banking subsectors believe that they are beginning to turn the tide with their sustainable efforts.
69 per cent of those working in the Corporate/Commercial Banking sector, 70 per cent in Investment Banking, and 68 per cent in Funds and Investments believe that their respective sectors are successfully embracing sustainable practices.
On the contrary, a large gap is evident between those working in the sector self-scoring highly and their peer’s rating. Just 45 per cent of those working outside of Funds and Investments, 41 per cent outside of Investment Banking, and 38 per cent outside of Corporate/Commercial Banking believe that the respective sectors are leading the way in sustainability.
Working towards a sustainable future
Research like ours helps to gain a snapshot of the industry, which can help to identify which areas of financial services need to improve their sustainable credentials, to change perceptions of those inside and outside of the sector.
One example of this is Retail Banking, a largely public-facing section of the industry that is not only regulated by governing bodies but also informally, by the consumer. An average of just 17 per cent of finance professionals working in sectors other than Retail Banking believe that it is embracing sustainability and only 44 per cent of executives agree.
Despite being early in its sustainable movement to change this perception, Retail Banking is beginning to make traction and present accountability to their customers and industry peers. In the UK, Lloyd’s Banking Group has been a founding member of the Net Zero Banking Alliance while HSBC has dedicated resources to promoting sustainable education with The Chartered Banker Institute.
Even though it’s a seemingly near-impossible task, considering the breadth of financial services, perhaps what the entire industry needs is an overarching framework for sustainability. And the Glasgow Climate Pact might just be the tool to provide a level playing field for all.
Either way, with its unique viewpoint and the ability to influence global finances, the wider financial services industry must forge the way in sustainability to create a shift the worldwide economy.