The stats – of course – tell a different story. We are in the midst of a climate change crisis and it is everyone’s responsibility to do their part. Financial industry regulators have recognised this – 70% of banks and regulators consider climate change a major threat to financial stability, so banks are having to ‘stress test’ business models to assess the impact of climate change. It is now a regulatory imperative to ensure your financial institution is sustainably fit for purpose. And this makes sense for lots of reasons.
What are the upsides?
There are significant benefits to ensuring financial firms have minimal impact on the environment – and although saving the planet is the primary goal, there are also upsides for the financial firms themselves.
- Sustainable business models: a sustainable business is one that is future proofed to stand the test of time. And for banks, although there are regulatory mandates they have to adhere to, there are other stakeholders who have ESG (environmental, social, governance) focused expectations. So it’s in everyone’s interest – customers, employees, shareholders – to build a company that is sustainable for the future, will grow and will be profitable.
- Better financial performance and more attractive investments: during the downturn, the ESG space grew and grew. And although – in the City – ESG was always criticised as a poor way to make money (ethics first, financial performance second), this misnomer has been discredited in the last year. From March 2020 to March 2021, ESG rated funds outperformed the S&P 500 by a significant margin, meaning stocks that adhered to ESG principles made more money than companies that didn’t. Shareholders are starting to demand their money is invested in companies that have better sustainability prospects, contribute more to society and are well governed, than those that are not.
- Revenue generation: climate change challenges also present opportunities for new services. For example, many banks have developed a ‘green mortgage’ giving customers an additional loan on top of their mortgage to upgrade their boiler to a more environmentally friendly model, using their financing as a way of helping customers to become more sustainable, which in turn impacts the sustainability of their own business models.
Sustainability initiatives are clearly a force for good for banks too. Some benefits are more measurable – investment inflows, revenue generation – others are more intrinsic, such as the reputational benefits of being green. But it’s clear that the banks that are green and a force for social good are the ones who will prosper in the future.
Want to learn more? If you want to learn more about our model for building climate change programmes within organisations, please email [email protected] and we’ll be in touch right away.
