EXCLUSIVE: ‘Cool to be Kind’ – Matt Williamson, Mobiquity; Hristian Nedyalkov, Novus and Ricardo Laiseca, BBVA and ‘Discover Money20/20’
Could banks change from being wealth repositories to uber-forces for good, putting them on the right side of history? Yes, if they become digital lifestyle enablers that help save the planet. That’s according to our green finance round tablers as they discuss Mobiquity’s revealing Benchmark For Sustainable Banking report
The heat dome over North America. Devastating floods in Europe’s Rhineland. Shrinking Alpine glaciers and polar ice caps. Wildfires ripping through communities along the US west coast.
The dangers brought by climate change are clear to see and are having an impact on lives right now, not in some distant timeframe. Flipping from the main news to the business pages, we read of the reaction in the financial sector – the growth of sustainability funds, pledges to cut carbon footprints and taper out investments in fossil fuel production and other environmentally harmful activities. But how committed is the sector to tackling climate change and, equally important social, issues? ‘Digital transformation enabler’ Mobiquity asked that question of 300 banking executives in the UK, Germany and the Netherlands, and concluded that too many were ‘saying, but not doing’.
Its Benchmark For Sustainable Banking report found 78 per cent of British and 91 per cent of Dutch executives recognised sustainability as an important part of a bank’s business strategy.
But less than a third of banks – 31 per cent in the UK, 28 per cent in the Netherlands and 24 per cent in Germany – viewed it as a top concern at board level. This meant fewer than half of banking executives were actually planning sustainability measures across all regions. Among the reasons cited was a lack of environment, social and governance (ESG) framework from governments, on which they could build company strategy. Another hurdle was the current focus on COVID-19. Some executives also admitted their knowledge of ESG was poor.
Specifically, when it came to the environment, Mobiquity spotted a trend among UK banks for championing sustainability but relying on carbon credits to offset their impact, rather than tackling the root causes of emissions. The consultancy, which surveyed executives across the industry, from startups and challenger banks to incumbents, concluded that banks were guilty of greenwashing – making claims of environmental friendliness that don’t withstand scrutiny. It warned that will not only undermine efforts to stall climate change but, as we all become more ‘conscious’, it will make attracting customers and retaining talent difficult.
And yet change is happening. In April, the Glasgow Financial Alliance for Net Zero (GFANZ), chaired by former Bank of England governor Mark Carney, announced a pledge by banks and financial institutions with combined assets of more than £50trillion to cut greenhouse gas emissions and ensure their investment portfolios align with climate science. HSBC, Lloyds, Barclays, Citi, Morgan Stanley and Bank of America, and insurers Axa, Munich Re and Swiss Re, were among those signing up. Carney hailed the move, backed by US climate envoy John Kerry, as the ‘gold standard for net-zero commitments’, with the ultimate aim of net-zero emissions by 2050.
But the challenge is immense – and at risk of being undermined. Environmental campaigners continue to find apparent contradictions. A report by a coalition of non-governmental organisations in March said the world’s 60 biggest banks (including some of the signatories to the Pledge) had provided $3.8trillion of financing to fossil fuel companies since the 2015 Paris Climate Change Agreement. Carney himself has echoed one of the issues that bank executives in the Mobiquity report cited as a reason for inadequacy: that governments must do more to provide an ESG framework for the financial sector to operate within. He argued that, without state intervention, markets would fail to tackle the crisis, adding: “It won’t happen spontaneously within the financial sector… but we can’t get there without it.”
In June, there was news of a new UK Treasury unit, the Green Technical Advisory Group, to advise Government on setting standards for green investments so that neither it, nor private investors, are duped. Similarly, the EU launched the Sustainable Finance Disclosure Regulation in March, to compel fund managers to disclose information about ESG credentials and the risks that their investments pose to society and planet.
UK regulator the Financial Conduct Authority has also seized upon the issue, demanding that fund management firms improve ‘poorly drafted’ ESG fund applications. It also criticised funds for misleading statements, which risk bringing the sector into disrepute, although as the head of sustainability research at Morningstar has pointed out: “It’s not hard to see why asset managers might be tempted to over-claim, because ESG sells.”
The public appetite for ESG funds is huge – they accounted for £73.2billion of the UK industry’s assets in May, up from £37.5billion a year earlier, according to trade body, The Investment Association.
And, if its members want to continue to make hay while the sun shines too hot, clarity and consistency are key. A report by New York consultancy Duff & Phelps underlined that a single, coherent framework for ESG investment was vital after it identified 14 different frameworks being used by fund managers, which means neither financial advisors nor private investors can effectively compare one fund against another.
So we decided to ask a big bank, a new ‘super app for the conscious consumer’, and the authors of the Benchmark For Sustainable Banking report about the sector’s ESG performance. In talking to Ricardo Laiseca, head of Spanish giant BBVA’s Global Sustainability Office, Hristian Nedyalkov, founder of UK ethical payments newcomer Novus, and Mobiquity’s VP of Global Financial Services, Matthew Williamson, two themes emerged: even if the financial industry genuinely wants to do the right thing, change is hard; secondly, digitisation is the only way to achieve it.
“We are in a transition from concepts that were well-founded,” says Laiseca. “Definitions are changing. Sustainability was defined as inked to company values and close to social responsibility. This is fine, but it’s not enough. Sustainability is about meeting the needs of the current generation, without sacrificing the ability of future generations to meet theirs. It’s about promoting economic and social progress while respecting the natural environment. This is all super-complex and in my view the way to do it is incorporate sustainability into your internal processes. A deep transformation programme must be carried out.”
He speaks from experience. BBVA declared it had achieved carbon-neutrality last year, joining a club that includes HSBC, Santander and Bank of America.
For Hristian Nedyalkov from Novus, banks are not just in danger of moral failure but also of missing a business opportunity.
“A really striking statistic for me is that less than two per cent of total bank deposits are really deemed sustainable, whereas around 50 per cent of people want to be more conscious, associate with brands that do good, and have their money put to good use,” he says. But he believes banks can do more than stop funding firms that prioritise profits over the planet.
“As per the IPCC’s (Intergovernmental Panel on Climate Change) 2021 Climate Report, unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to 1.5°C or even 2°C will be beyond reach. We need more scalable innovations like Novus to help provide a step change. We can teach people about the power hey hold, to harness their money for more positive outcomes.”
Novus aims to launch this year as a sustainable alternative to mainstream banks, offering peer-to-peer instant payments, money management apps and a debit card that allows users to donate to good causes. One of its key propositions is informing and teaching consumers about how they can consciously make a positive difference to the world through their lifestyle. A core feature of Novus is an in-app marketplace of sustainable brands that have earned a place there by employing business practices that measure up to the UN Sustainable Development Goals. It uses B Corp certification – which measures a company’s entire social and environmental performance – to validate them. Transparency is a key metric.
“The first businesses to adopt ESG principles and put them up next to their financial reports, will be the ones to carve out their brands as responsible companies,” observes Nedyalkov.
Mobiquity’s Williamson agrees that the tide is only going one way, but insists that the role of the bank in society is changing.
“Banks and fintechs have a social obligation to their customers, and by extension the wider community,” says Williamson. “And we’ve seen examples of that, with the community banking model set up in the UK last year, to provide services to those who can’t travel to the nearest town, and a phenomenal scheme by HSBC, the No Fixed Address account.”
The Benchmark for Sustainable Banking report found banks that had adopted sustainable practices experienced numerous business benefits, including cost savings, customer retention, growth, operational efficiencies and improved brand reputation with more than 40 per cent of banks across all three countries benefitting from some or all of those.
That chimes with recent research by investment giant Fidelity International, which claimed that businesses with high ESG ratings proved more resilient to COVID-19 and the resulting lockdowns. “So, we’re seeing a market shift,” says Williamson. “Customers will increasingly navigate towards banks that align with their own values.”
There was another lesson from COVID, too: the huge swing to digital engagement had a profound impact on the environment, contributing to a 10.7 per cent reduction in UK carbon emissions, according to government figures. “Companies leveraged digital technologies to replace carbon-emitting activities,” says Williamson. ”So there is a chance now to frame sustainability as an opportunity to solve business frictions. Awareness-building is needed, internally, to communicate the far-reaching environmental and operational benefits.” Laiseca agrees the pandemic proved sustainable finance and digital transformation are a ‘win-win alliance’ that could help the financial system tackle the environmental crisis.
“It’s also about capturing business opportunities, and this is BBVA’s focus right now. In our case, we have doubled our commitment to green finance, with a target of channelling around €200billion up to 2025, to fight against climate change, as well as promoting inclusive growth in some emerging markets. There are opportunities for expansion – renewables, sustainable housing, sustainable mobility – as we see a transformation in the way we consume, in the way we produce, in the way we live. Banking will be a profitable business if we participate in this fully. New sectors and new financing for those sectors will be a key driver of this economic transformation.”
But he points out that ‘the sustainable transition requires new information financial institutions don’t have internally. New data tools will be part of the transition’.
All this data, of course, must be processed somewhere. In Ireland – a data centre hot spot – the government has predicted this will consume as much as 31 per cent of the country’s electricity by 2027. Nedyalkov’s business offsets its third-party data processing, while Williamson points to a Swedish initiative that uses the heat generated by Stockholm Data Parks to power local homes. But he insists best practice is not just about carbon offsetting.
“Our research has identified this golden opportunity for banking and the finance industry to drive sustainability through digital technologies. We call it sustainable digitisation. I think banks are starting to realise that digital needs to be viewed as part of their sustainable banking strategy. They’re not two separate initiatives. We see that two in five banks are using intelligent automation and digitising all their paper processes; some are helping customers be greener by encouraging less travel to the branch and completing the customer journey through an app or online; others are working with suppliers and partners to extract maximum value via machine learning and data centre configuration.”
The last word goes to Laiseca, whose bank is changing its entire business model to embrace sustainability: “It can be a real game changer. It provides an opportunity to reshape the whole of finance.”
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