Sustainability in financial services is progressing, but help needed

While financial institutions are starting to progress on sustainability, there are several ways they can accelerate that progress.

That finding is one takeaway from A global benchmark for sustainable banking, an annual report published by Mobiquity.

Senior advisor for digital banking Ruby Walia said the report, now in its second year, is meant to serve as a benchmark against which progress in future years can be measured. The 2022 edition surveys 602 C-level executives in the USA, Australia, Netherlands, and the UK.

Sustainability progress is a mixed bag

While the United States is showing the most progress in some areas, the Europeans are ahead on most ESG matters, Walia said. That gives American institutions someone to learn from as they move forward.

Walia said that progress is less than hoped, given that the world is reacting to the war in Ukraine and the COVID-19 pandemic. Perhaps Americans are advancing because they see the effects of climate change in Florida storms, California wildfires, and other activities. That could drive action.

Larger companies like Fortune 500 firms can be better equipped to take more progressive sustainability steps, Walia suggested. They have the resources to devote to hiring dedicated sustainability staff and can consider supporting communities beyond their core offerings.

Sustainability roadblocks abound

Whatever their level of desire, financial institutions face several hurdles to being progressive in sustainability. American legislators are well behind their European Union counterparts in fostering sustainability action. By 2024 banks must produce reports on their sustainability actions. Those documents must be audited.

Partisan gridlock is another impediment. So are state-level policies that encourage fossil fuel use. Climate skepticism also hurts. For many, ESG is a catch-all term that is hard to define, so it is hard to measure. Add it together, and it discourages financial institutions from budgeting real money to address this.

“If you’re a company that’s already a B corporation or has leanings in that direction, or you’re headed up by a CEO, who believes in stakeholder capitalism, maybe you do allocate some resources in that space,” Walia said. “But for most companies in the US, not just in the financial space, ESG becomes a secondary consideration. 

“That’s where regulations can play an important role because they can mandate requirements. Just like banks in the EU are now being required going forward to submit reports covering each of the three ESG areas.”

Given the clear signs of climate change, the financial services industry is moving slower than many consumers want. Clear government direction would help.

Some suggestions for improving sustainability

So would a clear definition of ESG. That may be changing as education programs are being developed. Walia said countries need that education infrastructure to prepare staff to define, measure, report, and administer appropriate standards. Then countries must agree on global benchmarks.

Ruby Walia headshot
Ruby Walia

Until governments act and industries come together, it’s up to the early adopters to chart the course, guided by the belief in doing the right thing in preparation for yardsticks that have yet to be established.

Even in this ambiguity, financial institutions find that action on sustainability increases profitability, Walia said. For the past decade, many have sent e-statements instead of paper lists every month. The profit is easy to determine. They spend “x” on marketing and “y” on system implementation before subtracting those costs from the old way to produce the amount saved.

That combination of profit and sustainability may be the ticket.

“If some of us were going to think that if it didn’t have the ROI, if it were just about sustainability, they probably wouldn’t be as far along as they are,” Walia said.

Why digital banking is a sustainability driver

Digital banking is another clear sustainability driver, Walia added. Companies like PayPal, Zelle, and Venmo allow us to bank from home without driving to a branch. Financial institutions see this and have been downsizing staff and locations for a decade or more. On-site service menus have shifted to more high-value interactions. While sustainability wasn’t the initial goal, it’s a welcome byproduct. 

That digital shift has banks looking for other ways to improve their internal processes and eliminate paper. And wait for younger generations to assume leadership roles, for they’ll also drive real change.

Financial institutions are well-positioned to be sustainability leaders, Walia insisted. They have access to data and can leverage AI and machine learning. Combine those, and they can show their customers their carbon footprint on considered expenses like airline tickets.

“Every time they spend money on something, we can help them understand what that footprint is,” Walia said. “Just helping raise awareness over time… If we get the broader population more awareness and sensitivity, we can also help motivate the right behavior.”

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  • Tony Zerucha

    Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.