The financial services sector is critical to achieving a net zero carbon future. However, as the ESG agenda adds new pressure, financial companies must step up their game to fulfill their duties to customers and other stakeholders.
Lending, borrowing, investing and paying all grease the wheel of the modern economy. Financial institutions must also be at the heart of the massive economic transformation needed to move away from fossil fuels and achieve a net-zero world.
Currently, however, the greenhouse gas emissions associated with global financial institutions’ investments are estimated to be 700 times greater than those associated directly with these companies’ largely office-based activities, according to global disclosure not-for-profit CDP.
Additionally, only 45% of banks, 48% of asset owners and 46% of asset managers report taking steps to bring their investments in line to keep global warming well below the threshold of 2.0 degrees Celsius above pre-industrial levels.
However, financial companies experience increasing pressure to act. The growing sense of urgency around environmental sustainability changes expectations from consumers: 67% of consumers globally would like their financial institutions to become more sustainable.
Talents also demand awareness from their future employer. In the UK, for example,65% of office workers are more likely to work for a company with a strong environmental policy. And if financial companies fail to deliver, fintech companies are offering the alternatives craved for.
Another driver is that the business case for sustainable finance now is clearer than ever. There appears to be little clash between climate-friendliness and profit-maximization, according to a study by the Global Alliance for Banking on Values.
Among our clients, we increasingly see forward-looking financial institutions beginning to respond to the new reality. There are several steps financial institutions can take to thrive in the net-zero era (learn more in the report The Future of Us):
To summarize: The rise of the ESG agenda adds pressure on financial institutions to modernize – and technologies play a major role in succeeding. In a recent Economist Impact research though, the banking and capital markets industry ranked fifth of eight in future-preparedness. From advancing core modernization, to boosting personalization, to rethinking their operating models, banks, asset managers and financial intermediaries need to step up their modernization game.