05 May '22

ESG in Financial Services: Insights from Industry Leaders 

In the first ProjectiveGroup ESG (Environmental, Social & Governance) roundtable, several industry leaders came together to discuss the increasing pressures to integrate ESG into financial services business strategies and how to address the common challenges in doing so. With a constantly evolving regulatory landscape for such a broad and subjective topic, we understand the importance of collaboration in overcoming these challenges to help business leaders maximise impactful ESG initiatives. This article highlights some of the key talking points and takeaways from the roundtable.

Why is ESG important?

Aside from the fundamental goal of improving global sustainability, the discussion focused on three key reasons as to why ESG should be a top priority for financial services organisations today.

The first and most notable reason is the increasing amount of regulation surrounding ESG issues in the UK and EU, including those set by the Task Force on Climate-related Disclosures (TFCD) and the Corporate Sustainability Reporting Directive (CSRD). Regulators now expect the same level of controls in ESG reporting as you would have on financial reporting, so it is vital that organisations are able to satisfy these requirements, or they will risk potential fines.

Secondly, both consumers and investors of today are increasingly seeking to engage with organisations that they believe to be ethically and sustainably sound. With growing societal pressures to act on ESG related issues such as climate change, diversity and inclusion, and corporate responsibility, financial institutions must recognise and address these within their overall business strategies in order maintain a competitive advantage.

The final point raised was the impact of ESG on corporate funding. In recent years, organisations that can prove strong ESG performance have been granted access to Sustainability Linked Loans (SLLs), which encourage a more sustainable economy by offering cheaper rates to organisations who achieve their sustainability performance targets. In this way, prioritising ESG not only helps to satisfy regulatory requirements and appeal to consumers and investors, but it may also aid the financial stability and hence profitability of a business.

The role of Sustainable Development Goals

The Sustainable Development Goals (SDGs) are a group of 17 interlinked global goals set up in 2015 by the United Nations General Assembly (UN-GA). They were designed to be a blueprint for creating a better and more sustainable future for all and are intended to be achieved by 2030.

Organisations represented at the roundtable were unanimously aligned to these goals, which focus on a variety of cross-cutting issues such as poverty, education, gender equality, and climate change. Whilst it is up to governments to translate the SDGs into national legislation, participants agreed that it is crucial for individual organisations to recognise and address the goals within their ongoing ESG strategy.

However, it is important to highlight the recent concern referred to as SDG washing. This term is used when businesses market their positive contribution to some SDGs whilst ignoring their negative impact on others, or when they openly associate themselves with the SDGs without making any real contribution towards them. Organisations must be aware of, and avoid falling into, this trap, or they may risk damaging their credibility, reputation, and relationships.

Creating impact through education

A common challenge with implementing ESG initiatives in any organisation is developing a strong company awareness of the different issues being addressed, and as with any new project or plan that is rolled out, it all starts with education.

Speakers at the roundtable highlighted the fact that senior decision-makers within an organisation may have limited knowledge on ESG regulations and how they impact the company, which can make it difficult to have new initiatives approved and implemented. By providing board training to highlight the significance of ESG and how to address it, we can influence decision making and help to create meaningful change, both within an individual company and more broadly.

Education should not stop at a senior level, but instead be carried out company-wide to create a culture of awareness on how everyone can contribute to a more equal and sustainable future. This may include internal training on gender or racial equality, sessions on mental health and wellbeing, or electric vehicle schemes. Initiatives like these may also help to boost reputational credibility and act as a driver for recruiting new employees.

Another form of education could involve collaborating and sharing knowledge with partners to enhance sustainability efforts. An example of this is the combined forces of Informatica and DTSQUARED, who work together to address the challenges and solutions of ESG regulatory reporting to enhance their capabilities and improve services for clients.

Turning awareness into action

After taking the important first step of improving understanding of ESG issues, organisations must also commit to turning awareness into action.

All participants agreed that in order to maximise your organisation’s ESG efforts, your sustainability goals must be linked to your overall business strategy. This could involve producing ambition statements for each of the ESG pillars that the whole company can work towards, or hiring a dedicated risk officer to manage and mitigate the risks associated with different ESG issues.

On a more technical level, learning how to operationalise new ESG processes into existing business processes can be a challenge for financial services organisations. More and more firms are moving away from centralised operating models and towards federated operating models, with some organisations opting for a hybrid approach. This could look like having a centralised learning team and incorporating federated data capabilities within it. This is a key consideration when it comes to ESG reporting and is up to each financial institution to decide the most suitable approach.

Conclusion

With financial institutions facing an increasing amount of ESG regulation, it has never been more important to ensure that ESG is effectively integrated into an organisation’s business strategy.

Some of the key challenges include ensuring that there is company-wide awareness of the importance of ESG and operationalising new ESG processes into existing business processes, but it is clear that more and more organisations are making efforts to address these issues and contribute to the global sustainability movement.

If you would like to know more about how to overcome common ESG data challenges and implement effective solutions in your business, you can read our ESG whitepaper here or sign up to our next event below. 

EVENT: ESG DATA – PUTTING ESG REPORTING PROCESSES TO WORK

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