2022 Trend Series
ESG: The Rising Opportunity for Finance

With banks driving digital for the past two years, 2022 is set to be the year of sustainability. Given the shift in public awareness towards climate change and ESG (environmental, social, and governance) initiatives, it’s becoming more important for consumers to support companies they view as proactive in combating environmental and societal issues.

We are well into the year and thought we would look at some of the key trends that we believe will come to the fore in 2022 for the world of finance. This post is the first of five centred on one key trend: our belief that banks and neobanks will take on more social and environmental responsibility.

Welcome to the year of the ESG revolution in finance, where ESG has reached mainstream but is also a key metric for conducting future business.

It was actually in April 2021 that the Prince of Wales brought together 40 banks in a working group called the Sustainable Markets Initiative’s Financial Services Taskforce. The working group’s goal was to understand how the banking industry impacts global sustainability efforts. Out of this came the Net-Zero Banking Alliance, an agreement by banks to align lending and investment strategies using existing and new technologies and policies with net-zero emissions by 2030.

The ground-breaking agreement targets the banking industry’s carbon emissions and allocates lending and investment funds to organisations that reduce carbon emissions.

The Net-Zero Banking Alliance is radical, going further than many expected, adding the environmental and social aspects of ESG in a demonstration of commitment by banks. The Alliance is no bit-part player either – it represents over 40% of the world’s banking assets.

You may be asking why are the banks – not always known as altruistic forces for good doing this? The answer is the ongoing shift from shareholder to stakeholder.

In other words, it was changing consumer behaviour patterns. If proof is needed, look no further than a recent PwC survey of consumers and employees, which found that 83% of consumers believe companies should be actively involved in creating ESG best practices. Even more impactful, 76% of consumers reported they would discontinue relationships with organisations that treated employees, communities, or the environment poorly.

Further, in the era of the Great Resignation, businesses need to be aware that employees are now a vital constituent. The same PwC survey found that 86% of employees prefer to work for companies whose beliefs align with their own.

The idea that financial services businesses do not operate in a vacuum has been gaining ground over the last few years. The reality of climate change and its significant systemic risks to the global financial system has been highlighted for many years by both regulators and environmentalists.

Implementing ESG best practices is a complex, long, and detailed undertaking — it must be supported by various skills and techniques to be successful.

No industry can afford to perceive itself as separate from the context in which it functions — whether environmentally, socially or relating to government regulations and requirements.