Green-minded advocates might describe the Global Financial Crisis as “the day the music died.” Suddenly, interest in ‘going green’ to fight climate change was obscured by worries of economic survival in boardrooms and around kitchen tables. Even the big banks appeared to cut back their high profile sustainability programs to focus on core business strategies.
Fast-forward seven years and green-minded advocates today might have renewed hope: The 2014 Neilsen Global Survey on Corporate Social Responsibility for global perspective reported that consumers are willing to pay more to pay more for products and services provided by companies committed to positive social and environmental impact. In February, a report by the Global Sustainable Investment Alliance (GSIA) showed that the global sustainable investment market has continued to grow both in absolute and relative terms, rising from $13.3 trillion1 at the outset of 2012 to $21.4 trillion at the start of 2014, and from 21.5 percent to 30.2 percent of the professionally managed assets. KPMG’s Investing in the Future report highlighted the megatrends that are driving this resurgence of interest, including a demographic shift to younger, more socially conscious consumers and increasing proof of ecosystem depletion and resource insecurity.
In light of these factors, global banks are beginning to refocus on the issue of sustainability. Coming from an era in which environmental and social issues were mainly considered from a reputational risk management point of view, the recent KPMG-survey among 12 major European global banks found that banks believe potential business value can be gained from sustainability strategies.
The banks’ fresh interest in sustainability is emerging as they seek new growth areas in response to increased competition, flattening revenues and evolving customer preferences, including a desire to deal with companies that help them make sustainable choices.
But how can business sustainability go beyond risk mitigation and create growth opportunities that impact both a bottom line and corporate brand? Banks could do so by:
Such initiatives could both deliver tangible business growth and also help banks rebuild their tarnished reputations. With the 2014 Edelman Trust Barometer identifying financial services as the least trusted industry globally, the banks could improve their image by taking some ‘green’ actions and partnering with customers to address the world’s social and environmental challenges.
To date, such strategies are still at an embryonic stage, mainly aimed at energy efficiency, renewable energy and clean technologies, and few banks have pursued ways to create sustainability-linked value for their large retail customer divisions in a strategic way.
Among those banks polled by KPMG, only a few currently manage these types of value-creating strategies at the senior management level. None of those banks have embedded them into the annual capital allocation and budgeting process, which inevitably restricts their ability to formulate and execute a strong, consistent vision across the organization. In addition, few banks have integrated sustainability targets into their key performance indicators.
At the end of the day, there is a compelling argument that innovative banks could build trust and relationships by joining their customers on the journey to sustainability. There are early examples such as responsible investment funds and green bonds demonstrate that green minded offers can become a valuable component of the product and service portfolio for banks and offer proof of the value of doing more in this area. By creating integrated programs that enable their customers’ sustainable behavior, the banks could achieve a greater, meaningful impact that benefits the planet and their financial statements.
The articles will look at challenges investment managers face as they start transformational initiatives and respond to megatrends.