Sustainability in finance is no exception to global corporate shift that embraces the impact on the environment and society
Sustainability in finance has very much moved in from the margins to become a key priority for organizations virtually accross all industries. According to a global corporate sustainability report by Nielsen, 66% of people are prepared to pay more for goods and services if they come from sustainable companies. This figure jumps to 73% among millennials. But it is Generation Z that is being hailed as the generation of sustainability, with the vast majority willing to spend 10% more on a sustainable brand.
Sustainability in finance is no exception to this global corporate shift to an embracing of corporate policies that embrace their impact on the environment and society. 2022 is set to be the year of explosive growth for sustainable finance.
The unstoppable rise of sustainability in finance: In numbers
The global pandemic really helped sustainable finance to grow, with a global recognition among organizations of the need for greater resilience to shocks and a progression away from old systems such as the international supply chain.
In 2020, Visa introduced its first green bond, to the tune of $500 million. Moody’s increased its 2020 sustainable bond issuance forecast from $350 in 2020 to an enormous $850 in 2021, equating to an almost 150% year-on-year rise. In 2021, Germany revealed its plan to become a global sustainable finance hub, with plans for the entire European Union to become carbon-neutral by 2050. Currently, Germany issued two sustainable bonds amounting to a total value of 11.5 billion euros ($14 billion). Credit Agricole predicts sustainable finance growth of 55% in 2021, driven mainly by further green bond issuance.
The emergence of Fintechs has meant an improvement for the client in terms of overcoming financial cognitive, psychological and psychical barriers to allow improved financial capabilities. As a result, less stress, worry and disengagement can reduce the amount of psychological harm.
2022: A year that marks a sustainability in finance the turning point
There have already been notable clues as to where the world is headed with regard to sustainability in finance. One of the more high-profile stories was when Tesla decided to stop taking payments in Bitcoin, citing the cryptocurrency’s poor record on sustainability as the prime reason. Such is the commercial and investment risk of being associated with non-sustainable entities, corporations and governments will continue this type of approach into 2022 and beyond.
With the climate crisis expediting a sense of urgency among global populations, it will be a brave financial organization that neglects sustainability as a critical part of its makeup and offering. As 2022 is the year when economies expect to really reopen fully post-pandemic, sustainable investment in the financial industry is also likely to grow even faster.
How can financial institutions become more sustainable?
There are many ways that financial institutions and companies can take action to boost their green credentials. But it isn’t just about “going green”. Sustainability involves environmental, social, and economic policies. Essentially, what it boils down to is a transformation of an organization into one that supports the environment and society more broadly.
Understand the carbon footprint
Organizations can begin with a comprehensive review of their carbon footprint, including energy use, supply chain, and workforce movement and transport, such as international flights and office commutes.
A highly effective step is to undergo a forensic internal evaluation of all elements of an organization’s operational setup. This includes office requirements, equipment such as computers, and the type of technology that different departments and client products use. Many software providers don’t include the environmental impact of a website or technology platform as a deciding factor when choosing a hosting provider. But for instance, integrating a sustainable personal finance management tool can be carbon-reducing. Moreover, companies can then also point to it as another step that they are taking to be sustainable.
Remote work and virtual conference calls are already reducing energy use while helping to contribute to greater societal well being through a lesser need for office commuting. This trend is set to continue post-pandemic with hybrid working offices set to become prevalent. But when it comes to on-site infrastructure, many financial organizations are far from sustainable.
Migrate to cloud services with Fintech partners
Legacy technology, in particular, tends to require large amounts of energy to run, as well as on-site infrastructure to host and which needs regular maintenance. A move away from on-site hardware to the cloud enables financial organizations to become more sustainable. Partnering with sustainability-minded Fintech service providers for specific financial services is an obvious quick win, as the much larger institution can take advantage of the Fintech’s specialist skill and application, and their ability to be agile.
Promote sustainability to customers
What better way for an organization to demonstrate a commitment to sustainability by showing how its services improve society and the environment? For instance, a personal finance management banking service can help customers identify unsustainable spending practices. Better yet if it is cloud-provisioned and designed to maximize sustainability.
Joining the Sustainable Finance Wave
With so many obligations on financial institutions, such as regulatory compliance, sustainability could easily be an afterthought. However, this would be a high-risk move by financial institutions. With increased competition in the financial industry, sustainability can act as a powerful unique selling proposition to help organizations with client acquisition and retention. Moreover, the laggard banks – those who fail to implement meaningful sustainable measures – will likely be forced into doing so anyway by governmental sustainable finance regulation sooner or later. For instance, the European Union is investigating how to promote sustainability in finance.
To become truly sustainable, organizations must make it a priority and proactively take the necessary – and often difficult – decisions to implement change. If they are able to do this and embrace new methods, processes, and technologies focused on sustainability, they will position themselves for success in a rapidly changing financial industry environment.
Strands develops sustainable Fintech platforms for financial institutions, already in use by many of the world’s leading banks. Discover the enormous value that our AI-powered financial management solutions can generate for your organization.