As the climate crisis continues, leaders in the financial services space are coming to terms with their environmental, social, and governance (ESG) responsibilities. The consensus among analysts and industry leaders is clear: the global financial sector will be foundational to progress on this front.
“There is a significant opportunity for the financial services industry to reposition itself as a force for collective good in the climate transition,” says Forbes. “[FIs] are in a unique position to support [their] customers in their efforts to move toward a low-carbon approach.”
Now, global institutions such as the United Nations Environment Programme are determining the best paths forward for progress among financial firms. Indeed, each institution must play a role in our collective progress as well as their own business success—or face the economic and regulatory consequences if they do not.
As we will discuss, data and digital transformation will be central to firms’ green transformation. “Overcoming data-related challenges will be key for banks and other financial institutions to make progress toward sustainability and other objectives,” CIO reports.
In this article, we explore emerging business strategies and imperatives for sustainability in finance. Alongside other initiatives, we consider the role digital transformation can play in reducing the environmental impact of financial firms’ business operations.
Navigating the Green Revolution in Financial Services
Finance is a complex industry in terms of its environmental impact. That’s because its products and services are flexible, influential, and impactful simultaneously. A firm’s environmental footprint resonates from the way the firm itself operates, the investment decision it makes, and the way its customers invest in resources and equipment as a result of that firms’ support.
For the same reason, financial firms can become foundational to global environmental progress. “The financial sector holds enormous power in funding and bringing awareness to issues of sustainability,” according to the Harvard Division of Continuing Education. Although rarely framed in this light, the financial services industry is monumental to broader global sustainability initiatives and, indeed, saving lives.
Consider “green lending.” Firms that prioritize this practice enable countless small businesses and entrepreneurs with viable, environmentally sound initiatives to find the capital they need to succeed in their endeavors. Not only can this practice help local economies, but it also enables businesses to invest in sustainable products and operations that can save ecosystems, among other possibilities.
The same is true of firms’ own investments and strategies. When a financial firm invests heavily in energy-efficient technologies or other green solutions, they’re setting an example for their community and industry peers.
These efforts are now critical as the climate crisis continues to get worse. According to the Organization for Economic Cooperation and Development (OECD), It will cost $6.9 trillion each year until 2030 to meet the UN’s sustainable development goals, or SDGs.
Financial Firms Are Making Global Progress
Fortunately, the world’s financial leaders are responding to their collective challenge and signing on to initiatives that commit them to ambitious goals. Increasingly, they are recognizing that climate initiatives and lasting business success go hand in hand.
As Kevin Hagen, Vice President of Environment, Social, & Governance (ESG) Strategy at Iron Mountain and instructor at the Harvard Extension School describes, “Today, the leaders in the [finance] space are demonstrating that thinking differently about environmental and social performance can drive change that delivers more business value while harnessing the power of enterprise to deliver better outcomes for people and the planet.”
In addition to shifting their business and investment strategies, firms are applying sustainable principles to their internal hiring practices and operations. For example, PwC, one of the world’s largest financial firms, is hiring over 100,000 new employees over the next several years and educating employees more broadly on their roles in company and global ESG initiatives.
How Digital Plays a Role
It is critical financial firms align their IT and digital strategies with sustainability initiatives as well. Cloud computing, artificial intelligence (AI), machine learning, and automation are technologies that can reduce the environmental impact of a firm’s operations while driving smarter business decisions.
“Cloud-based systems use space more economically; they have a smaller physical footprint, use less raw materials, and require less power to run,” according to FinTech Futures. “At the same time, they have an optimized technological capacity, which means things run more quickly and efficiently.”
Financial firms leveraging managed services can more easily prioritize providers that support their own green initiatives; this opportunity is not available to firms using on-premise solutions. Since cloud solutions are both economical and scalable, they can support financial firms for the duration of their IT and security operations. “This reduces the environmental impact of global expansion and means banks and businesses can simultaneously grow and serve customers without having a disproportionate impact on the local environment,” as FinTech Futures describes.
5 Strategic Imperatives for Financial Institutions
Now, 80% of the global investment community has committed themselves to the UN Principles for Responsible Investment while 260 banks, representing $70 trillion in assets, have committed to the UN Principles for Responsible Banking, The United Nations Environment Programme reports. These new frameworks outline commitments for firms to reduce their environmental footprints and shift investments toward sustainability-minded solutions. Generally, strategic imperatives for these banks and firms include:
- Aligning with global ESG principles. Their business strategies must prioritize ESG initiatives and find ways to support their customers in applying the same principles. They must align themselves with societal goals, positioning them as long-term enablers of sustainable lines of business as well.
- Preparing internal resources and personnel. This includes hiring initiatives, operations modifications, and employee education. For example, firms “need to add skills for gathering, managing, analyzing, and reporting a whole new genre of business metrics, such as greenhouse gas emissions,” as the Harvard Division of Continuing Education describes.
- Prioritizing green investments and lending practices. Financial firms should offer loan solutions that support customers in establishing sustainable approaches to their own businesses, enabling these organizations to grow and contribute positively to their local communities. “Building out a line in green banking for [businesses] could help large banks shift their business model toward lower carbon activities,” says Forbes. “By helping their [business] customers to reduce emissions, the banks are also addressing their own emissions.”
- Collaborating with partners, customers, and experts. This includes leveraging partner solutions to reduce the environmental impact of their own business operations and participating in conversations that offer input from customers, experts, and other stakeholders on how to best align with ESG principles.
- Leveraging digital transformation to drive efficiency. Managed services and cybersecurity solutions such as managed extended detection and response (XDR) enable financial firms to reduce their carbon footprint while optimizing their IT infrastructure and operations. With positive customer outcomes, cost savings, and improved efficiency, digital tools are playing an increasingly important role in achieving sustainable business strategies.
These opportunities send a clear message: The hype around ESG is over. Now, financial firms can include sustainability as a core component of their long-term growth plan, and succeed.
Reason for Hope
We are already witnessing the devastating impact of climate change. But what has been a disaster narrative for years could soon turn into a story about humanity’s greatest triumph.
Signatories of the UN Principles for Responsible Banking “have mobilized at least $2.3 trillion in sustainable financing,” the United Nations Environment Programme reports. “What’s more, 94 percent of banks identify sustainability as a strategic priority.” As financial firms internalize their ESG initiatives, the financial sector may soon witness a groundswell or progress that will drive even more compounding results.
Option One Technologies Supports Your Green Digital Initiatives
Option One Technologies provides managed services, cybersecurity, and other mission-critical digital solutions for financial firms as they work to realize their sustainability goals. Contact us today to learn more about how we can help.